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TMI Blog1999 (3) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner has held these are required to be added to the assessable value and confirmed the duty consequent upon such addition. He also imposed penalty for evasion of duty on the companies and their Directors and other employees. 3. The contentions of the assessees with regard to the first issue are that SAMS is an independent company created by the bottlers who purchase NABB from the franchiser for manufacture of the beverages. These amounts were contributed directly by them to SAMS for advertising done by SAMS for the beverages. There is no allegation that any amount so received by SAMS was passed on to the assessees. There is no necessary link between contribution to SAMS and the price of NABB as there are atleast four bottlers which contributed to SAMS but did not purchase NABB from the assessees. The advertisement carried out by SAMS benefited both the owners of the brand name of the drinks, the NABB manufacturer and the bottlers. It is settled position of law that in such a situation expenses incurred by the bottler would not be includible in the assessable value of the manufacture. Philips India v. CCE - 1997 (91) E.L.T. 540; Escorts Ltd. v. CCE - 1998 (98) E.L.T. 206; Delhi B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E - 1998 (99) E.L.T. 608 (Tribunal) = 1998 (75) ECR 615. 5. In any event by applications of the principles enunciated in the Bombay Tyre International case, expenses towards advertisement made by the manufacturer have to be included. 6. It is difficult to accept that the assessees were not interested in the creation and functioning of SAMS. Any advertising carried out for the soft drink would enhance the marketability of the NABB which gives a drink its unique character, flavour and brand appeal. It may well be, as claimed by the advocate for the assessees, that the primary object behind SAMS was to set up advertising in order to meet competition arising out of the concentrate entry into the market of international bottlers such as Pepsi and Coca Cola. The notices to show cause alleged that SAMS were being controlled by Parle International Ltd. (PIL for short) and other manufacturers of NABB and exercising this control by stopping supply of concentrates to those bottlers who did not pay up their contributions to SAMS, by recovering the SAMS contribution by including it in their prices of concentrate supplied to those bottlers who are not contributing to SAMS, sometimes collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessees continued to expend considerable amount towards advertising on the soft drink even after SAMS was set up in 1988. Expenses on advertising incurred by PIL in 1988-89 to 1993-94 did not fall below Rs. 2.57 crores annually and went up to Rs. 4.47 crores, corresponding figures for PEL as Rs. 4.43 lacs being the minimum and maximum of Rs. 1.21 crores in 1990-91. These figures militate against the view that SAMS was created by the assessees with a view to collecting the expenses incurred on publicity from the dealers so that the assessees could avoid paying duty on such expenses. 9. The notice alleges that the assessees contributed to SAMS by including in the value of NABB the contribution in the case of the bottlers who are not members of SAMS. It cites example of Amritsar Bottlers Pvt. Ltd. one of the bottlers. Here too, in the absence of anything to show any financial transaction with regard to the contribution of SAMS between SAMS and any of the bottlers, the fact (assuming it to be so) of any of the assessees collecting by way of increasing the charges for the NABB would not by itself show that it was a collection for SAMS. However, the facts do not support even this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factors that dictated the sale at which the essence was sold to the bottlers. However, the figures that we have quoted above do not justify the view that the Amritsar bottler had to pay more because it did not contribute to SAMS. As we have seen, there was significant difference between prices of those bottlers who contributed to SAMS. The Jammu bottler whose goods might be available in areas contiguous to the Amritsar and Ludhiana bottler in the State of Punjab and particularly areas such as Jullundhur, Pathankot etc. paid almost as much as the Amritsar bottler although he was a member of SAMS. Further, if the amount were to be recovered by the increase in the price it would have to be equivalent to the amount of contribution which is stated to be Rs. 600/- in the case of the Amritsar bottler. The price to the Amritsar bottler did not exceed the prices of any other bottlers to the extent of this figure. It would therefore be incorrect to say that the contributions to SAMS were recovered from the Amritsar bottler by means of increase price. 11. The notice also alleges that PIL was spending money on advertising but bills were being paid by SAMS. A letter dated 19-10-1993 of M/s V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They were amounts of the bottlers paid by them. 14. Once it is held that the amounts were incurred not by the assessees but by the bottlers, the question that arises is, are these amounts includible in the assessable value. In Philips India Ltd. v. CCE - 1997 (91) E.L.T. 540 (S.C.), the Supreme Court accepted that expenses incurred by the dealer toward advertisement benefited both the dealers and the manufacturers of the goods and were therefore not to be included in the assessable value of the excisable goods. On our finding that the expenses incurred by the bottlers on their account therefore will not, going by this decision, be includible in the assessable value. 15. In Pepsi Foods Ltd. v. CCE - 1996 (82) E.L.T. 33 one of the questions for consideration was whether the advertisement expenses incurred by M/s Pepsi Foods Ltd. towards advertisement of soft drinks manufactured out of the essense supplied to bottlers should be includible in the assessable value of the goods manufactured by the assessee. The Pepsi Foods contended that the advertisement was towards promotion of the brand name of the soft drinks and therefore was not for promotion of the sales of the concentrates wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacturer of concentrates for himself as well as buyers of concentrates who manufacture aerated waters. Therefore, on being told by the advocate for the appellant about the availability of data a apportion advertisement cost between that relatable to the marketability of concentrates and that relating to the marketability of the drink, sent the matter back to the adjudicating authority to determine which portion of the cost is to be includible in the value of which product. The earlier decisions referred to above therefore will no longer to be good law to the extent that the Delhi Bottling Co. Pvt. Ltd. v. CCE s case has taken note of the Supreme Court decision in Philips India Ltd. v. CCE. 19. Advocate for the appellant seeks to distinguish these cases on the ground that the advertisement expenses were incurred by the persons who were simultaneously makers of the beverages and that of aerated waters, whereas in the. present case, the advertisement expenses has been incurred by the bottlers who are not manufacturers of the NABB. He also expresses his inability to apportion the expenses as those relatable to the marketability of the concentrates and those related to market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the assessable value of the excisable goods, since the advertisement promotes the interest of the dealer as well as that of the excisable goods. We are not persuaded by the arguments of the Advocate for the appellant that by applying that ratio of Philips India these expenses are not to be included. The dealer of goods stands on a different footing from a down stream manufacturer of goods from other goods which he receives, as is the case here. The Tribunal in the second Delhi Bottling case has, in fact, applied Philips India and come to its conclusion which we have discussed above. 23. The ratio of the third decision referred to above is that the advertisement incurred by the manufacturer of the beverage base by the beverages not manufactured by him enhances the marketability of the beverage base and that part of the cost relatable to the advertisement on the base is to be included in its value, cost is to be included to the extent there. We are here, however, not concerned with advertisement incurred by the manufacturer of the beverage base. We are concerned with the advertisement charges incurred by the manufacturer of beverages i.e. the product that the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble value of NABB, which was supplied by it to the bottlers earlier. 25. There is some overlapping between the amounts demanded on these two scores. The notice proceeds on the basis that part of the assessable value which was not actually recovered from the bottlers was recovered by means of debit notes. Among these recovered is what is referred to as rate difference. As we have discussed earlier, there was a direct relationship between the price at which the NABB was sold to the bottlers and the price at which bottler sold his drinks. It was explained that this was done with a view to ensuring that the return to the bottlers were more or less the same. The real idea appears, perhaps, to have been to mop up any extra profit that the bottler may get by increasing the price, while also acting as a disincentive for enhancing the price to such a level that he could make inroads into the territories of other bottlers. Therefore whenever a bottler increased his price, the rate at which NABB was sold was also increased. The allegation in the notice is that this increase was recovered in the form of debit notes but not included in the assessable value. 26. It will be evident that we wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. The statements of the officials of the company in this regard indicate that differential rates were to be recovered from the franchise were included. S.P. Shah, Chief Accountant says that difference on account of rate would be worked out and instructions would be given from time to time. His statement is confirmed by A.R. Desai, Accountant Executive and J.V. Shah. There is however nothing to show that these amounts were actually recovered. It is difficult to escape the conclusion that the amounts so shown represented amounts to be recovered from bottlers towards payment of the NABB already manufactured and supplied. 31. There are however two aspects which have to be considered in this regard. The first is that, out of the 60 or so total number of franchises the amount has been sought to be recovered only from 15 bottles only. It is reasonable to expect that there would have been revise in the prices of all the bottlers and that therefore such recoveries would have been made with regard to each of them, some time or the other. The fact is however that the entries in the account relate only to 15. 32. The second aspect is the recoverability of these amounts. The decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would not be relevant in consideration of the facts of the case which are similar to those dealt with in the two decisions dealt with. 36. This brings us to the third issue. The department s documentary evidence consists of a few entries recovered from the premises of PIL. While these entries and statements of persons concerned, may support the view that the appellant calculated amounts collectable from the bottlers as enhanced payments for beverage already cleared. There is however nothing to show that these amounts were actually recovered. Such recovery would have to be done by means of debit notes. This is what there is overlapping between the recoveries allegedly on account of these payments and the other recovery proposed of Rs. referred to as debit notes. There is no evidence to show that the recovery by ,means of debit notes as being the bottlers share of All India National Network Advertising represented the recoveries on this score. In any event as we have noted, as these debit notes, except for an amount of Rs. were issued on or before 31st March, 1989, they are barred by limitation. There is an attempt to say that they were actually issued in August and September ..... X X X X Extracts X X X X X X X X Extracts X X X X
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