2012 (12) TMI 344 - AT - Central Excise

Assessable value As per franchise agreement with M/s. Coca Cola Company, the appellants were required to buy NABB from M/s. Britco Food Company Ltd. - appellants were incurring expenditure on advertising, marketing and sale promotion of beverages - appellants received money from Britco Food Company Ltd. to compensate for expenses incurred on advertising, marketing and sale promotion and also as price support incentive Held that - Prices stood reduced on account of concession given by M/s. Britco, supplier of concentrates (raw material), to the assessee - There is no evidence of flow back of any additional consideration from the buyers of aerated water (beverage) to the assessee - price uniformity was maintained. No favour for extra commercial reasons were shown to any of the buyers of aerated water. There is no evidence of any concession to any of the buyers. There is no evidence of existence of any favoured buyers - Rule 5 is not applicable - duty demand with interest and penalty set aside

Summary

Issues:
1. Confirmation of demand under Section 11A of the Central Excise Act, 1944 along with interest and penalty.
2. Assessment of additional consideration under Rule 5 of Central Excise (Valuation) Rules, 1975.
3. Violation of Section 4(1)(a) of the Central Excise Act, 1944 in determining the assessable value.
4. Dispute regarding intrinsic price of aerated water charged by the appellants.

Issue 1:
The appeal was against the order confirming a demand of Rs. 48,86,066 under Section 11A of the Central Excise Act, 1944, along with interest and penalty. The appellants were manufacturers of aerated water and were purchasing duty paid non-alcoholic beverage Bases (NABB) from a subsidiary of M/s. Coca Cola Company. The Department contended that the amount received by the appellants for advertising, marketing, and sale promotion expenses should be added to the assessable value of aerated water sold. The adjudicating authority confirmed the demand and imposed penalties.

Issue 2:
The Department invoked Rule 5 of Central Excise (Valuation) Rules, 1975, to raise a duty demand against the appellants. The Department argued that the amount received by the appellants for advertising and marketing expenses should be considered as additional consideration under Rule 5. The appellants contested this, stating that the value of excisable goods was correctly assessed under Section 4(1)(a) of the Central Excise Act, 1944. The Department's position was that the arrangement between the appellants, M/s. Coca Cola Company, and the subsidiary was aimed at lowering the duty incidence.

Issue 3:
The appellants argued that the demand was confirmed in violation of Section 4(1)(a) of the Central Excise Act, 1944. They contended that the excise duty was paid based on the wholesale value determined by M/s. Coca Cola Company, the principal manufacturer. The appellants asserted that the value of excisable goods was correctly assessed under Section 4(1)(a) and cited a Supreme Court judgment in support of their position. The Department, however, maintained that the price reduction by the appellants was compensated through a price support incentive.

Issue 4:
The main question was whether the Department established that the intrinsic price of aerated water charged by the appellants to wholesalers exceeded the price actually charged to buyers. Reference was made to a Supreme Court judgment in a similar case where it was emphasized that the value of excisable goods is derived from the normal price at the factory gate charged to an unrelated person on a wholesale basis. The Court highlighted the need for the revenue to determine if extra-commercial considerations influenced the transaction and whether the price charged by the manufacturer should be considered for excise duty valuation. The Court found that the Department failed to prove that the intrinsic price of aerated water was higher than the actual price charged to buyers, leading to the appeal's acceptance and the set-aside of the order confirming duty demand and penalties.