2004 (6) TMI 492 - AT - Central Excise

Inclusion of royalty in the assessable value of CDs - Job work - Valuation of free supply items provided by customers - HELD THAT - We take note of appellant s grievance that the value of the inlay card adopted at the higher rate Rs. 6/- per CD and the jewel box is much on the higher side, we find that whereas the department has relied upon the statement recorded during investigation to arrive at the cost of the inlay card, the appellants have contested the same on the ground that it is only in the case of audio CD inlay card is supplied and not in case of video CD and even as per the statement the average cost would come to Rs. 1.83. As the matter already stand remanded to Deputy Commissioner for requantification of demand, and as we do not have any sufficient material to adjudicate the issue of value of inlay card and jewel box, we direct the Deputy Commissioner to do so in the de novo proceedings. We, however, make it clear that it is only the value part of the said free supply items, which were disputed by the learned Advocate, who otherwise agreed that the same is required to be added in the assessable value of the CDs. We are also not passing any order on the quantum of penalty which would be dependent upon the quantum of duty re-determined against the appellants in the de novo proceedings. Needless to say that the appellant would be afforded opportunity to place their case before the adjudicating authority during remand proceedings. Before we depart, we would like to mention that both sides have referred to the provision of the Copyright Act, 1957 and the Trade Mark Act, 1999 and some encyclopaedia to draw our attention to the fact that it is only a copyright owner who can make copies of the sound recordings and has the exclusive right over them and infringement of the various rules results in penal action against the offender. Though the said provision may be of academic interest to all of us we do not find any relevance of the same in deciding the present dispute of valuation of CDs. Appeal is thus disposed of in above terms.

Issues Involved:
1. Assessable value of audio and video CDs manufactured on job work basis.
2. Inclusion of royalty paid by customers to music companies in the assessable value.
3. Valuation of inlay cards and jewel boxes supplied by customers.

Summary:

1. Assessable Value of Audio and Video CDs:
The appellants manufacture recorded Audio and Video Compact Disks (CDs) on a job work basis, classifiable under Chapter 85 of the Central Excise Tariff and chargeable to duty of excise on an ad valorem basis. The dispute revolves around the correct assessable value of these CDs.

2. Inclusion of Royalty in Assessable Value:
The appellants' customers provide a digital audio tape (DAT) containing the master audio, inlay cards, and jewel boxes for packing. The appellants argued that the royalty paid by the customer to music companies should not be included in the assessable value of the CDs. They contended that the royalty pertains to the copyright holder and not the manufacturer. However, the authorities held that the royalty paid by the customers for procuring the sound recorded programme contained in the DAT must be added to the assessable value of the CDs on a proportionate basis. The Commissioner (Appeals) remanded the matter to the Deputy Commissioner to re-determine the assessable value in terms of the Board's circular on this point.

3. Valuation of Inlay Cards and Jewel Boxes:
The authorities also challenged the declared cost of inlay cards and jewel boxes, asserting that it was understated. The appellants contested this valuation, arguing that the cost should be based on actual expenses. The matter was remanded to the Deputy Commissioner for re-quantification of the demand, including the valuation of inlay cards and jewel boxes.

Detailed Judgment:

Assessable Value of Audio and Video CDs:
The appellants declared the value of the CDs ranging from Rs. 15 to 23. Investigations revealed that the royalty paid by the customer to the music companies was not included in the assessable value. Proceedings were initiated to enhance the assessable value by including the royalty and other costs.

Inclusion of Royalty in Assessable Value:
The appellants argued that the royalty paid by the customer should not be included as it pertains to the copyright holder. They cited various decisions supporting that the value of the brand name or copyright should not be included in the assessable value of goods manufactured on a job work basis. However, the authorities, relying on the Supreme Court's decision in Ujagar Prints v. U.O.I., held that the cost of raw materials supplied by the customer, including the DAT, should be included in the assessable value. The Tribunal agreed, stating that the value of the DAT, which includes the royalty, must be added to the assessable value of the CDs.

Valuation of Inlay Cards and Jewel Boxes:
The appellants contested the higher valuation of inlay cards and jewel boxes adopted by the Revenue. The Tribunal directed the Deputy Commissioner to re-determine the assessable value, including the correct valuation of these items, during the de novo proceedings.

Conclusion:
The appeal was disposed of with directions to re-determine the assessable value by including the cost of the master DAT (royalty) and re-evaluating the cost of inlay cards and jewel boxes. The Tribunal emphasized that the assessable value should be uniform, irrespective of who manufactures the CDs. The matter was remanded for re-quantification of the demand and penalty, with the appellants given an opportunity to present their case during the remand proceedings.

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