2005 (3) TMI 11 - SC - Central Excise

Central Excise Advertisement expenses Assessable value - whether the advertisement expenses incurred by M/s. Soft Drinks and Advertising Marketing Services Pvt. Ltd. to advertise the aerated products and manufactured by the third party bottlers could be includible in the assessable costs of the non- alcoholic beverages manufactured by the respondent - Held that - Advertisement expenses incurred for the soft drinks products manufactured by the bottlers cannot be included in the assessable value of concentrates manufactured by the appellants even by applying the ratio of Supreme Court judgment in the Bombay Tyre International case ( 1983 (10) TMI 51 - SUPREME COURT OF INDIA NEW DELHI ) according to which it is only the advertisement and sales promotion expenses incurred for the goods under assessment that can be added to the assessable value. A perusal of the appellants agreement with the bottlers also shows that the bottler is enjoined to undertake appropriate advertising and sales promotion activities for the beverage which again indicates that the obligation cast on the bottler as per the agreement does not extend to or cover the concentrates manufactured by the appellants. In the circumstances it is held that the department has failed to establish their case for adding the advertisement expenses to the assessable value of concentrates manufactured by the appellants with satisfactory evidence and as such the orders of the lower authorities in this regard are not sustainable. The demand on this count is therefore set aside - Following decision of Pepsi Foods Ltd. v. Collector of Central Excise 1995 (10) TMI 222 - CEGAT NEW DELHI - Decided against Revenue.

Summary

Issues:
Whether advertisement expenses incurred by a marketing services company for aerated products could be included in the assessable costs of non-alcoholic beverages manufactured by the respondent.

Analysis:
The case involved determining if advertisement expenses incurred by M/s. Soft Drinks and Advertising Marketing Services Pvt. Ltd. (SAMS) for promoting aerated products manufactured by third-party bottlers could be considered part of the assessable costs of non-alcoholic beverages (NABB) manufactured by the respondent. The respondent sold NABB concentrate to various bottlers who processed and sold the final product under different brand names, with the respondent obligated to advertise the finished products under agreements. The department alleged that the respondent benefited from final product sales and sometimes required bottlers to contribute to SAMS for advertising expenses, leading to show cause notices for NABB clearances from 1989 to 1993.

Both departmental authorities relied on previous court decisions to argue for including SAMS' advertisement costs in the assessable value of NABB under the Central Excise and Salt Act, 1944. However, the Tribunal disagreed with the department's findings, distinguishing between advertisement costs incurred by the respondent and SAMS. The Tribunal referenced a previous case involving Pepsi Foods Ltd., where it was held that advertisement costs for soft drinks manufactured by bottlers should not be added to the assessable value of concentrates manufactured by the appellants, emphasizing that the obligation for advertising and sales promotion activities did not extend to the concentrates.

The Tribunal's decision in Pepsi Foods Ltd. was considered relevant to the present case, leading to the dismissal of the department's appeal by the Court. The Court found no reason to interfere with the Tribunal's decision based on the specific facts presented. The appeals were dismissed without costs. Additionally, a special leave petition was disposed of in reference to a circular dated December 8, 2004.

In conclusion, the judgment clarified the distinction between advertisement costs incurred by a marketing services company and a manufacturer, emphasizing that expenses related to promoting final products should not be included in the assessable value of concentrates. The decision highlighted the importance of specific contractual obligations and previous legal precedents in determining assessable costs under excise laws.