9911796707
TMI Blog1995 (11) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... dents were approved by the department. On the basis of intelligence that the respondents were evading duty by not including the advertisement and publicity expenses in the assessable value of Shampoos investigations were carried out by the department. These investigations revealed that there was difference between the purchase price and sale price of C.P. even after excluding taxes, insurance, octroi, freight, etc. and this difference was on account of expenses incurred by C.P. on advertisement. It was also noticed that C.P. were testing representative samples of the goods supplied by the respondents at their factory at Bombay but the expenses to the tune of Rs. 20,000/- approximately per annum incurred in such testing of various brands of Shampoos in their quality control department by C.P. were not included in the value of the goods declared by the respondents. It was also found that at times the respondents were incurring losses on some of the products sold to C.P. and they had been negotiating for increase of the price of the goods. On this basis it appeared to the department that there is a evasion of duty to the tune of Rs. 3,99,32,551-50 on account of non-inclusion of advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the said defence of the respondents and dropped the proceedings. As regards time bar the proposed penalty he observed that he did not consider it necessary to give any finding regarding the alleged allegation of suppression of facts or mis-statement etc. since that had become irrelevant in view of the finding in favour of the respondents on merits and for this reason there was also no question of imposition of any penalty. 4. In exercise of powers conferred in Central Board of Excise Customs under Section 35E(I) of the Central Excises and Salt Act, 1944 the Board called for and examined the records and proceedings leading to the order passed by the Collector for the purpose of satisfying itself as to the legality of proprietory of the said order and thereafter by order No. 51-R/91, dated 3-4-1991 directed the Collector to apply to the Tribunal for the correct determination of the points listed in the said order. 5. Appearing on behalf of the appellants Shri T.R. Malik, ld. SDR submitted that the Collector s observation that advertisement and publicity expenses incurred by C.P. were not includible in the assessable [value] of the goods cleared by the respondents under the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Shampoos the expenses incurred in advertisement are significant. On these grounds he argued that the Collector should have confirmed the demand treating the advertisement expenses and other marketing overheads as well as testing charges incurred by C.P. as a part of the assessable value. He also contended that the material facts such as advertisement expenses, testing charges incurred by C.P. in respect of the goods in question having been suppressed by the respondents and goods having been sold by the respondents below their cost price the extended period under proviso to Section 11A was invokable and penalty as was also imposable on the respondents and the concerned persons. 6. On behalf of the respondents Shri V. Lakshmi Kumaran, learned advocate appeared before us. He submitted that on a plain reading of the order passed by the Board under provisions of Section 35E(1) of the Central Excises Salt Act, 1944 directing the Collector to file an appeal before the Tribunal it follows that the only point for determination, according to the Board, is whether advertisement expenses and other marketing overheads incurred by C.P. were incudible in the assessable value of the goods m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit on those items having been eroded, there was any evasion of duty to the tune of Rs. 2,45,815.71. It is seen that the fact the respondents were manufacturing goods in their own factory and out of their own raw materials has not been disputed by the department. It is not the case of the department that there was any relationship between the respondent and C.P. other than that of the seller and buyer and the transactions between them were influenced by any special relationship. It is also not the case of the Revenue that C.P. were under any obligation to incur any expenditure on advertisement and publicity at the instance of the respondent. From the impugned order and records of the case it is seen that there was no formal agreement between the respondent and C.P. but each purchase order issued by C.P. incorporated the condition that the respondents were not to manufacture `Halo and `Palmolive shampoo for any other party. The respondents were also not to use the brand name of C.P. for any other product manufactured by them. In their letters dated 17-1-1985 and 2-5-1985 C.P. had further clarified that the respondents would have no right to use the brand name belonging to C.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name is because of the augmentation attributable to the value of the goodwill of the brand name which does not belong to the manufacturers and which added market value does not accrue to the petitioner company or go into its coffers. It accrues to the buyers to whom the brand name belongs and to whom to fruits of the goodwill belong. Excise duty is payable on the market value fetched by the goods, in the wholesale market at the factory gate manufactured by the manufacturers. It cannot be assessed on the basis of the market value obtained by the buyers who also add to the value of the manufactured goods the value of their own property in the goodwill of the `brand name . The Petitioners are therefore right and the respondents wrong. This point is covered by earlier decisions of this Court, namely, (1) Union of India v. Cibatul Ltd. 1985 (22) E.L.T. 302, (2) Joint Secretary to the Government of India v. Food Specialities Ltd. 1985 (22) E.L.T. 324 and (3) Civil Appeal No. 1496 of 1977 disposed of by a Bench of three Judges of this Court by its judgment dated 3rd April, 1986. The petition must therefore be allowed. The respondents shall levy excise duty on the basis of the price charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assesable value under Section 4 of the Central Excises and Salt Act, 1944 since the sale was in the usual course of business and on principal to principal basis. 10. In view of the above, we are inclined to agree with the findings of the Collector that when excise duty is payable on the wholesale market price of the goods at the factory gate it cannot be assessed on the basis of the market value obtained by the buyers who also add to the value of the manufactured goods the value of their own property in the goodwill of the brand name but in the case of a manufacturer who manufactures and sells his goods under his own brand name or under a brand name which he has acquired as a right to use, the position would be different and the sales effected by him under such brand name in wholesale would be the basis for computation of the excise duty payable on them. We, therefore, find no infirmity in the findings of the Collector that advertisement charges incurred by C.P. for selling goods purchased by them and for promoting their own brand name `Halo and `Palmolive could not be added to the price charged by the respondents. 11. As regards the question whether testing charges w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntant showing the average cost of production per dozen in respect of six items namely, Halo Egg 10 ml., P.O.A./Dandruff (Sachet) and P.O.A./Dandruff PVC bottles 100 ml., P.O. Egg. PVC Bottles 300 ml., P.O. Beauty PVC Bottles 300 ml., POA/Dandruff 300 ml. and also the margin of profit thereon. I have no reason to doubt the costing given in the statement which was duly certified by a Chartered Accountant. I, therefore, observe that the allegation regarding sale by M/s. MGS of certain products to M/s. C.P. at loss cannot be held substantiated merely because they were sold during certain period at a price which was lower than the cost of production and in respect of which correspondence for increase in the price was taking place between the manufacturer and the buyer. I accept the plea taken by the learned advocate that the increases made by the buyer even though coming prospectively did in fact take into account the manufacturing cost for the period for which there correspondence has been exchanged between the seller and the buyer. I further observe that there is no evidence on record to establish that any amount other than one by way of increase on the basis of correspondence made in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
