You can be nice about it, show them the features of the seat and service, as if they're just checking it out in case they'd like to travel there next time. It can avoid embarrassing them (if they pass the attitude test that is), and who knows maybe earn extra revenue for your airline in the long run.
Or just ask them if they'd prefer to pay with cash or credit card for the upgrade, usually sends them scuttling back.
When they try the "Well nobody else is sitting here, why can't I?" routine, ask them if you mind if you use their house while they're away on their trip.
Threatening to hand them over to police/security is pretty much a last resort.