2002 (2) TMI 263 - AT - Central Excise

Summary

Issues Involved:
1. Includibility of Advertisement and Sales Promotion Expenses in Assessable Value.
2. Validity of Demand Notice Issued During Provisional Assessment.
3. Mutuality of Interest Between GSL and PGG.
4. Compensation Received for Non-Competition Agreement.
5. Penalty Imposition and Applicability of Rule 209A.

Summary:

1. Includibility of Advertisement and Sales Promotion Expenses in Assessable Value:
The Tribunal examined whether the advertisement and sales promotion expenses incurred by PGG should be included in the assessable value of the toilet soaps manufactured by GSL. The Tribunal referred to several case laws, including the Bombay Tyre International Ltd. judgment, which held that such expenses enrich the value of the product and should be included in the assessable value. The Tribunal found that there was mutuality of interest between GSL and PGG, as evidenced by their intertwined business interests and shared ownership, thus justifying the inclusion of these expenses in the assessable value.

2. Validity of Demand Notice Issued During Provisional Assessment:
The Tribunal addressed the issue of whether a demand notice u/s 11A could be issued while the assessments were provisional. Citing various judgments, including the Supreme Court's decision in Serai Kella Glass Works Pvt. Ltd., the Tribunal concluded that the demand notice issued by the Mumbai Commissionerate was premature and could not be sustained. The Tribunal held that the relevant date for issuing a demand notice is after the finalization of the provisional assessment.

3. Mutuality of Interest Between GSL and PGG:
The Tribunal evaluated the relationship between GSL and PGG to determine if there was mutuality of interest. It was found that GSL and PGG were not operating at arm's length, as evidenced by their shared ownership and the substantial control exercised by the same individuals over both entities. The Tribunal concluded that there was a mutuality of interest, which justified the inclusion of advertisement and sales promotion expenses in the assessable value.

4. Compensation Received for Non-Competition Agreement:
The Tribunal examined the compensation of Rs. 3,63,37,500/- received by GSL from PGG under the non-competition agreement. The Tribunal found that this compensation was designed to safeguard PGG's interests and had no bearing on the assessable value of the toilet soaps. Therefore, this portion of the demand was not sustained.

5. Penalty Imposition and Applicability of Rule 209A:
The Tribunal considered the applicability of Rule 209A for imposing penalties on the appellants. It was argued that Rule 209A applies only to individuals who physically handle goods liable to confiscation. The Tribunal held that M/s. G&B and M/s. P&G could not be penalized under this rule as they did not physically handle the goods. However, M/s. PGG, being involved in handling the undervalued goods, could be penalized. The Tribunal also noted that the show cause notice issued by the Mumbai Commissionerate was premature, thus penalties based on this notice were not sustainable.

Conclusion:
The appeals related to the show cause notices issued by the Mumbai Commissionerate were allowed, and the orders of the Commissioner were set aside. The appeals related to the show cause notice issued by the Indore Commissionerate were sustained, subject to re-computation of the duty not paid by the Malanpur unit. The matter was remanded to the Commissioner for quantification and confirmation of the short levy of duty, along with the specification of penalties on GSL based on the re-computed duty.