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TMI Blog2003 (11) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishing features are self-evident from the observations quoted above. In the result we affirm the decision of the Tribunal and dismiss the appeals. However, we leave it open to the assessee to raise any question as to the computation i.e., the quantum of royalty includible, before the adjudicating authority who has to recompute the turnover in any case consequent upon the Tribunal granting partial relief to the appellant. We affirm the decision of the Tribunal and dismiss the appeals. - Civil Appeal No. 4051 of 1996, & 1385 of 1999 - - - Dated:- 25-11-2003 - P. Venkatarama Reddi and Dr. A.R. Lakshmanan, JJ. Dileep Tandon, K.C. Kaushik (for B.K. Prasad), U.A. Rana and Arvind Kumar, Advocates, for the respondent. V. Lakshmikumaran, Madhav Rao, Ashok Yadav, and D.N. Mehta (for Ms. Suruchi Agarwal), Advocates, for the appellant. [Judgment per : P. Venkatarama Reddi, J.]. - The question raised in these appeals filed by the assessee under Section 35L(b) of the Central Excise Act is whether the royalty amount collected by it from the bottlers for use of the trademark 'lehar' on the soft drink beverages manufactured out of the 'concentrate' sold by the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4051 of 1996 was followed by the Tribunal in respect of the subsequent period. C.A. No. 1385 of 1999 is preferred against that order. 4.The learned Counsel for the appellant strenuously contended that the sale of concentrate by the appellant to the bottler and the collection of royalty from the bottler for the use of the trademark are two different transactions and there is no nexus between them. The payment of royalty is directly related to the use of trademark and it is realized as percentage of the maximum retail price of the soft drink sold by the bottlers. Thus, royalty is paid when the bottle is moved out from the plant of the bottler and it has nothing to do with the sale value of the concentrate. In fact, the bottlers while fixing the M.R.P. take into account the royalty paid to the appellant and the excise duty is paid by the bottler on the price inclusive of royalty. Though this fact by itself has no bearing on the question involved, according to the learned Counsel, it would only indicate that there was no loss of revenue. The Counsel for the appellant laid emphasis on the fact that the royalty is being collected on the sales of soda effected by the bottler with the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not depend on the question whether the price of concentrate has been understated. Even in the absence of such a contingency, the last clause of Section 4(1)(a) would come into play and if under the terms of Agreement, an extra consideration would eventually flow back to the assessee/manufacturer as an inevitable consequence of sale of concentrate, it cannot then be said that the price is the sole consideration for sale. However, there should be intimate nexus between the sale and realization of royalty. 8.Now, let us turn to the salient features of Agreement in order to appreciate the issue in its proper perspective. 9.The Agreement is captioned as "PFL Bottling Appointment and Trademarks Licence Agreement With Bottlers". The assessee Company grants licence to use the trademark 'Lehar' in conjunction with the trademarks called 'Pepsico Marks' owned by Pepsico Inc., USA. This licence is in respect of beverage products. Certain territory is assigned to each bottler and the bottler can use the said trademark within the territory. In consideration of the licence granted for use of the trademark, the bottler shall pay a royalty at the rate of 2.75% of the maximum retail price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportant as the realization of the sale price of the concentrate from the assessee's point of view. In reality and in substance, the component of royalty cannot be dissociated from the ostensible consideration for the sales of concentrate by the assessee. The assessee would not have parted with the goods, namely, concentrate if the royalty payment did not enter into the bargain. The bottler is obliged to purchase the concentrate from the assessee and assessee alone, use the trademark of the assessee on the bottled beverage in addition to the trademark of Pepsico and comply with the instructions of the assessee in regard to manufacture, sale and distribution of beverages. There is an element of control in respect of the entire business operations of the bottlers. There exists an inextricable bond between the obligation of the bottler to purchase the concentrate exclusively from the assessee and the user of trademark of assessee subject to payment of royalty. The royalty which is realizable as a consideration for authorizing the use of trademark cannot, therefore, be viewed in isolation. The appellant's sale of concentrate, the bottler's manufacture of beverages out of that and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions cited by the learned Counsel for the appellant will come to the aid of the appellant though there are certain overlapping features. 15.The first case relied upon the Union of India v. Mahindra Mahindra Ltd. [1995 (76) E.L.T. 481 (S.C.)]. This case was rightly distinguished by the Tribunal. It was found as a matter of fact that there was no material to indicate any nexus or connection between the lumpsum payment of 15 million French Francs paid by the assessee to the foreign collaborator for providing the use of 'PEUGEOT Engine Technology' and the supply of CKD packs to the respondents by PEUGEOT for the production of the engine. This Court observed - "In no sense, it can be stated that the price of the goods obtained later was reckoned or reflected in the lumpsum payments made, long before. The parties never had in mind the nature and extent of the spare parts that may be required later, when the collaboration agreement was entered into." 16.The fact that there was no obligation on the assessee to purchase CKD packs at all, that long before the supply of the CKD packs and spares, the royalty due to the collaborators was paid, that there was no material to show that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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