2014 (6) TMI 621 - AT - Central Excise

Valuation of goods valuation of the toilet soaps - Section 4 of Central Excise Act, 1944 - Inclusion of advertisement charges - inclusion of amounts received under non-compete agreement and trademarks licence fee agreement as they are additional considerations - confiscation of machinery - Held that - the buyer, PGG has incurred advertisement and sales promotion expenses on the toilet soaps manufactured by and purchased from GSL. In terms of the Joint Venture Agreement, there was an understanding between the two parties, that is, GSL will manufacture and sell the toilet soaps to PGG and PGG will market these soaps to the ultimate consumers. There is nothing on record nor any produced before us that there has been any flow back of consideration from PGG to GSL. After conceding that PGG and GSL are not related, there cannot be any presumption of flow back from PGG to GSL unless there is a direct evidence to that effect which is lacking in the present case - the demand of excise duty by including the cost of advertising and sales promotion expenses incurred by PGG cannot be legally sustained. - Decided in favor of assessee. Inclusion of non-compete fee - Held that - there is a JVA between GSL and PGG and as part of the JVA, three agreements, namely, manufacturing agreement, trade mark agreement and non-competition agreement have been entered into among/between the parties. - these are all co-terminus with JVA and all the three agreements are integrally connected with each other and are inseparable. - Following the decision of Alnoori Tobacco Products 2004 (7) TMI 91 - SUPREME COURT OF INDIA three cases relied upon by the assessee rejected as Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect - the consideration paid by PGG to GSL under the non-compete agreement and through G&B to GSL under the trademark agreement should have a definite bearing on the price paid by PGG to GSL under the manufacturing agreement and the pricing formula adopted therein. - addition of non-compete fee confirmed - Decided against the assessee. Inclusion of trade mark licence fee paid by PGG to G&B - Held that - On termination of the JVA, the trade marks were transferred back to GSL by G&B for a nominal consideration of Rs. Ten thousand vide Godrej Trade Mark Registered User Agreement dated 20/05/1996. Thus the whole arrangement of assignment of trade marks by GSL to G&B, grant of right to use the trade mark to PGG, transfer back of the trade marks to GSL for a nominal sum was only a mechanism adopted for routing the payment for the trade mark indirectly to GSL through G&B. The Trade marks pertained to the toilet soaps manufactured by GSL and were incorporated on the product itself apart from the packages for the toilet soaps. - Thus the trade marks provide a commercial identity to the product or service and adds value to the product. Trade marks or brand names link a particular product with a particular manufacturer. - The reasons adduced for inclusion of non-compete fee in the assessable value, in the preceding paragraphs, would apply equally well in the case of trademarks also. - Decided against the assessee. Extended period of limitation - Held that - it is evident that the appellant had never disclosed the existence of various agreements in respect of manufacture of toilet soaps. In the price declarations filed by the appellant with the department, there was no mention of any of the agreements with PGG and others. The fact of receipt of non-compete fee and trademark licence fee by GSL was also not informed/declared to the department. Thus it is a clear case of deliberate non-disclosure on the part of the appellant with an intent to evade payment of appropriate excise duty - Extended period of limitation invoked - Decided against the assessee. Levy of interest - Held that - interest under Section 11AB on the duty demand confirmed will be operative only from 28-9-1996 and not earlier. Levy of penalty u/s 11AC - Held that - When the goods were cleared and duty became due, the said provisions was not in existence. Therefore, imposition of penalty under section 11AC of the Act on GSL cannot be sustained. - Penalties waived - Decided in favor of assessee. Levy of penalty on related parties and personal penalty on directors - Held that - In the present case, the responsibility of correct declaration of price, assessing and paying excise duty, complying with the statutory provisions was on GSL and not on PGG, PGIL and G&B. In other words, there was no statutory obligation or requirement on PGG, PGIL and G&B to do any act in respect of their transactions with GSL. Further the issues involved related to interpretation of statutory provisions relating to valuation of the goods which was the sole responsibility of GSL. In these circumstances, imposition of penalties on these parties are not warranted. - Penalties waived. Confiscation of plant and machinery - Held that - confiscation is justified in as much as GSL tried to evade excise duty by mis-declaration of value and suppression of facts. Rule 173Q of the Central Excise Rules, 1944, mandates such confiscation. Thus the confiscation and grant of redemption in lieu of confiscation on payment of fine has to be upheld. - Decided against the assessee.

Summary

Issues Involved:
1. Inclusion of advertisement/sales promotion expenses in the assessable value.
2. Inclusion of non-compete fee in the assessable value.
3. Inclusion of trademark license fee in the assessable value.
4. Invocation of the extended period for duty demand.
5. Levy of interest under Section 11AB and penalty under Section 11AC.
6. Confiscation of plant and machinery and the subsequent offer of redemption.

Detailed Analysis:

1. Advertisement/Sales Promotion Expenses:
The Tribunal considered whether the advertisement expenses incurred by PGG should be included in the assessable value of toilet soaps manufactured by GSL. The Tribunal found that there was no direct evidence of any flow back of consideration from PGG to GSL. The Supreme Court precedents in Besta Cosmetics and Alembic Glass established that unless there is an enforceable legal right to advertisement, such costs incurred by the buyer cannot be added to the assessable value. Therefore, the Tribunal set aside the duty demand on this count, noting that the expenses were incurred post-sale and thus could not be included in the assessable value.

2. Non-Compete Fee:
The Tribunal examined whether the non-compete fee paid by PGG to GSL should be included in the assessable value of the toilet soaps. It was noted that the non-compete agreement, trademark agreement, and manufacturing agreement were all integral parts of the Joint Venture Agreement (JVA) and co-terminus with it. The Tribunal concluded that these agreements were inseparable and the consideration paid under the non-compete agreement had a bearing on the price paid under the manufacturing agreement. Therefore, the non-compete fee was considered an additional consideration flowing indirectly from PGG to GSL and was correctly includible in the assessable value under Rule 5 of the Central Excise Valuation Rules.

3. Trademark License Fee:
The Tribunal addressed whether the trademark license fee paid by PGG to G&B should be included in the assessable value of the toilet soaps. It was found that the trademarks initially owned by GSL were assigned to G&B and then licensed to PGG, with the arrangement being co-terminus with the JVA. The Tribunal observed that the entire arrangement was a mechanism for routing the payment for the trademarks indirectly to GSL through G&B. Consequently, the trademark license fee was considered an additional consideration and was includible in the assessable value of the goods.

4. Extended Period for Duty Demand:
The Tribunal upheld the invocation of the extended period for duty demand, noting that GSL had not disclosed the existence of various agreements that influenced the price declarations filed with the department. The non-disclosure was deemed deliberate with an intent to evade payment of appropriate excise duty.

5. Interest and Penalty:
The Tribunal ruled that interest under Section 11AB on the duty demand would be operative only from 28-9-1996, as the provision came into force on that date. The imposition of penalty under Section 11AC on GSL was set aside, as the provision was not in existence when the goods were cleared. Penalties on PGG, PGIL, G&B, and individual employees were also set aside, as they had no statutory obligation in respect of the transactions. However, the confiscation of plant and machinery under Rule 173Q was upheld due to GSL's mis-declaration of value and suppression of facts.

6. Confiscation and Redemption:
The Tribunal upheld the confiscation of GSL's plant and machinery and the subsequent offer of redemption on payment of a fine, as mandated by Rule 173Q of the Central Excise Rules.

Conclusion:
1. Duty demand on advertisement expenses incurred by PGG was set aside.
2. Duty demands on non-compete agreement and trademark license fee were upheld.
3. Interest under Section 11AB was applicable from 28-9-1996.
4. Confiscation of plant and machinery and redemption fine were upheld.
5. Penalties under Section 11AC and Rule 209A were set aside.