1994 (6) TMI 110 - AT - Central Excise

Issues Involved:
1. Inclusion of royalty charges in the assessable value of the concentrate.
2. Inclusion of advertisement/sale promotion expenses in the assessable value of the concentrate.
3. Prima facie merits of the stay application for waiver of pre-deposit and stay of recovery of central excise duty.

Issue-wise Detailed Analysis:

1. Inclusion of Royalty Charges in the Assessable Value of the Concentrate:

The appellants, engaged in the production of aerated water concentrate, argued that royalty charges recovered from manufacturers of aerated waters should not be included in the assessable value of the concentrate supplied to their franchise holders. They relied on the decisions in *Duke & Sons Pvt. Ltd. v. Collector of Central Excise* and *Collector of Customs, Bombay v. Maruti Udyog Limited, Gurgaon*, which held that franchise fees and royalty charges were not includible in the assessable value of the concentrate or imported goods, respectively.

However, the respondents contended that the sale of concentrate was interlinked with royalty charges, as the concentrate was supplied only to those who had entered into agreements with the appellants. The royalty was related to the quantity of aerated waters produced from the supplied concentrate, indicating that the sale of concentrate and the collection of royalty were part of the same transaction. The Tribunal noted that the concentrate was not freely marketed and was sold only to licensed manufacturers under franchise agreements, establishing a link between the supply of concentrate and the collection of royalty.

2. Inclusion of Advertisement/Sale Promotion Expenses in the Assessable Value of the Concentrate:

The appellants argued that advertisement expenses incurred for soft drinks manufactured by bottlers should not be included in the assessable value of the concentrate. They maintained that these expenses were not required for the marketability of the concentrate and were already included in the declared price of the concentrate, on which duty had been paid. They cited the Supreme Court decision in *Bombay Tyres International* to support their claim that advertisement expenses for products not manufactured by them should not be added to the assessable value.

The Tribunal, however, found a link between the advertisement expenses and the concentrate, as the expenses were included in the price of the concentrate. The agreement required bottlers to undertake advertising and sales promotion activities, suggesting that the extra collections in the name of royalty were additional consideration for the sale of the concentrate. The Tribunal concluded that the advertisement expenses were related to the sale of the concentrate and should be included in the assessable value.

3. Prima Facie Merits of the Stay Application for Waiver of Pre-deposit and Stay of Recovery of Central Excise Duty:

The Tribunal considered the prima facie merits of the case and the relevant facts and circumstances for the stay application. The appellants contended that the royalty charges were not related to the sale of the concentrate and should not be included in the assessable value. They also argued that if royalty charges were treated as additional consideration, the assessable value should be redetermined, potentially reducing the differential duty amount.

The Tribunal acknowledged the appellants' arguments but found that the extra sums collected as royalty were part of the price for the concentrate and should be included in the assessable value. However, the Tribunal also recognized that requiring the appellants to pre-deposit the entire amount of Rs. 2,16,96,131 would cause undue hardship. Therefore, the Tribunal ordered the appellants to deposit Rs. 1 crore within 12 weeks, waiving the pre-deposit of the balance amount and staying its recovery until the disposal of the appeal.

Conclusion:

The Tribunal held that both royalty charges and advertisement/sale promotion expenses were to be included in the assessable value of the concentrate. The stay application was granted conditionally, requiring the appellants to deposit Rs. 1 crore while waiving the pre-deposit of the remaining amount and staying its recovery pending the appeal's disposal.

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