2005 (7) TMI 102 - SC - Central Excise

Whether the department has been able to show that the intrinsic price of aerated water was more than the price actually charged to the buyer? ? Held that - As found by the adjudicating authority as well as by the Tribunal, the prices had to be reduced by the assessee on account of competition in the market. Further, the prices stood reduced on account of concession given by M/s. Britco, supplier of concentrates (raw material), to the assessee. There is no evidence of flow back of any additional consideration from the buyers of aerated water (beverage) to the assessee. On account of cut throat competition from Pepsi, M/s. Britco had to provide incentive to the assessee. But for the incentive from the supplier of concentrates (raw material), the assessee was not in a position to face acute competition from Pepsi. On the other hand, the evidence on record indicates that price uniformity was maintained. No favour for extra commercial reasons were shown to any of the buyers of aerated water. There is no evidence of any concession to any of the buyers. There is no evidence of existence of any favoured buyers. In the circumstances, Rule 5 is not applicable. So far as ROC is concerned, the Commissioner found that the rent equivalent to interest was collected by the assessee on account of delay in returning of empty crates/bottles. The purpose of charging interest was to get back empty bottles/crates immediately as otherwise the assessee was required to make additional investment towards stock inventory on crates/empty bottles. Further, the said levy did not form the price of the aerated water and, therefore, ROC was not includible in the assessable value. In the circumstances, the Commissioner was right in applying the ratio of the judgment of this Court in the case of Collector of Central Excise v. Indian Oxygen (1988 (8) TMI 98 - SUPREME COURT OF INDIA). Thus there is no merit in these appeals preferred by the department. Accordingly, all the appeals are dismissed with no order as to costs.

Summary

Issues:
Determining whether the assessee undervalued aerated water by excluding price support incentive and rent on containers from the assessable value.

Analysis:
The case involved an appeal under Section 35-L(b) of the Central Excise Act, 1944, to decide if the assessee had undervalued aerated water by excluding certain items from the assessable value. The department contended that the cost of rent on containers (ROC) and the value of price support incentives should be included in the assessable value as per Rule 5 of the Central Excise (Valuation) Rules, 1975. The assessee argued that ROC and price support incentives were not directly related to the value of aerated water and should not be included. The Commissioner accepted the assessee's submissions and dropped the duty demand.

Regarding the price support incentives, the Commissioner found that the credit notes were received from the concentrate supplier, not the buyers of aerated water, and were passed on to consumers through reduced sale prices. The Commissioner concluded that Rule 5 did not apply as no additional consideration flowed directly from the buyers to the assessee. The Commissioner also noted that competition between Coca Cola and Pepsi benefited consumers. On the issue of ROC, the Commissioner determined that it was related to an ancillary activity and not part of the aerated water's assessable value.

The department appealed to the Tribunal, arguing that the price support incentives were given to lower excise duty incidence and that the reduction in aerated water prices was compensated by credit notes issued by the concentrate supplier. However, the Tribunal upheld the Commissioner's decision. The Court emphasized that under Section 4(1)(a), the value of excisable goods is derived from the normal price at the factory gate to an unrelated person on a wholesale basis. The Court reiterated that the revenue must determine if extra-commercial considerations affect pricing for excise duty purposes.

In conclusion, the Court found that the department failed to demonstrate that the intrinsic price of aerated water was higher than the price charged to buyers. The evidence showed that price reductions were due to market competition and incentives from the concentrate supplier, not additional consideration from buyers. The Court upheld the Commissioner's decision that ROC was not part of the assessable value. Consequently, the appeals by the department were dismissed with no costs awarded.