2006 (1) TMI 510 - AT - Central Excise

Summary

Issues:
Excise duty demand on items sold to franchisees based on consultancy charges forming part of assessable value.

Analysis:
The judgment pertains to a case where M/s. Nirulas Corner House Pvt. Ltd. faced duty demand for items sold to franchisees based on consultancy charges forming part of the assessable value for the goods. The duty demand was made for a five-year period under the proviso to Section 11A of the Act. The franchise agreement clauses were crucial in determining the liability. The clauses outlined technical assistance fees and monthly fees based on gross sales, which the Commissioner interpreted as indicating that franchisees were not independent entities but rather an extended arm of the manufacturer, with additional consideration flowing back to the manufacturer.

The applicant argued that the payments were solely for consultancy services and not related to the sale of goods. The contention was that the consultancy charges were distinct from the goods' price sold to franchisees. The Tribunal, after examining the clauses of the agreement, opined that the consultancy payments were for various services provided, not directly linked to the goods sold. The assistance provided by the applicant to franchisees through consultancy and oversight was not tied to the purchase of goods but to the franchisees' total turnover. The Tribunal distinguished the case from the precedent of Pepsi Foods Ltd., emphasizing that the consultancy charges were not akin to royalty payments for trademark use.

Ultimately, the Tribunal found that the consultancy payments were not part of the assessable value for excise duty purposes. It was determined that the payments were for services rendered and not for the goods sold, leading to the conclusion that pre-deposit was not justified. Consequently, the Tribunal waived the pre-deposit requirement and stayed the recovery until the appeal's final disposal. The judgment was delivered on January 30, 2006, by Member C.N.B. Nair.