2004 (8) TMI 233 - AT - Central Excise

Summary

Issues: Stay applications for recovery of duty and penalties; Inclusion of royalty and service charges in assessable value of food flavours.

In the present case, the appellants had filed stay applications seeking to halt the recovery of duty and penalties imposed on them. The appellants argued that the Commissioner's order was passed following a remand order from the Tribunal, where issues regarding the consideration of certain charges in the assessable value of food flavours were raised. The appellants contended that the charges they received were not additional consideration towards the sale of food flavours but were related to other aspects such as technical know-how, sales promotion, and advertisement. They maintained that these charges should not be included in the assessable value of the food flavours under Chapter Sub-heading 3302.10 of the Central Excise Tariff Act. The appellants also highlighted their pricing methodology, contracts with Contract Bottling Units, and the absence of royalty charges from independent bottlers. They argued that the Commissioner's conclusion on including royalty and service charges in the assessable value was incorrect.

On the other hand, the Revenue argued that the royalty and service charges, including technical know-how, personnel charges, and promotion expenses, should be added to the value of the food flavours based on a Supreme Court decision in a similar case. The Revenue emphasized the control exercised by the appellants over the bottlers and the integral nature of the royalty payments in the sale of concentrate. The Revenue contended that the Supreme Court ruling indicated that such charges should be included in the assessable value. The Revenue further highlighted the inextricable link between the sale of food flavours, manufacture of liquor, and the use of the appellants' trade-mark, supporting their stance on including the charges in the assessable value.

After considering the arguments from both sides, the Tribunal found that the appellants were supplying food flavours for captive consumption and to Contract Bottling Units under franchise agreements. The Tribunal noted the findings of the Commissioner regarding the additional consideration received by the appellants through royalty and service charges. Citing the Supreme Court decision, the Tribunal concluded that the royalty amount should be added to the assessable value, similar to the Pepsi Foods Ltd. case. The Tribunal also observed that the appellants did not present a strong prima facie case in their favor and directed them to pre-deposit a substantial sum within a specified time frame. Failure to comply would lead to dismissal of the appeals under Section 35F of the Act. The Tribunal granted a stay on recovery pending appeal but emphasized the importance of the pre-deposit. The matter was scheduled for expedited hearing due to the significant amounts involved.