2015 (10) TMI 1992 - AT - Central Excise

Valuation of goods - Inclusion of cost of copyrights - manufacturing of recorded audio and video compact discs (RCDs) / production of duplicate CDs - assessee is in no position to manufacture RCDs without the DAT/master supplied by the music companies / merchant manufactures and that they are in no position to sell such RCDs to any other person/company, since all copy rights are vested with the particular music company / merchant manufacturer - Held that - In the case of KRCD (I) Pvt. Ltd. Vs. CCE,Mumbai 2015 (4) TMI 856 - SUPREME COURT , it is held that royalty payable for such music/picture cannot extend to art work that is necessary for the production of duplicate CDs, as no part of it is in fact taken into account by either the distributor who is the copyright holder or the appellant in the job work done by the appellant. - Central Excise Valuation (Determination of Price of Excisable Goods) Rules of 2000, go to show that the value of goodwill contained in a brand name would not form part of the assessable value of goods that are produced and sold only to the owner of the goodwill - Following the same, Decided in favour of assessee.

Issues Involved:
1. Valuation of recorded audio and video compact discs (RCDs) for excise duty purposes.
2. Inclusion of the cost of copyrights in the assessable value of RCDs.
3. Applicability of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
4. Relevance of previous judgments and legal precedents.

Detailed Analysis:

1. Valuation of Recorded Audio and Video Compact Discs (RCDs) for Excise Duty Purposes:
The appellants are engaged in the manufacture of recorded audio and video compact discs (RCDs). The primary issue is whether the cost of copyrights should be included in the assessable value of these RCDs for the purpose of excise duty. The adjudicating authority initially confirmed the inclusion of such costs, which was upheld by the Commissioner (Appeals).

2. Inclusion of the Cost of Copyrights in the Assessable Value of RCDs:
The appellants argued that the cost of copyrights, which is paid by music companies to producers, should not be included in the assessable value of the RCDs. The Tribunal referred to the Supreme Court's decision in the case of KRCD (I) Pvt. Ltd. Vs. CCE, Mumbai, where it was held that "price is not the sole consideration for the sale as a master tape had to be handed over by the distributor/copyright holder to the appellant." Consequently, the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, particularly Rule 6, would apply.

3. Applicability of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000:
Rule 6 states that the value of excisable goods should include any additional consideration flowing directly or indirectly from the buyer to the assessee. The Tribunal emphasized that the master tape, containing music/picture, supplied by the distributor should be valued as additional consideration. However, the royalty payable for such music, although connected with the production of duplicate CDs, is not used in connection with their sale to the distributor, who is the copyright holder.

4. Relevance of Previous Judgments and Legal Precedents:
The Tribunal examined previous judgments, including Joint Secretary to Government of India v. Food Specialties Ltd. and Sidhosons & Anr. v. Union of India & Others, which established that the value of goodwill or brand name should not form part of the assessable value if the goods are sold only to the owner of the goodwill. Similarly, in the present case, the duplicate CDs are sold only to the distributor, who owns the copyright. Therefore, the enhancement in value due to the copyright cannot be added to the assessable value of the goods.

The Tribunal also distinguished the present case from the Associated Cement Companies Ltd. v. Commissioner of Customs case, where the intellectual content of imported goods was exploited by the importers themselves. In contrast, the appellants in the current case do not exploit the intellectual content of the CDs as they are sold only to the copyright owner.

Conclusion:
The Tribunal concluded that the cost of copyrights should not be included in the assessable value of the RCDs. The appeals were allowed, and the additional duty collected was ordered to be refunded in accordance with the law. The Tribunal's decision was guided by the Supreme Court's ruling, which clarified that no part of the royalty could be loaded onto the duplicate CDs produced by the appellant. Consequently, the appeals for penalties were also allowed.

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