Customs, Excise and Gold Tribunal - Mumbai
K.R.C.D. (I) Pvt. Ltd. vs Commissioner Of Central Excise on 11 June, 2004
Equivalent citations: 2004(176)ELT427(TRI-MUMBAI)
ORDER Archana Wadhwa, Member (J)
1. The appellants are engaged in the manufacture of recorded Audio and Video Compact Disk (CD) on job work basis. The said goods are classifiable under Chapter 85 of Central Excise Tariff and chargeable to duty of excise on ad valorem basis. The dispute in the present appeal relates to the correct assessable value of the audio and video CDs being manufactured by the appellants on job work basis.
2. For the said purposes, the appellant's customers provide them master of the audio CD in the form of digital audio tape (hereinafter referred to as DAT) inlay card, and the jewel box for packing of the CDs. The process adopted by the appellants for duplicating the CDs from the master tape or DAT has been detailed in the impugned order of the Commissioner (Appeals). From the DAT supplied by the customers, the appellants arrange to manufacture a stamper i.e. Nickel plate on which the data is coded. The stamper is used as a mould to manufacture CD, which while manufacturing CD transfers data from stamper to CD. The programme which is duplicated on the CD is owned by the customers who is either himself the producer of the said programme or is a copyright owner. The customer also supplied printed inlay card, containing the details of the programme contained in the CD. These inlay card are used while packing the finished goods, by using the jewel box.
3. The appellants filed a declaration under Rule 173B giving break up of the value of the raw material and declared the total value of the CDs ranging from Rs. 15 to 23. On a belief that the said assessable value declared by the appellants was on the lower side and does not reflect the correct assessable value in terms of the provisions of Section 4 of the Central Excise Act, 1944 read with the Customs Valuation Rules, 2000, investigation were initiated against the appellants and statement of various persons were recorded. As a result, it was found that the value of the royalty paid by the customer to the music companies has not been added in the assessable value of the CDs and the cost of the inlay card and the jewel boxes declared by the appellants was much on the lower side. Accordingly, proceedings were initiated against them by way of the issuance of show cause notice dtd.04/12/2001 proposing to enhance the assessable value on the above basis. There was also a proposal in the notice to enhance the value by including advertising cost and, overhead expenditure of the customer. The said charges pertaining to the above two facts has been dropped by the impugned order of the Commissioner (Appeals) and as such we are not concerned with the same.
4. The authorities below, have however held that the royalty paid by the appellant's customers to the music companies for procuring sound recorded programme which is contained in the DAT which in turn is supplied by them to the appellants for duplicating purpose, is required to be added in the assessable value of the CDs on proportionate basis. Accordingly, the Commissioner (Appeals) while rejecting the appellant's claim of not including the amortized/apportioned cost of DAT remanded the matter to the Deputy Commissioner with directions to re-determined the assessable value, in terms of the Board's circular on the above point. The said order of the Commissioner (appeals) is impugned before us.
5. Learned Advocate Shri V. Sridharan appearing for the appellants have strongly contested that the royalty paid by the customer to the music companies cannot be made a part of the assessable value of the CDs being manufactured by the appellants on job work basis inasmuch as it is their customer who is the owner or holder of the copyright in the programme and exploited his rights, inter alia, by out right sale to his customer in the form of audio/video CD/cassettes, Tapes. For the above proposition he has drawn our attention to the various decisions holding that the value of the brand name exist between the brand name holder and his customer and the same cannot be included in the assessable value of the goods being manufactured on job work basis for a brand name holder. He further submits that for the appellant copyright has no relevance/value when CDs containing the copyright are manufactured and sold by the manufacturer to the owner of the copy right. Therefore, the value of copyright cannot be added to sale price when manufacturer sells his goods to the copyright holder. At the most, submits the learned advocate, that the cost of the master tape exclusive of the value of the copyright can be added in the assessable value. He submits that the provision of Rule (6) of Central Excise Valuation Rules, 2000, relied upon by the authorities below speak of flow of additional consideration from the buyers to the seller. This additional consideration should be apart from the sale price which the buyers is required to pay to the seller and such consideration should be qua the goods. The property in the master cassettes is owned by the copyright holder and the appellants is not free to exploit the same in any manner. Inasmuch as the ownership of the music has not been passed on to the appellants, the value cannot be enhanced by adding the royalty paid by the copyright owner to the music companies. He also submits that it is not practicable and feasible to apportion the royalty towards each CD being manufactured by the appellants inasmuch as the same would depend upon the ultimate sale of the CD in the market as also the period over which the same is sold. Learned advocate has also drawn our attention to the provision of the Copyright Act, 1957 as also to the Trademark Act, 1999, in support of his submission that it is only the copyright owner, who has exclusive right to use the music and duplication and re-recording of the same without the consent of the copyright owner would amount to violation of provisions of the said act which are to be met with punitive action. He has also challenged the enhancement of the value of the inlay card and the jewel box adopted by the Revenue for confirming the demands against them.
6. Countering the arguments, the learned D.R. appearing for the Revenue has submitted that as the appellants are manufacturing the goods on job work basis and are not selling the same out rightly to their customers in the open market, no sale price of the CDs is available. As such assessment cannot be made under the provision of Section 4(1)(a) of Central Excise Act and resort has to be made to the provision of Section 4(1)(b) of the Act read with the relevant rule of Central Excise Valuation Rules, 2000. He draws our attention to Rule 6 of the said valuation Rules and submits that any consideration flowing from the buyers to the manufacturer, directly or indirectly has to be added in the assessable value of the goods. Inasmuch as the appellants could not have manufactured the CDs without the supply of the DAT, intrinsic value of the DAT, which is nothing but a raw material for the manufacture of CD, is to be added. In support of his above submission, he places reliance on a number of decisions, which we shall be discussing in the succeeding paragraphs.
7. We have carefully considered the submissions made by both the sides. The main arena of the dispute in the present appeal is as regards the inclusion of royalty paid by the copyright holder to the music companies or viewed from other angle, the cost of the DAT, even where the music has been composed, by the customers themselves. It is an admitted fact that without the existence of DAT, manufacture of CDs was not possible. As such, DAT acquired the characteristics of raw material. As per the decision of Hon'ble Supreme Court in the case of Ujagar Prints v. U.O.I. reported in 1988 (38) E.L.T. 535 (S.C.), assessable value in such situation would be the value of the raw material supplied by the customers and the job work charges, which may include the profit margin of the job worker and the profit of the manufacturer also. As such, it is no longer a grey area for holding the proposition that the cost of the raw material supplied by the principal manufacturer is to be added in the assessable value of the final product being manufactured on job work basis.
8. The question which primarily arises is as to what would be the cost of the said raw material i.e. DAT in the present case. Learned advocate has drawn our attention to the Supreme Court diction in the case of Food Specialities Ltd. - 1985 (22) E.L.T. 324 (S.C.) and Sidhosons v. U.O.I. - 1986 (26) E.L.T. 881 (S.C.) holding that the price of the brand name held by the principal manufacturer is not to be added in the assessable value of the goods where the goods are manufactured by job worker with the brand name of the brand name holder. It was observed in paragraph 6 of the judgment that trade mark is a property of Nestle and not of the petitioner. The petitioner could not sell to Nestle what was the property of Nestle's and what was not theirs. It was for Nestle to include it in the price at which they sell the product to dealers. The other decisions in the Sidhosons case observed that the enhancement of the value of the goods by reason of the application of the brand name is because of the augmentation attributable to the value of the goodwill of the brand name which does not belong to the manufacturer and which added market value does not accrue to the petitioner company and go into its coffers. To the similar effect are the other decisions in the case of Kulwant. Electrical Industries v. U.O.I. - 1999 (109) E.L.T. 23 (S.C.); U.O.I. v. Playworld Electronics Pvt. Ltd. - 1989 (41) E.L.T. 368 (S.C.) and R.O. Industries v. U.O.I. - 2000 (120) E.L.T. 31 (S.C.), relied upon by the appellants. However, we find that all these decisions dealt with the situation where the departments proposed to include the value of the brand name of the principle manufacturer in the assessable value of the job-worker's final product. It was in these condition that the Hon'ble Supreme Court held that the brand name holder is the owner of the same and the price received by him from his customers or market, on account of goodwill of the brand name, cannot be made a part of the assessable value of the job-work manufactured goods. We arts afraid that the ratio of the above decisions is not applicable to the facts of the instant case on account of the same being altogether different. The issue in the present case is as to whether the landed cost of the DAT which would also include royalty, is required to be added in the assessable value of the CD's or not.
9. The appellants have strongly argued that the ownership of the copyright in the music recorded in the DAT continues to remain with the copyright holder and the same, at no point of time, gets passed on to the appellants. As such, it has been argued that the value of the royalty paid by the copyright owner to acquire the said right is not includable. The above argument does not impress us inasmuch as the Hon'ble Supreme Court's decision in the case of Ujagar Prints referred supra has held that the ownership of the goods is no criteria for arriving at the assessable value, when it was observed in paragraph 29 and 30 of their judgment that the nature of the excise, duty is not to be confused, with or tested with reference to the measure by which the tax is assessed and in the case of processing house Hon'ble Supreme Court has held that they become liable to pay excise duty not because they are owners of the goods but because they caused the 'manufacture' of the goods. As such, criterion of retention of the ownership by the copyright holder is of no relevance. It may be mentioned here that learned advocate during the course of his arguments as also in the written submission has agreed that if the copyright owner would be himself duplicating the CDs, the value of such CDs were required to be arrived at by taking into account the royalty charges or the licence fee paid by him for use of such programme. He clarifies that in such case the manufacturer is the one who is exploiting the copyright by selling the manufactured goods to the open market and cannot claim any deduction from his sale price towards the royalty or licence fee paid to the copyright owner. In the said situation, he has fairly agreed that the price charged by him from the open market buyer will include a charge towards the use of the copyright. However, he submits that said principle will not apply in the present case inasmuch as the manufacturer, who is only a job worker, has no connection with the royalty. There is not much force in the above contention of the learned Advocate in view of paragraph 30 of Ujagar Prints, where their lordship of the Hon'ble Supreme Court have observed as under:-
"Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed under Section 37 of the Act, it cannot be said that the assessable-value of the processed fabric should comprise only of the processing-charges. This extreme contention if accepted, would lead to and create more problems than it is supposed to solve; and produce situations which could only be characterised as anomalous. The incedence of the levy should be uniform, uniformed by fortuitous considerations. The method of determination, of the assessable value suggested by the processors would lead as to the untenable position that while in one class of Grey-fabric processed by the same processor on bailment, the assessable-value would have to be determined differently dependent upon the consideration that the processing house had carried out the processing operations on job work basis, in the other class of cases, as it not unoften happens, the goods would have to be valued differently only for the reason the same processing house has itself purchased the Grey-fabric and carried out the processing operations on its own."
As is evident from the above para, the assessable value of the goods cannot be determined differently depending upon the fact as to who has actually carried out the manufacturing operation. As such, the learned Advocate's contention that the royalty may form a part of the value of the final goods if the same are manufactured by the principal manufacturer but is not required to be taken Into consideration when the goods are manufactured by the job worker has no merits. At this stage we would like to take note of new Section 4 of the Central Excise Act, 1944, as substituted by Section 94 of the Finance Act, 2000 which has come into force on the first day of July 2000 which reads as follows:-
"4.(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then on each removal of the goods, such value shall
(a) in a case where the goods are sold by the assesses for delivery at the time and place of removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for sale, be the transaction value.
(b) in any other cases, including the case where the goods are not sold, be the value determined in/such manner as may be prescribed."
Inasmuch as there is no sale of the appellants to the customers and the goods are being manufactured on job work basis out of the raw material (master DAT, inlay card, jewel, box etc.) supplied by the customers, the value, has to be determined in terms of the provision of Section 4 (1) (b) read with Central Excise Valuation Rules, 2000. Rule 6 of the Valuation Rules, 2000 is as follows:-
"Rule 6 : Where the excisable goods are sold in the circumstances specified in Clause (a) of Sub-section (1) of Section 4 of the Act except where price is not the sole consideration for sale, the value of such goods shall be deemed to be aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.
Explanation : For removal of doubts, it is hereby clarified that the value, apportioned as appropriate of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not be included in the price actually paid or payable shall be treated to be the amount of money value of the additional consideration flowing directly or indirectly from the buyer to the assessee in relation to the sale of the goods being valued and aggregated accordingly, namely
(i) ................
(ii) Value of tools, dies, moulds, drawings, blue prints, technical maps and charts and Similar items used in production of such goods.
(iii) Value of material consumed including packing materials, in the production of such goods.
(iv) ..............
As is clear from the above explanation money value of the material supplied by the customers, directly or indirectly, is liable to be included in the assessable value and the value of the DAT, worked out on the appropriate basis, would form a part of the value of the final CD. Without the music programme recorded in the said DAT it is not possible for the appellants to manufacture the recorded CDs. As rightly observed by the Commissioner (appeals) the music programme is the main ingredient of the product manufactured by the appellants and the ultimate customer who buys the CDs, is buying the same because of the quality and popularity of that music, which determines the final value of the CDs in the retail market. In fact it is not a physical and tangible CD which is the subject matter of sale to the ultimate retail customer but it is the music which is recorded therein which the customer would be buying. If that is not so, the value of all CDs would be constant in the market which fact is not true and wide difference between the various CDs recorded with different musical programme is on account of the quality or popularity of music recorded in those CDs. As such the sound recorded in the DAT is a important ingredient of the CD being manufactured by the appellants, thus making it inevitable to include the cost of the same in the assessable value of the CD.
10. At this stage, we take note of the Larger Bench decision of the Tribunal in the case of Mutual Industries Ltd. v. C.C.E. Mumbai -2000 (117) E.L.T. 578 (Tribunal) wherein the Tribunal rejected the assessee's contention not to include the cost of the moulds supplied free by the customers and used in the manufacture of finished goods by observing that in the absence of these moulds assessees could not have manufactured moulded components as required by the customers. These moulds are essential and without their help finished product could not have come into existence. The fact that the same belong to the customer and were given back to them after use was held to be of no consequence. The Tribunal also observed that if the mould would have been procured by the customer, the value of finished product would have been far greater than the amount fixed between the appellants and customers. Similar is the situation in the present case. It is not possible for the appellants to manufacture the CDs without formulated DAT. If the DAT, is not provided by the customer and the appellants is required to himself procure the same, he would have paid royalty to the music owners in which case the same would have become part of the assessable value of the final CD, as also conceded by the learned Advocate. The assessable value of the same product cannot be different depending upon two different situations i.e. as to who is the manufacturer.
The Tribunal also observed in the said decision by referring to Rule (5) of earstwhile Central Excise (Valuation) Rules, 1975 that the price fixed between the assessee and the customer, where the mould was to be supplied by the customer, cannot be said to be the sole consideration for sale of the finished products. The said price was fixed between the two by taking into consideration the supply of the mould by the customer. As such, It has to be held that there was additional consideration by the customer to the job worker which was in the nature of the value attributed to the use of the mould.
In fact the Tribunal proceeded to observe that even when the life of the mould after a fix number of uses is exhausted, the apportioned value of the same would still be required to be added inasmuch as the mould continues to be of value as far as the manufacturers is concerned, for the manufacture of the finished products.
11. Learned D.R. has also drawn our attention to the Hon'ble Supreme Court decision in the case of Dugar Electronics v. C.C.E. Calcutta - 2002 (53) RLT 636 (SC). In the said case the assessee was manufacturer of tape recorder under the brand name of Philips and the mould and spare parts of the tape recorder were got prepared by Philips at their cost from third parties and supplied free of cost to the assessee. The Hon'ble Supreme Court rejected the appellant's contention that the value of the moulds is not to be added in the assessable value for the simple reasons that it was not disputed that for the development of mould, Philips played a dominate role and the assessee did not invest for the development of the moulds. The above observation made by the Hon'ble Supreme Court, though the order of the Tribunal was set aside on different ground and matter remanded, fully support the Revenue's case that the expenses incurred for procuring the master cassettes, may be in the nature of royalty or any other way, do form part of the assessable value of the recorded cassettes.
12. Reference may also be made here to Hon'ble Supreme Court decision in the case of Pepsi Foods Ltd. v. C.C.E. Chandigarh 2003 (158) E.L.T. 552 (SC) wherein the royalty amount collected by M/s Pepsi from their bottlers for use of trade mark of soft drink beverages manufactured out of the concentrates sold by M/s Pepsi was hold to be includible in the assessable value of concentrate. In para 11 their lordship observed that - "The fact that the royalty is charged for permitting the use of the trademark, but not as part of price for specific units of concentrate sold does not detract from the fact that the overall consideration for the sale of concentrate is not merely its price stated in the invoice. It is something more that, namely, royalty to be received periodically". Though the fact of the instant case are not at all four comers with the fact of the instant case but support can be drawn from the ratio of the same.
13. Reference can also be made to the Tribunal decision in the case of Garware Polyester Ltd. v. C.C.E. Bombay - 1999 (105) E.L.T. 705 (Tribunal), where it was held that the royalty charge paid for obtaining permission to record particular films, was includable in assessable value. The Tribunal, in para 9, observed that the act of recording has enhanced the value of the unrecorded tapes and the tapes in the form in which they are cleared from the factory have been enriched by the recording. Therefore, royalty charges should be element in the assessable value and cannot be deducted.
14. Revenue has also placed reliance on a recent judgment of the Tribunal in the case of sound tracks being Order No. C-II/594/WZB/2004 dtd.23/02/2004 wherein after taking note of the Supreme Court decision in the case of Ujagar Prints and the Tribunal decision in the case of C.C.E. v. Music India Limited - 1998 (97) E.L.T. 171 it was held that pancake magnetic master tape containing the programme, inlay cards and other items are required to be added in the assessable value of tapes. However, it was observed that the cost of the pancake master tape has to be amortized over the number 9f copies of the audio cassettes tapes that have been made, as per the settled law on this subject. Learned Advocate Shri V. Sridharan submits that the said order of the Tribunal in the case of Music India Ltd. which has been relied upon by the Tribunal in the sound tracks was since recalled as reported in 1998 (102) E.L.T. 179 (T) and as such, the effect of the same is wiped down. However, we do not find anything from the said order of the Tribunal that it is recalling the earlier order. In fact the appeal of revenue was dismissed on the short ground that the order proceeded on a ground different than one disclosed.
15. In the case of Burn Standard Co. Ltd. v. U.O.I.- 1992 (60) E.L.T. 671 as also in the case of Texmeco Ltd. v. C.C.E. Calcutta -1995 (77) E.L.T. 501 (S.C.), it was held that the value of the free supply items by the customer is includable in assessable value of the final product. In fact in the case of Texmeco Ltd. it was observed that the fact that the ownership of the free supply items was with the customers was held to be extraneous for levy of excise duty and for determining the value of the final product.
16. The Tribunal in the case of Johnson and Johnson v. C.C.E. Mumbai - 2000 (117) E.L.T. 409 (T) observed that the value of any equipment or component specifically facilitating the production of an article is to be included in computing the assessable value of the final product. Relying upon the earlier judgment holding that the value of the dies or printing plots could be apportioned over resultant product, the Tribunal laid down that the value of the art work/printing screen frame was correctly includable in the assessable value of the labels printed by the assessee.
17. We also take note of the Hon'ble Supreme Court decision in the case of Associated Cement Company Ltd. v. C.C.E. - 2001 (128) E.L.T. 21 (SC). The issue before their Lordship was as to whether the drawings and designs and the other technical material imported by the appellants were liable to duty when imported into India. It was observed by their Lordship that it may be true that what the importer wanted and paid for was technical advise or in information technology and intangible assets but the moment the information or advise was put on a media, whether paper or cassettes or diskettes or in other thing, than what is supplied becomes chattel. By observing so it was held that drawing, designs, manuals and technical material received by the appellant were goods liable to duty of customs. The observation made by their Lordship in Para 39, 40 and 41 counters learned advocate's contention that the music recorded in the cassettes is intellectual property and the same cannot be valued. For better appreciation, we reproduce below the said paragraphs of the judgment.
"39. To put ft differently, the legislative intent can easily be gathered by reference to the Customs Valuation Rules and the specific entries in the Customs Tariff Act. The value of an encyclopaedia or a dictionary or a magazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value or price of an encyclopaedia. Therefore, the intellectual input in such items greatly enhance the value of the papers and ink in the aforesaid examples. This means that the charge of a duty is on the final product whether it be the encyclopaedia or the engineering or architectural drawings or any manual.
40. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example In the case of music the value of a popular music cassette is several times more than the value of the blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. In this behalf we may note that in State Bank of India v. Collector of Customs, Bombay [2000 (115) E.L.T. 597 (S.C.) = 200 (1) scale 72] the Bank had, under an agreement with the foreign company, imported a computer software and manuals, the total value of which was US $ 4,084,475. The bank filed an application for refund of customs duty on the grounds that the basic cost of software was US $ 401,047. While the rest of the amount of US $ 3,683,428 was payable only as a licence fee for its right to use the software for the bank countrywide. The claim for the refund of the customs duty paid on the aforesaid amount of US $ 3,683,428 was not accepted by this Court as in its opinion, on a correct interpretation of Section 14 read with the rules, duty was payable on the transaction value determined therein and as per Rule 9 in determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. This clearly goes to show that when technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof.
41. It is misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, painting are also to be taxed. Valuable paintings are worth millions. A painting or a portrait may be specially commissioned or an article may be tailor made. This aspect is irrelevant since what is taxed is the final product as defined and it will be an absurdity to contend that the value for the purposes of duty ought to be the cost of the Canvas and the oil paint even though the composite product, i.e., the painting is worth millions."
The learned advocate has submitted that the said judgment of the Supreme Court is not applicable inasmuch as the Supreme Court was dealing with the cost of imported goods being sold by the copyright holders to a buyers on outright basis without any right of reproduction. In the present case, the appellants have not charged from their customer any amounts towards copyright since the customers are themselves the owner of the copyright. If the appellants were owners of the copyright, then naturally the appellants would have charged and received some value towards the copyright and in such a situation judgment of the Supreme Court in Associated Cement Company Ltd.'s case would be relevant. We do not agree with the above contention of the learned Advocate. The judgment is squarely applicable even in case is where the goods have been manufactured on job work basis, in view of the Ujagar Prints decision holding that two different assessable values cannot be arrived at in different situations.
18. Appellants have strongly relied upon the Tribunal decision in the case of C.C.E. Mumbai-I v. Puma Electronics Pvt. Ltd.- 2000 (119) E.L.T. 86. However, we find that the said decision is not applicable inasmuch as the Revenue's case before the Tribunal was to adopt the price of the video cassettes at which the owner of the master cassettes was selling the same to its customers. The Tribunal observed that there was no justification for adopting the sale price of the customers inasmuch as the value of the goods cleared by job worker was based on the cost of the material and the value addition made by the job worker and his margin of profit. Whether while taking into consideration the cost of raw material, the expenses incurred towards royalty were considered or not, is not clear from the above judgment for the simple reason that the Revenue's appeal was on altogether different ground and the issue involved in the present appeal was not one of the disputed issue before the Bench.
19. The appellants have also relied upon the Tribunal's decision in the case of Living Media India Ltd. v. C.C., New Delhi - 2002 (148) E.L.T. 441 (Tri.Del.) wherein in view of para 7 of the interpretative note to Rule 7 of the Customs (Valuation) Rules, 1998 and para 1 of interpretative note to Rule 9(1)(c), it was held that the royalty paid is excludable from the assessable value. The ratio of the above decision cannot be applied to the facts of the instant case inasmuch as the disputed issue before the Bench in that case was valuation of the imported items and was resolved keeping in view the Customs Valuation Rules whereas in the instant case the issue relates to the assessable value of the CDs for the purpose of the levy of central excise duty which has to be resolved taking into consideration provision of the Central Excise Ac read with the Central Excise Valuation Rules, 2000, which have already been extracted by us as above and discussed.
20. The appellants have also submitted that it would by not only difficult but impracticable to apportion the royally amount towards the cost of the CD inasmuch as the copyright may be for use of the music in audio cassette tapes and audio CD, Video CD, broadcast rights, one time use or multiple time use or may be for limited or unlimited period. We are of the view that merely because the said formula to arrive at the apportioned cost of the master CD for each CD is not easy, the same cannot be made the ground for not including the same in the assessable value. These practical difficulties expressed by the learned advocate are also equally present in the case of the duplication of the CD by the copyright owner himself, in which case the appellants cannot be heard arguing that the cost should not be included. Learned advocate has himself agreed that in the case of manufacture by the copyright holder, the cost is required to be included on apportioned basis. In any case, we find the answer to this problem in the Board's circular No. 619/10/2002-CX dtd.19/02/2002. Paragraph 6 & 7 of the said circular, which requires inclusion of the cost of. royalty in the assessable value of the CDs provides for the formula and the procedure required to be adopted. For ready reference, we reproduce the said paragraph below:-
"6. The DAT/discs contains the original recorded music/movie. Its cost would include the royalty amount paid/payable by the music company for acquiring exclusive rights for the music/movie and the cost incurred in getting the original score recorded in a studio (if this has been incurred by the copyright owner. In such cases the most reasonable method would be to ascertain the royalty amount and studio hire charges contained in the wholesale price of the CDs at which the copy right owner sells, to its dealers, at arms length. This could be done by determining the royalty amount plus the studio hire charges as a percentage of the net sale value (gross sale minus central excise duty element) of the music company or copyright owner in respect of the recorded media. In case the company also sells audio cassettes of the same music, there would be no need to break up the sale value for CD's and cassettes separately for determining the percentage since the royalty amount would cover rights for both. The figures of net sales and royalty payments are normally available in the balance sheets of these companies. This percentage will be used to determine the element of royalty cost attributable to each CD. Duty will have to be paid by the job worker on the royalty amount also. As an illustration, if the ratio of the royalty amount plus studio hire charges, to net sales of a music company is, say, 9.41% and the whole sale price of a recorded CD of the music company is, say, Rs. 100/- and the job charges charged by the job-worker is Rs. 25/-, then the value on which duty will have to be paid by the job-worker would be Rs. 25 + 9.41% of Rs. 100= Rs. 25 + Rs. 9.41 = Rs. 34.41. In case the music company has also supplied to the job worker, free of cost, inlay cards, jackets, jewel box or any other material/input, their cost should also be added to the job-charges. If the job worker has purchased some raw materials (e.g. poly carbonate) or inputs, their value will also be added..
7. For this it will be necessary or the music company to supply to the job-worker the data relating to royalty payment and the wholesale pr4ice of each CD, the cost of the inlay cards, jacket, jewel box and other material supplied free of cost. Since net sales value and total royalty payment for the current year will not be available with the music company, duty should be determined on the basis of figures for the previous year. Till the figures for the previous year are provided assessments should be done provisionally. Assessments should be finalized immediately after the figures for the previous year are made available."
21. The appellants have further submitted that the said circular relied upon by the Commissioner (Appeals) can be challenged by them. There can be no dispute about above legal position. However, on the basis of the discussion made by us in the preceding paragraphs taking account of the entire relevant case law, we do not find any justifiable reason to take a view different from the one taken in the said circular. In view of our foregoing discussion, we hold that the cost of the master DAT is required to be added in the assessable value of the CD on the basis of the amortized or apportioned cost for each CD. Commissioner (Appeals) has already remanded the matter to the Deputy Commissioner for re-determining the assessable value on the said basis.
22. At this stage, we also take note of appellant's grievance that the value of the inlay card adopted at the higher rate Rs. 6/- per CD and the jewel box is much on the higher side, we find that whereas the department has relied upon the statement recorded during investigation to arrive at the cost of the inlay card, the appellants have contested the same on the ground that it is only in the case of audio CD inlay card is supplied and not in case of video CD and even as per the statement the average cost would come to Rs. 1.83/-. As the matter already stand remanded to Deputy Commissioner for requantification of demand, and as we do not have any sufficient material to adjudicate the issue of value of inlay card and jewel box, we direct the Deputy Commissioner to do so in the Denovo proceedings. We, however, make it clear that it is only the value part of the said free supply items, which were disputed by the learned Advocate, who otherwise agreed that the same is required to be added in the assessable value of the CDs. We are also not passing any order on the quantum of penalty which would be dependent upon the quantum of duty re-determined against the appellants in the Denovo proceedings. Needless to say that the appellant would be afforded opportunity to place their case before the adjudicating authority during remand proceedings.
23. Before we depart, we would like to mention that both sides have referred to the provision of the Copyright Act, 1957 and the Trade Mark Act, 1999 and some encyclopedia to draw our attention to the fact that it is only a copyright owner who can make copies of the sound recordings and has the exclusive right over them and infringement of the various rules results in penal action against the offender. Though the said provision may be of academic interest to all of us we do not find any relevance of the same in deciding the present dispute of valuation of CDs.
24. Appeal is thus disposed of in above terms.
(Pronounced in court on 11.6.04)