2003 (11) TMI 76 - SC - Central Excise

Whether the royalty amount collected by it from the bottlers for use of the trademark 'lehar' on the soft drink beverages manufactured out of the 'concentrate' sold by the appellant is includible in the assessable value of the concentrates? Held that - There was no obligation on the assessee to purchase CKD packs at all, that long before the supply of the CKD packs and spares, the royalty due to the collaborators was paid, that there was no material to show that the supply of the CKD packs or spares weighed with the parties in fixing the payments under the collaboration agreement were all taken into account by the Court to conclude that no nexus existed between the lumpsum payment under the agreement for the technical know-how and the determination of the price for supply of CKD packs/spares. It was under those circumstances the royalty payment was excluded from the assessable value of the concentrate. The distinguishing features are self-evident from the observations quoted above. In the result we affirm the decision of the Tribunal and dismiss the appeals. However, we leave it open to the assessee to raise any question as to the computation i.e., the quantum of royalty includible, before the adjudicating authority who has to recompute the turnover in any case consequent upon the Tribunal granting partial relief to the appellant. We affirm the decision of the Tribunal and dismiss the appeals.

Issues Involved:
1. Inclusion of royalty amount in the assessable value of concentrates.
2. Nexus between the sale of concentrate and the collection of royalty.
3. Interpretation of Section 4 of the Central Excises and Salt Act, 1944.
4. Applicability of Central Excise (Valuation) Rules.
5. Examination of the Agreement between the appellant and bottlers.
6. Precedents and their relevance to the case.

Detailed Analysis:

1. Inclusion of Royalty Amount in the Assessable Value of Concentrates:
The primary issue in these appeals is whether the royalty amount collected by the appellant from the bottlers for the use of the trademark 'lehar' on soft drink beverages should be included in the assessable value of the concentrates sold by the appellant. The Department issued show cause notices proposing the inclusion of royalty charges in the assessable value and demanding duty on that basis. The adjudicating authority and the Tribunal upheld this inclusion, stating that the sale of the concentrate was interlinked with the royalty charges.

2. Nexus Between the Sale of Concentrate and the Collection of Royalty:
The appellant argued that the sale of concentrate and the collection of royalty for the use of the trademark are two different transactions with no nexus between them. However, the Tribunal found that the licence to use the appellant's trademark is granted to the bottlers bound up with the obligation to purchase the concentrate only from the appellants, making the two transactions inextricably intertwined. The court agreed with this view, stating that the realization of royalty was as important as the realization of the sale price of the concentrate from the appellant's point of view.

3. Interpretation of Section 4 of the Central Excises and Salt Act, 1944:
Section 4 of the Central Excises and Salt Act, 1944, lays down the mode of valuation of excisable goods for the purpose of charging excise duty. The court emphasized that the price charged by the assessee at the time of sale of concentrate to the bottlers should represent the sole consideration for the sale. If any other monetary consideration, such as royalty, was contemplated by the parties, it would mean that the price is not the sole consideration for the sale.

4. Applicability of Central Excise (Valuation) Rules:
The court noted that the Central Excise authority resorted to valuation in accordance with the valuation rules because the price was not the sole consideration for the sale of concentrate. The court agreed with this approach, stating that there should be an intimate nexus between the sale and realization of royalty.

5. Examination of the Agreement Between the Appellant and Bottlers:
The Agreement, titled "PFL Bottling Appointment and Trademarks Licence Agreement With Bottlers," was examined to understand the issue comprehensively. The Agreement grants a licence to use the trademark 'Lehar' and obligates the bottler to purchase the concentrate from the appellant, use the trademark on the bottled beverage, and remit the royalty charges. The court found that the agreement set in motion a series of steps aimed at promoting the appellant's business and realizing the royalty, making it clear that the realization of royalty was an integral part of the bargain.

6. Precedents and Their Relevance to the Case:
The appellant cited several cases to support their argument, but the court found that none of the decisions were applicable to the present case. The court distinguished the present case from the cited cases, such as Union of India v. Mahindra & Mahindra Ltd., Collector of Customs, Bombay v. Maruti Udyog Ltd., and Duke & Sons v. Commissioner of Central Excise, based on the specific facts and circumstances of each case.

Conclusion:
The court affirmed the decision of the Tribunal and dismissed the appeals, stating that the invoiced price alone was not the sole consideration for the sale of concentrate. The court left it open to the assessee to raise any question as to the computation of the quantum of royalty includible before the adjudicating authority. The appeals were dismissed without costs subject to the above observation.

← Previous Next →