2018 (7) TMI 913 - AT - Central Excise

Valuation - Syrup - inclusion of value of the cups and carbon dioxide (Co2) and also the maintenance charges of the vending machines in transaction value - It is the case of the Revenue that the syrup in canister did not have any self marketability and that the cups, carbon dioxide gas and vending machines were essential and mandatory in connection with sale of the syrup and were part and parcel of such sale. Whether the value of Co2 gas, cups and Annual Maintenance Charge (AMC) of the dispensing machines are includible in the assessable value of syrup manufactured and cleared by the appellant upon payment of Central Excise duty as per the provisions of the Act? Held that - The appellant is supplying beverages to various retail outlets for the manufacture of aerated water at the vending machines - the vending machine was obtained by the retail vendor first and thereafter the vendor purchased the syrup, carbon dioxide and cups, as the case may be. The Adjudicating Authority failed to appreciate that it was the choice of the vendor whether or not to obtain the vending machine. It was only if a vendor obtained the vending machine that he thereafter required the syrup, carbon dioxide and cups, as the case may be. The syrup, carbon dioxide and cups were distinct and different commodities and the vendor purchased the same according to his requirements. Some of the vendors did not purchase the cups from the appellant at all. Sometimes a vendor purchased all the three items namely syrup, carbon dioxide and cups, sometimes only the syrup, sometimes only carbon dioxide and sometimes only the cups. Cups and carbon dioxide - Held that - The cups and carbon dioxide were not manufactured by the appellant. The appellant purchased the cups and carbon dioxide from manufacturers and/or from the market and merely resold the same to the retail vendors. Because the cups and carbon dioxide were the appellant s trading items, it did not take any cenvat credit upon purchase thereof. The appellant had separate prices for the cups and carbon dioxide which were sold to only those vendors who wanted the same. The sale of the cups and carbon dioxide for separate price had nothing to do with the sale of the syrup or the sale price of the syrup which was the same for all the vendors irrespective of whether they purchased any cups or carbon dioxide from the appellant. The separate price charged for the trading goods, namely, cups and carbon dioxide cannot be included in the value of the syrup. Vending machines - Held that - The vending machines installed at the places of the buyers have nothing to do with and were not at all related to manufacturer of syrup. There can be absolutely no scope to include any maintenance charges relating to vending machines in the assessable value of syrup. The vending machines were not installed at appellant s factory nor these were ever used for manufacturer of syrup - also, the vending machines were not owned by the appellant - the value not includible in assessable value. There is no authority for inclusion of the cost of cups, Co2 gas and AMC charges of the vending/dispensing machine in the assessable value of the syrup. The appellant is not mixing the Co2 gas with beverage and cleared the aerated water produced only at the vending machine. According to the Revenue, beverage syrup is not marketable. Therefore, if it is not marketable, it is also not excisable. In that case there is no question of adding Co2 gas and cost of AMC charges in the assessable value of syrup - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the value of CO2 gas, cups, and Annual Maintenance Charge (AMC) of vending machines are includible in the assessable value of syrup.
2. Marketability of the syrup by itself.
3. Applicability of extended period of limitation under Section 11A(1) of the Central Excise Act, 1944.
4. Validity of the Adjudicating Authority's reliance on Section 4(3)(d) of the Act and Rule 6 of the Central Excise Valuation Rules, 2000.

Detailed Analysis:

1. Inclusion of CO2 Gas, Cups, and AMC in Assessable Value:
The Tribunal found that the vending machine was obtained by the retail vendor first and thereafter the vendor purchased the syrup, carbon dioxide, and cups as per their requirement. The Adjudicating Authority failed to appreciate that it was the choice of the vendor whether or not to obtain the vending machine. The syrup, carbon dioxide, and cups were distinct and different commodities, and the vendor purchased them according to their requirements. The Commissioner erred in holding that the cups, carbon dioxide, and the vending machine were essential for the marketability or marketing of the syrup or promoted the sale of the syrup.

The Tribunal also noted that the Commissioner proceeded on a wholly erroneous construction of the agreement relating to supply of the vending machines to the retail vendors. The agreement provided terms and conditions for vending machines provided free of cost to the retail vendors and did not stipulate any condition for the sale of the syrup. The syrup's sale price was not enriched by the sale of other goods and services.

2. Marketability of Syrup:
The Tribunal found that the syrup manufactured by the appellant is specified in Chapter 21 of the Central Excise Tariff and was regularly sold by the appellant to the retail vendors. The Commissioner was wholly unjustified in judging the marketability of the syrup vis-à-vis the ultimate consumer of the aerated waters. The syrup was marketable goods and should be determined vis-à-vis the appellant’s customers and not the buyers’ customers.

3. Extended Period of Limitation:
The appellant argued that the syrup was manufactured and cleared from the factory in an identical manner for several years prior to the relevant period. The entire relevant facts relating to manufacturing activities were fully and truly disclosed to the Central Excise Authorities. There was no fraud, collusion, misstatement, or suppression of facts. The Tribunal found that none of the conditions precedent for invoking the longer period of limitation of 5 years as laid down in the proviso to Section 11A(1) exists or is satisfied in the present case.

4. Reliance on Section 4(3)(d) and Rule 6:
The Tribunal found that the Commissioner’s reliance on Section 4(3)(d) of the Act and Rule 6 of the Central Excise Valuation Rules, 2000, for including in the transaction value of the syrup the price separately charged for the cups and carbon dioxide and the maintenance charge of the vending machine was entirely misplaced. The separate consideration paid by the retail vendors for the purchase of the cups or carbon dioxide or for the maintenance service in respect of the vending machines was not by reason of or in connection with the sale of the syrup nor did such separate consideration represent any additional consideration for the sale of the syrup.

Conclusion:
The Tribunal concluded that there was no authority for the inclusion of the cost of cups, CO2 gas, and AMC charges of the vending/dispensing machine in the assessable value of the syrup. The appeal filed by the appellant was allowed with consequential relief, and the impugned order was set aside.

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