2002 (9) TMI 574 - AT - Central Excise

Valuation - Demand - Show cause notice - Scope of - Departmental clarification - Binding effect

Issues Involved:
1. Assessable value determination under Section 4 of the Central Excises and Salt Act, 1944.
2. Inclusion of advertisement and sales promotion expenses in the assessable value.
3. Inclusion of rental charges in the assessable value.
4. Inclusion of loading charges, transportation costs, and breakages in the assessable value.
5. Relationship between the manufacturer and distributor and whether sales were at arm's length.

Detailed Analysis:

1. Assessable Value Determination:
The applicants manufactured aerated waters and sold them to M/s. Sakthi Soft Drinks Ltd., paying appropriate Central Excise duty. The jurisdictional Superintendent issued nine show cause notices demanding differential duty, arguing that the price at which M/s. Sakthi Soft Drinks sold the goods should be taken as the assessable value under Section 4 of the Central Excises and Salt Act, 1944. The notices alleged that M/s. Sakthi Soft Drinks was a related person and that the price charged was favorably low based on mis-declarations.

2. Inclusion of Advertisement and Sales Promotion Expenses:
The Assistant Commissioner initially held that advertisement and promotional expenses incurred by M/s. Sakthi Soft Drinks should not be included in the assessable value. However, the Commissioner (Appeals) reversed this decision, stating that these expenses should be included as they were typically borne by the manufacturer. The Commissioner cited the Tribunal's decision in M/s. Sri Sarvaranya Sugars Ltd. v. Commissioner of Central Excise, Guntur, which held that advertisement expenses related to branded goods should be included in the assessable value.

3. Inclusion of Rental Charges:
The Assistant Commissioner included rental charges of Rs. 7.50 per crate in the assessable value, arguing that these charges were not based on actuals and represented a flow-back covering various expenses. The Commissioner (Appeals) upheld this view. However, the Tribunal found that rental charges for durable and reusable containers should not be included in the assessable value, citing a Circular from the Board and the Supreme Court's decision in CCE v. Indian Oxygen Ltd.

4. Inclusion of Loading Charges, Transportation Costs, and Breakages:
The Commissioner (Appeals) included loading charges up to the factory gate, transportation costs for returning empty bottles, and breakages borne by the distributor in the assessable value. The Tribunal, however, found that these expenses were typically incurred by the buyer and should not be included in the assessable value. The Tribunal cited several decisions, including Duke & Sons Pvt. Ltd. v. Union of India and Pure Drinks Ltd. v. CCE, which held that transportation costs of empty bottles from the buyer are not liable to be included in the assessable value.

5. Relationship Between Manufacturer and Distributor:
The Department alleged a mutuality of interest between the applicants and M/s. Sakthi Soft Drinks, suggesting that they were related persons. However, the Tribunal found no evidence of control or directions from the applicants over M/s. Sakthi Soft Drinks. The Tribunal concluded that the transactions were not at arm's length, as the expenses incurred by the distributor were in the nature of ensuring the marketability of the goods and had a complete nexus with the manufacturing of the excisable products.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the Commissioner (Appeals). The Tribunal found that the inclusion of advertisement expenses, rental charges, and other costs in the assessable value was not justified. The Tribunal emphasized that the expenses incurred by the distributor were not liable to be included in the assessable value and that the transactions between the manufacturer and distributor were not at arm's length.

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