Customs, Excise and Gold Tribunal - Tamil Nadu
Collector Of Central Excise And ... vs Microwave Products (P) Ltd. And ... on 19 June, 1998
Equivalent citations: 1999(63)ECC353, 1998ECR69(TRI.-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. In both these appeals raise a common question of law and facts, hence they are taken together for disposal, as per law. E/620/95-A is Revenue appeal against the Order-in-Appeal No. 199/ 94 dated 7.4.94 holding that the sale between the appellants and the distributors is on principal to principal basis and the property of the goods had passed on to the distributors and therefore, the advertisement cost incurred by the distributor does not flow back to the appellants. He has concluded that the advertisement charges would not form part of the assessable value and hence he has set aside the Order-in-Original, by which the Assistant Commissioner had held that the advertisement charges incurred by M/s. Batliboi & Co.. the distributor of the firm and virtually sole buyer is chargeable to the assessed value of the product manufactured by M/s. Microwave Products (India) Ltd. The Assistant Commissioner had also held that the advertisement charges is an expenditure incurred for enhancing marketability of the item and it is a settled law that they are a valid component for the purpose of ascertaining assessable value under Section 4 of the Act. Ld. Commissioner while setting aside the order have noted that there is no dispute that M/s. Batliboi & Co., who are the distributors of the assessee for Microwave ovens had incurred certain amounts as advertisement charges for selling the microwave ovens. He has examined the terms of the agreement between the two companies and in more particular in para 2.2 and 4.1 which states as follows:
Microwave hereby grants to the Batliboi exclusive right to purchase from Microwave regularly on a principle to principle basis all such products as listed in Schedule 'A" for re-sale in accordance with the provisions of this agreement.
Batliboi shall use its best endeavour to obtain orders and develop the sale of the said products by all means to meet the sales targets finalised by Microwave from time to time in consultation with Batliboi.
2. Noting the above clause in the agreement, he has held that M/s. Batliboi & Co. have been given the right to purchase Microwave ovens and that the assessee is bound to sell the products manufactured by them to M/s. Batliboi & Co. The Job of marketing is entirely on M/s. Batliboi & Co. except that the sale target shall be finalised in consultation between the two companies. He has held that it is clear that since marketing is the job of M/s. Batliboi & Co.. the advertising cost which is part of marketing has to be incurred by M/s. Batliboi & Co. He has noted that the terms of agreement nowhere indicated that any part of the marketing cost will be borne by the assessee. The agreement clearly indicated that transaction is on a principal basis. He has observed that in other words, the appellants could sell their products to M/s. Batliboi & Co. as individual transaction and the appellants do not take any responsibility regarding the actual sale of the goods, therefore he accepted the contention of the assessee that it is a transaction on a principal to principal basis between the two companies and the advertisement cost incurred by M/s. Batliboi & Co. are incurred on their own. The assessee did not share this cost and are not party to their own agreement in any way. Therefore, he held that the cost of advertisement will not form part of the assessable value of the Microwave ovens in question. He has also examined the judicial judgments and noted that Hon'ble Supreme Court in the case of U.O.I. v. Bombay Tyre International as reported in 1983 ELT 1986 SC had held that advertisement expenses cannot be deducted for the purpose of arriving at the assessable value. However, he held that the said observation of the Hon'ble Supreme Court is in the context of manufacturer who is incurring advertisement expenses as part of his marketing effort, but who is wanting to deduct the cost of any advertising in arriving at the assessable value for Central Excise purpose. He has noted in the present case, the advertisement expenses are not incurred by the manufacturer but by the buyer and hence the Judgment of the Hon'ble Supreme Court is not pertinent to the case. Likewise, he has also noted that the Tribunal's judgment in the case of Hindustan Photo Films v. CCE as which also held that expenses on advertisement form part of the assessable value because it was found that the distributors were required to spend the same towards effective advertisement of the appellant's products. The Tribunal had held that the distributors were doing advertisement on behalf of the appellants and thus the additional consideration for sale flowed from the distributor to the appellants. The Tribunal had held that because of the compulsions on the distributors to spend some money on advertisement and publicity, the advertisement cost should form part of the assessable value. The Commissioner has noted that in the present case the agreement between the appellants and M/s. Batliboi & Co. did not speak of any advertisement to be done by M/s. Batliboi & Co. on behalf of the appellants. There is no compulsion whatsoever on the distributors in the present case to spend any money on advertisements. Therefore he has distinguished the case of Hindustan Photo Films. Likewise, he has noted the judgment of Bombay High Court rendered in the case of Union of India v. Mahindra and Mahindra Ltd. 1989 (25) ECR 28 which held it to be relevant and applicable to the facts of this case. In this case, the Bombay High Court had observed that the agreement should be examined to see as to that whether the property is passed on to the distributor by the sale in that case price charged by the manufacturing company to the distributor would be the assessable value as the relationship between the buyer and the seller is on a principal to principal basis. Likewise, the Tribunal in the case of General Industries v. CCE had held that expenses incurred by the buyer for additional sales promotion are not includible in the assessable value if the sale is on principle to principle basis. In this view of the matter, the Commissioner allowed the assessee's claim.
3. In this appeal, it is contended by the Revenue that the advertisement expenses are incurred to enhance the marketability of the products manufactured by M/s. Microwave Products (India) Ltd. and therefore they are liable to be added to the assessable value of the product. It is contended that the advertisement expenses incurred by M/s. Batliboi & Co. is an additional consideration apart from the sales price of the products, in so far as these expenses are incurred towards enhancing the sales of the products manufactured by the assessee and are to be included in the assessable value of the product and relied on judgment rendered in the case of Hindustan Photo Films. As can be noticed from the grounds of the appeal, the Revenue has not adverted to the findings of the Commissioner that the relationship of the assessee and M/s. Batliboi & Co. is on principal to principal basis. The Revenue has also not contested the view that the goods have aleady passed to M/s. Batliboi & Co. on the sale and that M/s. Batliboi & Co. have purchased the goods and have became the owners thereof. The charges incurred by M/s. Batliboi & Co. are on their own expenses and the same has not flowed back or collected from the assessee. The crucial point for determination of these facts which are not challenged by the Revenue in their appeal except to say that the advertisement expenditure incurred by M/s. Batliboi & Co. is an additional consideration apart from the sales prices of the products, in so far as these expenses are incurred towards enhancing the sales of the products manufactured by the assessee.
4. The Commissioner has clearly noted the distinguishing factors in the ratios arising from Supreme Court Judgment in the case of Bombay Tyre International and that of Hindustan Photo Films in one side, and the Bombay High Court judgment rendered in the case of Union of India v. Mahindra & Mahindra and that of the Tribunal judgment in the case of General Industries v. CCE (supra) on the other hand on distinguishing of the ratio and on distinction of facts the Commissioner has applied the ratio of Bombay High Court and that of Bombay High Court judgment in the case UOI v. Mahindra & Mahindra and of the Tribunal's judgment in the case of General Industries (supra) to the facts of the present case.
5. The Counsel in the present case also brought to our notice another judgment of the Tribunal, rendered in the case of Delhi Bottling Company 1996 (15) RLT 685 wherein a similar view has been expressed and the law has been licidly laid down where the relationship is on principal to principal basis and the sale has taken place on the goods and expenses are incurred at the hands of distributor and there is no flow back and such advertisement expenses cannot be added to the assessable value. He also relied on another Bench decision of the Calcutta High Court rendered in the case of Union of India v. Mahindra and Mahindra Ltd. wherein the Calcutta High Court held that the terms of the agreement are to be examined to see as to whether property has passed to the distributor and is placed upon him and also to see as to whether sale has been on principal to principal basis or on the basis of merely an agency agreement for reaching out the wholesale buyers of the manufacturer's products, the nomenclature of the agreement is not relevant. It was held that this material to examine the terms of the agreement of distributorship. The High Court on examination of the agreement between the petitioner's predecessor, the International Tractor Company of India Ltd.. and Voltas Ltd., the company has granted the latter sole and exclusive right to sell in the whole of India its specified products and parts thereof. Inter alia under Clause 12 of the agreement, the relationship between Voltas and the Company was that of buyer and seller on principal to principal basis, i.e. Voltas buying the products from the Company in its own account for rasale to the purchasers. The Court observed that Voltas was not. in any sense, an agent of the Company and had no authority to bind the Company in any manner of transaction whatsoever. The Court held that the price charged by the manufacturer company for sale of its product to the distributor had been rightly held by the Single Judge to be the wholesale price within the meaning of Section 4(a) for the purpose of assessment of excise duty. The Hon'ble Court after examining the provisions in the distribution agreement observed that both company and the distributor has mutual interest in maximising the sale of the products in question. In this view, the provisions relating to advertising etc. where in furtherance of the said desire on the part of the company and its distributor and in no way affected the real nature of the transactions which appeared to be sales on principal to principal basis. Therefore the Court held that the submission made on behalf of the appellants that in view the provisions relating to sharing the advertising expenses, the agreement between the Company and the distributor was not at arm's length, cannot be accepted.
6. In the case of Delhi Bottling Co (P) Ltd. v. CCE as reported in 1996 (66) ECR 713 (T), the Tribunal held in para 8 as follows:
8. It may be stated that the aerated water industry has a number of special features. The brand name owners undertake advertisement to publicise their product. The bottlers are appointed under agreement with specific conditions. The agreement is not only for the trade mark but covers the whole area of the product, production and marketing including the various factors which promote the marketability of the particular brand. In fact, the beverage is not known by the name of the bottler but by the brand name. The advertisement in such a situation is directly relatable to the manufacturing activity of the appellants. When the appellants were advertising, they were advertising for themselves and it could not be said that their advertisement did not enrich the value of their product and did not enhance its maketability in the trade. In the circumstances, the advertisement cost should form part of the value of their product beverage base.
Relying all these judgments and the terms of the agreement, Ld. Advocate submits that the relationship is between the partly and the distributor is at arm's length and on principal to principal basis and that the goods have already been sold to the distributor and hence in terms of the ratio of this judgment, the Commissioner has justified in allowing their pleas. Ld. Advocate also siibmitted that the demands were barred by time as price list had been approved in the year 1991-92 and 1993 and therefore the show cause notice issued on 17.12.93 for the period 12.5.90 to 3.2.91 is clearly barred by time.
7. Ld. D. R. reiterated the grounds raised in the Revenue appeal.
8. On a careful consideration of the submissions, we find that there is no substances in the appeal as the Commisioner's finding of fact on examination of the terms of the agreement that the relationship between the assessee and M/s. Batliboi & Co. is at arm's length and on principal to principal basis and that M/s. Batliboi & Co. had become owners of the goods purchased and that they had spent it on their own account has not been challenged and no grounds made out. The Commissioner was rightly distinguished the ratio of the judgment and has clearly come to the conclusion that the advertisement charges are required to be added only when the same are incurred by the distributor on behalf of the assessee and not when the relationship is at arm's length on the wholesale of goods and incurred the expenses on advertisement on his own. therefore the Commissioner has rightly followed the ratios and in terms of this ratios there is no merit in this appeal and hence the same is rejected.
9. E/SB/5442/94 is an appeal of the party against the Order-in-Original No. 22/94 dated 26.8.94 on the same issue that is pertaining to the addition of advertisement charges on the assessable value in respect of goods sold to M/s. Batliboi & Co. and the expenses are being incurred by M/s. Batliboi & Co. The facts are identical and the agreements are also the same and in view of the facts the Revenue appeal and the present being identical, therefore this appeal is required to be allowed by setting aside the order by applying the ratio of the above judgments which have rendered in the Revenue appeal. We observe that the Commissioner has followed the Tribunal's judgment in the case of Hindustan Photo Films Company and has not looked into the other favorable judgments as noted by the Commissioner in the Revenue appeal cited above. In view of very clear distinction drawn in the Judgments between Hindustan Photo Films and that of Union of India v. Mahindra and Mahindra Ltd. and Delhi Bottling Co On the other hand, we hold that the Commissioner has incorrectly followed the citation of Hindustan Photo Films and ought to have applied the ratio of the judgment rendered in the case of Union of India v. Mahindra and Mahindra and that of Delhi Bottling Co. Applying the ratios cited the impugned order is set aside and appeal allowed.