2004 (4) TMI 81 - SC - Central Excise

Whether the authorities were justified in including the cost incurred for advertisement of aerated waters in the assessable value of the concentrate required for the manufacture of aerated waters by treating the cost of the advertisement so incurred as the cost of the advertisement of the concentrate? Whether CEGAT was justified in denying the appellant the benefit of Notification No. 120/75-C.E. when the appellant had opted for the facility contained therein specifically in respect of items falling under the erstwhile. Item 68 of the Central Excises Tariff as in the case of the appellant and invoking instead contrary to the law settled by this Court, the provisions of Section 4 of the Central Excises and Salt Act for determining the assessable value due to mere suspicion without any proof that the appellant had not made proper declaration of the Invoice value in terms of the Notification no. 120/1975-C.E. ibid? Held that - As rightly contended by the counsel appearing on either side, the CEGAT failed to appreciate the arguments advanced before it by the counsel appearing on either party in its proper perspective. In fact, in Civil Appeal Nos. 13400/1996, 4672/1997 and 4762/1997, the CEGAT failed to appreciate that in several earlier judgments, the CEGAT consistently held that the advertisement expenditure incurred by a manufacturers customer can be added to the sale price for determining the assessable value, only if the manufacturer has an enforceable legal right against the customer to insist on the incurring of such advertisement expenses by the customer. These matters require reconsideration by the CEGAT in the background of several judgments cited, relied on and referred to in this judgment to arrive at a correct finding on the issues involved. All the appeals are remitted back to the respective Tribunals to consider the matters afresh in the light of the judgments relied on by the parties. Both parties are at liberty to file additional pleadings and, annexures and records, if any, in respect of their respective claim.

Issues Involved:
1. Inclusion of advertisement expenses in the assessable value of goods.
2. Creation of merchant manufacturers to avoid excise duty.
3. Application of exemption notifications and proper declaration of invoice value.
4. Legal obligation of customers to incur advertisement expenses.
5. Bona fide belief and longer period of limitation for excise duty exemption.

Issue-wise Detailed Analysis:

1. Inclusion of Advertisement Expenses in Assessable Value:
The primary issue was whether the sales promotion expenses (advertising expenses) recovered by the manufacturer from its dealers should be included in the assessable value of the processed fabrics. The Commissioner of Central Excise argued that these expenses should be included, but the Customs, Excise, and Gold (Control) Appellate Tribunal (CEGAT) disagreed, citing the case of *Philips India Ltd. v. CCE, Pune*, where the Supreme Court held that expenses incurred by dealers towards advertising should not form part of the assessable value. The Tribunal also relied on *M/s. Ujagar Prints & Ors. v. Union of India & Ors.*, which stated that the assessable value should be based on the cost of raw materials and processing costs.

2. Creation of Merchant Manufacturers to Avoid Excise Duty:
The Commissioner contended that the main mills, Garden Silk Mills Ltd., created merchant manufacturers to camouflage and avoid excise duty, as many of these entities were dissolved or amalgamated later. However, the Tribunal did not find sufficient grounds to include the sales promotion expenses in the assessable value based on this argument.

3. Application of Exemption Notifications and Proper Declaration of Invoice Value:
In the case of Delhi Bottling Co. Pvt. Ltd., the issue was whether the authorities were justified in including the cost incurred for advertisement in the assessable value of the concentrate required for manufacturing aerated waters. The Department alleged that the value collected through both regular and subsidiary invoices should be considered for assessment under Notification No. 120/75-C.E. The appellant argued that the advertisement expenses were not related to the concentrate but to the final product, aerated waters.

4. Legal Obligation of Customers to Incur Advertisement Expenses:
In the cases involving Parle (Exports) Pvt. Ltd. and Parle International Ltd., the issue revolved around whether the advertisement expenses incurred by the bottlers/franchise holders should be included in the assessable value of the Non-Alcoholic Beverage Bases (NABBs). The appellants argued that these expenses were for advertising the finished products (aerated waters) and not the NABBs, and there was no binding legal obligation on the bottlers to incur these expenses.

5. Bona Fide Belief and Longer Period of Limitation:
The appellants contended that they acted under a bona fide belief that the NABBs were exempt from excise duty, supported by previous CEGAT judgments. They argued that the longer period of limitation for duty demand should not apply as they acted honestly. The Tribunal's failure to appreciate this argument was noted.

Conclusion:
The Supreme Court observed that the CEGAT failed to appreciate the arguments and legal precedents properly. It noted that the assessable value should only include advertisement expenses if there is an enforceable legal obligation on the customer to incur such expenses. The Court also highlighted that the longer period of limitation should not apply if the assessee acted under a bona fide belief. Consequently, the Supreme Court remitted all the appeals back to the respective Tribunals for reconsideration in light of the judgments cited and the arguments presented. Both parties were allowed to file additional pleadings and records. The appeals were disposed of with no order as to costs.

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