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TMI Blog2014 (6) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... es promotion expenses incurred by PGG cannot be legally sustained. - Decided in favor of assessee. Inclusion of non-compete fee - Held that:- there is a JVA between GSL and PGG and as part of the JVA, three agreements, namely, manufacturing agreement, trade mark agreement and non-competition agreement have been entered into among/between the parties. - these are all co-terminus with JVA and all the three agreements are integrally connected with each other and are inseparable. - Following the decision of Alnoori Tobacco Products [2004 (7) TMI 91 - SUPREME COURT OF INDIA] three cases relied upon by the assessee rejected as Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect - the consideration paid by PGG to GSL under the non-compete agreement and through G&B to GSL under the trademark agreement should have a definite bearing on the price paid by PGG to GSL under the manufacturing agreement and the pricing formula adopted therein. - addition of non-compete fee confirmed - Decided against the assessee. Inclusion of trade mark licence fee paid by PGG to G&B - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, there was no statutory obligation or requirement on PGG, PGIL and G&B to do any act in respect of their transactions with GSL. Further the issues involved related to interpretation of statutory provisions relating to valuation of the goods which was the sole responsibility of GSL. In these circumstances, imposition of penalties on these parties are not warranted. - Penalties waived. Confiscation of plant and machinery - Held that:- confiscation is justified in as much as GSL tried to evade excise duty by mis-declaration of value and suppression of facts. Rule 173Q of the Central Excise Rules, 1944, mandates such confiscation. Thus the confiscation and grant of redemption in lieu of confiscation on payment of fine has to be upheld. - Decided against the assessee. - Appeal No. E/2913/99 - Final Order No. A/323/2014-WZB/C-II(EB) - Dated:- 21-4-2014 - P R Chandrasekharan and Anil Choudhary, JJ. For the Appellant : Shri V Sridharan, Senior A. For the Respondent: Shri K M Mondal, Special Consultant JUDGEMENT Per: P R Chandrasekharan: The appeal is directed against Order-in-Original No. 42-43 dated 11-5-1999 passed by the Commissioner of Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Far East, Inc. (PGFE), a subsidiary of The Procter Gamble, USA (ii) Godrej Soaps Ltd. (GSL), (iii) Procter Gamble India Ltd. (PGIL), (iv) Procter Gamble Godrej Ltd. (PGG) and (v) Mr. Adi B. Godrej on behalf of himself and the Members of the Godrej Family (Godrej Designees). As per the JVA, PGFE and Mr. Adi Godrej had promoted the Joint Venture Company called PGG wherein PGFE and Godrej Designees would own 51% and 49% respectively of PGG s Equity Share Capital. 3.2 Some of the important provisions of the JVA having a bearing on the present proceedings are noted below for proper appreciation: Clause 1.2 provides that PGG will manufacture synthetic detergent bars; market, sell and distribute toilet soaps. Clause 1.4 provides, inter alia, that GSL will transfer certain personnel currently, involved in marketing, selling and distribution of GSL s consumer products to PGG. PGIL, GSL and PGG have agreed that the number of employees to be transferred by GSL to PGG shall be 412 persons and by PGI to PGG shall not be more than 225 persons. Clause 2.1 provides that GSL will sell and transfer the marketing and distribution of GSL toilet soap business in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in GSL and PGFE as the case may be) agree not to undertake within India, directly or indirectly, any selling and distribution activity which will be competitive with PGG s activities in those product categories listed in Article 1.2. Clause 20 provides for Force Majeure. IT provides that no party shall be in default or breach of this Agreement by any reason of any failure. In its performance if such failure arises out of causes beyond the control or without the fault or negligence of such party. Such causes include but are not limited to, Acts of God, of the Public enemy, any Governmental act, Civil commotions, wars, strikes, labour unrest, sabotage, terrorism, riots or any other act of natural calamity or unforeseen contingency. 3.3 Pursuant to the Joint Venture Agreement, various other related Agreements were also entered into of which the following Agreements are noteworthy: (i) Non-Competition Agreement - Toilet Soaps dtd. 16/12/1992 among GSL, PGFE and PGG. By this Agreement, at the request of PGFE and PGG, from the date of physical transfer of the business of marketing, distribution and sale of Toilet Soap to PGG, GSL shall not undertake as a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred by PGG during the period 1-3-1993 to 31-7-1996 on the Toilet Soap Brands/Trademarks licenced to PGG by G B totally amounting to Rs. 73,88,56,730/- while computing the assessable value of said goods, thereby short-paid Central Excise duty amounting to Rs. 15,78,54,233/-. It was further noticed that the amounts of other additional consideration received from PGG in the guise of Non-Competition Agreement Trademarks Licence Agreement amounting to Rs. 34 crore and Rs. 7 Crore respectively were also not included in the assessable value of the said goods and thus GSL had short paid Central Excise duty amounting to Rs. 4.25 Crores and Rs. 1.72 Crores respectively, on these counts. 3.6 After completion of investigation, a Show Cause notice dated 27/3/1998 was issued to GSL demanding the aforesaid short paid duty amounts together with interest under Sections 11 and 11AB of the Central Excise Act, 1944 and also proposing penal action under Section11AC of the said Act. The said notice was adjudicated upon by the Commissioner of Central Excise, Mumbai II who confirmed the duty demand of Rs. 11,25,82,433/- on account of advertisement and sales promotions done by PGG for God ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 4(1)(a) provides that the value of excisable goods would be the normal price when the goods are ordinarily sold and following conditions are satisfied: i) The goods are sold for delivery at the time and place of removal; ii) The buyer is not related person; iii) The price is the sole consideration for the sale. The entire case of the department in the present case is that the transaction between the appellants and PGG are not on principal to principal basis. Since all the conditions of Section 4(1)(a) has been fulfilled except the condition of sole consideration, the allegation of the department that the transaction between the appellants and PGG is not on principal to principal basis is incorrect. Hence, the finding of the Commissioner that the price is not on principal to principal basis has no basis. 4.3 In any case, the advertisement expenses incurred by PGG are not includible in the assessable value. The Hon ble Supreme Court has held that the appellants and PGG are not related persons. Undisputedly, all the manufacturing cost has been included in the value of toilet soaps. There is no consideration which is flowing from PGG to the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to advertise the assessee's products. There was no 'enforceable legal right' with the assessee to insist on the advertisement under the agreement. The same view was re-iterated by the Hon ble Supreme Court in the case of Alembic Glass Vs. CCE- 2006 (201) ELT 161 (SC). 4.6 The Hon Ble Supreme Court has held that the appellants and PGG are not related parties. The demand in the present case is only in respect of toilet soaps manufactured and cleared to PGG. The transaction between the appellants and PGG is onprincipal to principal basis. The price of soaps is at arms length. While arriving the assessable value of toilet soap which is cost plus five percent, all the manufacturing expenses have been duly included in the cost of soaps. There is no dispute on this fact and accepted by the impugned Order-in-Original. In the above circumstances, the advertisement expenses incurred by the buyer are not includible in the assessable value of toilet soaps. In the case of Philips India Limited Vs. CCE 1997 (91) ELT 540 (SC), the Hon ble Supreme Court held that the advertisement expenses incurred by the buyer is not includible in the assessable value as the advertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the manufacturer . . In view of the above, advertisement expenses incurred by the dealer is not includible in the assessable value of the goods. 4.10 The only case-law relied upon by the department is the decision of Hon ble Supreme Court in the case of UOI Vs. Bombay Tyre International 1983 (14) ELT 1896 (SC). In this case, the assessee had incurred the advertising expenses and claimed deduction of such expenses from the assessable value of goods. There was no buyer who had incurred the advertisement expenses and also it was not proposed to include the said expenses in the assessable value. In fact, it was argued that the advertisement expenses incurred by the manufacturer assessee should be excluded from the assessable value of goods cleared by him. In these facts, the Hon ble Supreme Court held that the advertisement expenses incurred by the manufacturer assessee cannot be excluded from the assessable value, as the basis of excise duty is sale price of the goods. In the present case, the appellants had not claimed any deduction on account of advertisement expenses. The appellants had not incurred advertisement expenses at all. The buyer had incurred the adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamble Vs. CCE 2005 (190) ELT 490 (T) iii) Kwality Ice Cream Vs. CCE 2002 (51) RLT 895 (T) Further, the amount received as non-compete fees is not in connection with the sale of goods and therefore, the same cannot be included in the assessable value. Further, the department has not produced any evidence to show that the amount receive as non-compete fees has influenced the price of the goods. The department has also not computed as to how much amount of non-compete fees is addable in the price of each soap. Having not done so, the impugned Order-in-Original confirming the demand on account of non-compete fees is liable to be set aside. 4.13 In the present case, initially, the trademark was owned by the appellants. Subsequently, the appellants had assigned all the trademarks to their holding company G B for a consideration of Rs.6 Crores. The reason of such transfer was that the appellants were going for public issue and therefore, it was agreed that all the trademark of Godrej group should be transferred to their holding company. The transfer was entirely for commercial reasons. G B had given license to use trademark of Godrej to PGG to market toilet soaps for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 230 . The appellants submit that the all the transaction were genuine and solely for commercial reasons. PGG was created for the reason that the Proctor and Gamble was strong in marketing of the goods. The soap business of the appellants was in danger due to entering of foreign companies in the markets. Hence, the allegation that the entire arrangement was for tax evasion is without any basis. Further, the decision of Hon ble Supreme Court in the McDowell case has been considered in the case of Vodafone International Holding Vs. UOI 2012 (6) SCC 613. Hence, the allegation made by the Commissioner is incorrect. 4.16 The appellants vide letter dated 22.3.1993 had specifically informed the department about the JV arrangement. The letter was duly acknowledged and received by the department. Hence, all the facts were known to the department. Hence, the invocation of extended period of limitation is incorrect. For the reasons mentioned supra, the duty demand itself is not maintainable and therefore, there is no question of imposition of penalty or demand of interest. 5. The ld. Special Consultant appearing for the Revenue made the following submissions. 5.1 It is nobody ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production of toilet soaps. The elements of costs to be taken into account were also specified therein. From this, it is quite obvious that GSL was not free to determine its own selling price. It had to sell the goods only at a pre-determined profit above the cost. This clearly shows the direct control on prices by the marketing company. Hence it cannot be said that toilet soaps were sold to PGG at a mutually agreed price. In short, the transaction between GSL PGG could not be said to be on principal to principal basis. 5.5 It is needless to mention that prior to 01/04/1993 i.e. before JVA, GSL was including in the assessable value advertising and sales promotion expenses. However, during the period of JVA, the expenses on account of advertisement and sales promotion of toilet soaps were not included in the assessable value. GSL had managed to reduce the expenditure on account of advertisement on toilet soaps to a very large extent and the same was paid by PGG. It may be mentioned here that after termination of JVA w.e.f. 31/07/1996, there was a sudden jump in advertisement expenses incurred by GSL for the Financial Year 1996-1997 which is shown as below: Advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nexus between GSL, G B and PGG for trade-marks arrangement. It may also be mentioned here that after the termination of JVA, G B made GSL registered user of all the brands for manufacturing, marketing and distribution of the products for a nominal consideration of Rs.10,000/- only per annum vide clause 4 of Godrej Trade Mark Registered User Agreement dtd. 20/05/1996. 5.9 It is a well known fact that the object of the trademarks is to point out distinctly the origin or ownership of the article. The use of the word Godrej along with toilet soap brand indicates in the market that Godrej is the real owner of the goods. The compulsion on the use of the word Godrej along with toilet soap brand indicates in the market that Godrej is the real owner of the goods. The compulsion on the use of the word Godrej which is also a registered trade mark in relation to the toilet soaps including ad-campaigns also indicates that the goods have originated from Godrej. However, on the wrapper it was mentioned that PGG was only marketing the goods and was the licensed user of the trade marks. Hence, it would be clearly seen that PGG was required to do advertisement for Godrej in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand. 5.13 During the investigation, statements of various senior officials of GSL were recorded. In his statement recorded on 22/10/1996, Shri Vijay R. Kulkarni, Dy. General Manager (Excise) had, inter alia, stated that he was the authorized signatory for the company; that he ;looked after day-to-day excise matters of the company; that GSL had entered into an alliance with PGG w.e.f. March, 1993 as per which GSL was to manufacture toilet soaps of nine brands and sell exclusively to PGG at a mutually negotiated price; that he submitted a copy of the manufacturing agreement entered into between PGG GSL to this effect. In his further statement dtd. 22/01/1997, Sri Vijay R. Kulkarni had, inter alia, stated that after the alliance with PGG, they had submitted only a copy of the manufacturing agreement to the Excise Department along with the price list in 1993; that none of the other agreements including JVA was submitted or disclosed to the Department along with the price list in 1993. In his further statement dtd. 19/02/1997, Shri Vijay R. Kulkarni was not in a position to bring the acknowledgement receipt evidencing submission of the manufacturing agreement with PGG to the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is includible in the assessable value of toilet soaps manufactured by GSL and sold to PGG? (2) Whether the non-compete fee paid by PGG to GSL is includible in the assessable value of toilet soaps manufactured and sold by GSL to PGG? (3) Whether trade mark licence fee paid by PGG to G B is includible in the assessable of toilet soaps manufactured by GSL? (4) Whether the extended period of time could have been invoked for confirmation of duty demand? (5) Whether interest is leviable under Section 11AB and penalty imposable under Section 11AC of the Central Excise Act and Rules 209A of the Central Excise Rules, 1944? (6) Another attendant issue for decision would also be whether the confiscation of plant and machinery of GSL and the subsequent offer of redemption on payment of fine is sustainable in law? 6.2 From the show cause notice as well as the impugned order, the case of the department is that the valuation of the toilet soaps manufactured by GSL and sold to PGG has to be done in terms of section 4(1)(b) of the Central Excise Act read with Rule 5 of the Central Excise Valuation Rules, 1975. The said Rule as it stood at the relevant time rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the assessee was seeking abatement of the advertisement and marketing expenses incurred by itself from the price of the goods sold and in that context, it was held that all these expenses which have been incurred prior to the sale transaction would form part of the assessable value. In the present case, these expenses have been incurred by PGG after the sale of toilet soaps by GSL to it and therefore, the question of adding such post sale expenses to the assessable value of the goods would not arise at all. 6.4 The next issue for consideration is whether the non-compete fee of Rs. 34 crore paid by PGG to GSL can be included in the assessable value of toilet soaps manufactured by GSL. As per the Non-Competition Agreement dated 16/12/1992 among GSL, PGFE and PGG, at the request of PGFE and PGG, from the date of physical transfer of the business of marketing, distribution and sale of Toilet Soaps to PGG, GSL shall not undertake as a commercial activity, anywhere in the specified territory the distribution, marketing or sale of Toilet Soaps. The non-compete agreement, trade mark agreement and the manufacturing agreement are an integral part of the JVA as can be seen from cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal basis and they were not related persons. The question whether non-compete fee paid should be included in the assessable value of the goods sold by Kwality Ice cream under rule 5 of the Central Excise Valuation Rules was not considered by the Tribunal. In the Agri More Ltd. case, the appellant entered into a supply agreement where under it was required to supply the entire quantity of goods manufactured to Cynamid. The appellant also entered into a non-compete agreement with Cynamid in terms of which it was not permitted to manufacture, sell or otherwise deal directly or indirectly in the sale and distribution of goods specified in the agreement for a period of 7 years and 14 years and in return thereto, the appellant received a non-compete fee. Considering the terms and conditions of the agreement, this Tribunal relying on its earlier decision in the case of Godrej Boyce Mfg. Co. Ltd. [ 2002 (148) ELT 161] and Kwality Ice cream, held that non-compete fee is not includible in the assessable value of the goods cleared by the appellant. It is worth mentioning here that the Godrej Boyce Mfg. Co. Ltd. case mentioned above, is the decision of this Tribunal in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by blindly placing reliance on a decision is not proper. 14. The following words of Lord Denning in the matter of applying precedents have become locus clssicus: Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive. Following the above ratio laid down by the hon ble Apex Court, we are of the considered view that the reliance placed on the various decisions by the appellant has no relevance or application to the facts of the case before us. 6.7 The next issue for consideration is whether the trade mark licence fee paid by PGG to G B can be included in the assessable value of the toilet soaps manufactured and sold by GSL. The contention of the appellant is that the payment has been made by PGG to G B and not to GSL and therefore, the payment of licence fee for use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a particular manufacturer. The buyer in the market would trust a particular manufacturer to manufacture goods of a certain quality and would purchase a product by instinct when it shows the name of that manufacturer. During the earlier period, GSL had both the brand names and the marketing network. After giving away both also, in effect nothing had changed inasmuch the right to use the trade mark parted with by them was given back to them. Thus in the eyes of the customers nothing had changed. What had occurred behind the scene was transfers of substantial monies. The reason for such transfers is not known. The record shows that for every question, the concerned persons had pleaded business reasons . In terms of the Supreme Court judgement in the case of Bombay Tyre International, all the expenses which enrich the value of the goods in the eye of the customers is to be included in the price. Brand names have a certain value and are reflective of goodwill of the manufacturer. Thus, in the instant case, the consideration paid for the use of the trade marks by PGG to GSL, routed through G B, is an additional consideration flowing from PGG to GSL and therefore, should cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly. 6.10 The next question for consideration is whether interest is leviable on the duty demands under Section 11AB of the Central Excise Act, in as much as the said provisions came into force only with effect from 28-9-96. It is a settled position in law that levy of interest is a substantive provision and cannot be applied retrospectively. Interest can be levied only when the provision comes into force. Therefore, in the present case, interest under Section 11AB on the duty demand confirmed will be operative only from 28-9-1996 and not earlier. 6.11 As regards penalties, section 11AC prescribing mandatory penalty was brought into the statute book only with effect from 28-9-1996. When the goods were cleared and duty became due, the said provisions was not in existence. Therefore, imposition of penalty under section 11AC of the Act on GSL cannot be sustained. As regards the penalties imposed on PGG, PGIL and G B, the charge against them is one of abetment. In the present case, the responsibility of correct declaration of price, assessing and paying excise duty, complying with the statutory provisions was on GSL and not on PGG, PGIL and G B. In other words, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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