Customs, Excise and Gold Tribunal - Delhi
Duke And Sons (P) Ltd. vs Collector Of Central Excise on 29 December, 1989
Equivalent citations: 1991(55)ELT577(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. The dispute relates to the ineluctability of "franchise fees" in the assessable value of the 'concentrates'.
2. The appellants manufacture 'concentrates' for making soft drinks. In the price lists they declared a price of Rs. 180/- per unit of 'concentrate' for making 100 cases of 24 bottles each of the soft drinks. The buyers of the appellants who purchase the concentrate entered into a separate agreements under which they are allowed to use the trade mark for which the appellants charged Rs. 150/- for 100 cases of 24 bottles each of the soft drinks. The price lists were filed accordingly. A show cause notice dated 30th April, 1987 was issued proposing to include the 'Franchise fee' towards the use of trade mark and good-will in the assessable value of the 'concentrate'. On receipt of the reply the Asstt. Collector added the 'Franchise fee' to the price of the 'Concentrate' and arrived at the assessable value of the 'Concentrate' at Rs. 300/- per unit of 'Concentrate' effective from 3rd Nov., 1986, allowing a deduction of Rs. 30/- towards the Central Excise duty. The appellants preferred an appeal to the Collector which was dismissed. Hence the appeal before this Tribunal.
3. The main contention of Shri A. Hidayatulla on behalf of the appellants is that the issue is covered by the decision of this Tribunal in Maruti Udyog Ltd. [1987 (28) ELT P-390 (T)] which was confirmed by the Supreme Court. Mere payment of royality does not create mutuality of interest. The agreements under which "franchise fees" paid for the use of trade mark is entirely distinct separate and independent from the sale of 'Concentrate' to the buyers and there is no link between the two. The fact that there are no general sales is not a criteria to add the 'franchise fee' to the assessable value of the 'concentrate'. The price at which the 'concentrate' is sold to the buyers is the price under Section 4(1)(a) of the Act and when the price under Section 4(1)(a) is available it should be taken as the assessable value. He also referred to the judgment of the Supreme Court in Food Specialities v. UOI [1985 (22) ELT 324].
4. As against the above Shri Sharma appearing for the respondent contended that both the judgments of Maruti Udyog and Food Specialities are not applicable to the facts of the case as Maruti Udyog is a case dealing with customs valuation whereas the issue involved in the present case relates to valuation under Section 4 of the Central Excises & Salt Act, 1944. He also submitted that the 'Franchise fees' (Goodwill) is directly linked with the manufacture of the 'concentrate'. Therefore, the price realised for the Trade Mark (Goodwill) is relevant for determining the assessable value of the 'Concentrate'.
5. The question, therefore, is whether the 'value of goodwill' i.e. 'Franchise fees' paid for using the 'trade mark' forms part of the assessable value of the 'Concentrate'.
6. The agreement under which the buyers are permitted to use the trade mark is not filed either before the lower authorities or before us. Therefore, no views can be expressed as to whether it is interlinked with the sale of 'concentrate'. There is also no evidence on record to indicate that the 'concentrate' is sold only to those who also enters into agreement to buy the 'trade mark'. In other words there is no evidence to establish that the agreement to purchase trade mark is essential before a buyer purchases the 'concentrate'. Similarly, there is no evidence that a buyer is not willing to purchase the concentrate without purchasing the trade mark. In other words there is no evidence to establish that the sale of concentrate is dependent on the purchase of trade mark. In the absence of such evidence it is difficult to hold that the sale of concentrate is interlinked or closely connected and without the sale of trade mark there is no sale of concentrate.
7. In Bombay Tyre International [1983 (14) ELT 1896] it was held that the price of an article is related to its value (using the term in a general sense), and into that value how poured several components, including those which have enriched its value and given to the article marketability in the trade. There is no evidence that the 'trade mark' gives the concentrate marketability in the trade. The department has not adduced any evidence to establish that the buyer will not buy the concentrate without the trade mark nor the appellants sell the concentrate without the trade mark.
8. In the absence of the above it is difficult to hold that the sale of concentrate and the franchise fee are interlinked and the agreement to purchase trade mark adds to the saleability of the product.
9. It is also not the case of the department that entering into two separate contracts one for the sale of concentrate, another for the use of 'trade mark' under a fixed price is a device to depress the price of concentrate in order to reduce the assessable value of concentrate. They have not adduced any evidence to show that similar goods in the wholesale market are sold at higher price or merely at equivalent price at which they proposed to assess the 'concentrate'.
10. On the other hand in reply to the show cause notice the appellants submitted that they would have charged the Franchise fee if the buyers have marketed the soft drinks manufactured by them, without purchasing the concentrate.
11. It is true that the judgment in Maruti Udyog arose under the Customs Act, 1962. However, it was observed in the said decision that "the provisions of Section 4 of the Central Excises and Salt Act, 1944 and Section 14 of the Customs Act are similar. Both the Acts relate to commodity taxation. There is no reason why the interpretation placed by the hon'ble Supreme Court on Section 4 of the Central Excises and Salt Act, 1944 should not apply to the materially identical provision of Section 14 of the Customs Act, 1962. It was also observed that for the price to be called the one at which the goods are ordinarily sold, it is not necessary that there should be more than one buyer, what is of essence is whether the dealings between the buyer and the seller are at arms length and the price is a fully commercial price or not.
12. Therefore, the principle in Maruti Udyog Limited is applicable to the interpretation of Section 4 of the Central Excises and Salt Act, 1944.
13. This Tribunal considering the question whether Royality paid under the license agreements should form part of the assessable value of the components imported observed that "these payments were relatable directly to manufacture of goods in India and they had no nexus with import of goods from Japan. It is, therefore, not correct to load the import price on account of payment of Royalties for local manufacture."
13A. The above preposition is squarely applicable to the facts of the present case as the payment of Royalty is relatable directly to the manufacture of soft drinks by the buyers of the 'concentrate' from the appellants but not to the manufacture of 'concentrate' by the appellants on the other hand receipt of Royalty is income for the appellants. Therefore, we are of the view that the 'Franchise fees' is not includable in the assessable value of the 'Concentrate'. We accordingly allow the appeal, and set aside the order of the Collector.