Customs, Excise and Gold Tribunal - Tamil Nadu
V.B. Office Systems vs Commissioner Of Cus. And C. Ex. on 7 November, 2000
Equivalent citations: 2001(75)ECC408, 2001(128)ELT162(TRI-CHENNAI)
ORDER Lajja Ram, Member (T)
1. In this appeal filed by M/s. V.B. Office Systems Pvt. Ltd., Madras (now Chennai) and hereinafter referred to as M/s. VBC, the matter relates to the valuation of computers marketed under the brand name 'VEL' as well as alleged removal of 59 computers without payment of Central Excise duty. The allegations regarding under-valuation related to the non-inclusion of warranty charges and advertisement expenses in the assessable value of the computers manufactured by M/s. VBC and marketed through their sister concern. The Collector of Central Excise, Madras who adjudicated the matter confirmed the demand of Rs. 2,48,400/- + Rs.1,57,110/-. He also imposed a redemption fine of Rs. 2,000/- and levied a penalty of Rs. 20,000/-.
2. The matter was heard on 31-10-2000 when Shri Muthu Venkatraman, Advocate admitted the duty liability of Rs. 2,48,000/- with regard to 59 computers removed without payment of Central Excise duty. With regard to warranty charges and advertisement expenses, he however argued that they were not includible in the assessable value and he relied upon the Supreme Court decision in the case of Philips India Ltd. v. CCE, Pune -1997 (91) E.L.T. 540 (S.C). He also referred to a large number of other decisions which will be referred to at appropriate place in this order.
In reply Shri S. Kannan, DR referred to the inter-relationship of M/s.VBC with their marketing organisation - M/s. VEL Computer Services, Madras (hereinafter referred to as M/s.VCS) and submitted that warranty charges were compulsorily collected and they were for the first twelve months of the sale. Similarly, advertisement expenses were also incurred on behalf of the manufacturers and submitted that as per various pronouncements of the Apex Court they were includible in the assessable value as they enriched the value of the goods, computers in this case. He further submitted that the Supreme Court decision in the case of Philips India Ltd v. CCE -1997 (91) E.L.T. 540 (S.C.) Pune was not applicable to the facts and circumstances of that case. Similarly, the other case law cited by ld. Advocate was distinguishable. With regard to illicit removal, appellants had already admitted their duty liability. He pleaded for rejection of the appeal.
3. We have carefully considered the matter. There are three issues involved in these proceedings that call for our consideration. It was alleged in the Show Cause Notice dated 9-12-1993 that 59 computers were removed by the appellants without Gate Passes, without entry in the daily stock account, without following the Central Excise procedures and without payment of Central Excise duty leviable thereon. The other two issues relate to valuation - noninclusion of warranty charges collected from the customers in the assessable value of the computers and the non-inclusion of advertisement charges incurred on behalf of the manufacturer.
4. It is seen from the records that M/S. VEL brand computers manufactured by M/s. VBC were marketed by M/s. VCS, a concern owned by Shri G. Dharmar, who was also the Managing Director of M/s. VBC Office and partner in M/s. V.B. Information Systems, Pondicherry.
With regard to relationship, it is so recorded in Para 3 of the adjudication order as under : -
"3. The 'VEL' brand computers manufactured earlier by M/s. V.B. Office and subsequently by V.B. Information Systems were marketed by M/s. VEL Computer Services, Madras-600 004 (hereinafter referred to as M/s. VCS), a concern owned by Shri G. Dharmar, who is the Managing Director of 'V.B. Office' and also a partner in V.B. Information Systems, Pondicherry."
5. During investigation, it was found that one number VEL-AT-386 computer was being used in the office premises of M/s. V.B. Information Systems, Pondicherry. It was admitted by the Accountant as well as the Administrative Officer of M/s. V.B. Information Systems, Pondicherry that this computer was being used without payment of any Central Excise duty. A number of discrepancies were found in the records of the concern. In addition to the above mentioned one computer in use in the office at Pondicherry it was found that other 58 computers had been removed without payment of Central Excise duty. The fact of non-payment of Central Excise duty was admitted by Shri G. Dharmar in his statement dated 20-10-1993 and 5-11-1993 as summarized in Para 9 and 12 of the Show Cause Notice. This allegation of removal of 58 + 1 = 59 computers without payment of Central Excise duty has not been contested by appellant's Counsel before us. Thus, this charge is established against appellants and we confirm the view taken by the adjudicating authority in this regard.
6. As regards warranty charges the inter-relationship of the manufacturing concern and their marketing company had been detailed in the Show Cause Notice and recorded in the adjudication order. The key figure in the organisation of both the manufacturing concern and marketing company was Shri G. Dharmar the warranty charges were compulsorily collected from the ultimate buyers. Warranty charges were for the first 12 months of the sale. The marketing company M/s. VEL Computer Services, Madras was a concern owned by Shri G. Dharmar.
The computers were also sold directly from the factory to the customers at a price which was higher than the price at which the computers were supplied to M/s. VCS, Madras. The price at which M/s. VCS, Madras were selling the computers to the customers was inclusive of warranty charges for the first twelve months. A warranty certificate issued by the assessee was given to the actual customers alongwith computers by M/s. VCS at the time of sale of computers. Thus, the warranty was given by the manufacturer. It was for the first 12 months of sale. There is nothing on record to show that warranty was optional. In para 30 of the Show Cause Notice it has been so recorded' as follows :-
"30. It is seen that the warranty expenses are actually incurred by M/s. VCS on behalf of M/s. VS Office and to cover the additional amount of 10% to 12.5% (over and above the price of M/s. V.B. Office) is collected from the customer. Free One Year Warranty for the goods sold in this case is the sole responsibility of the manufacturer and in the present case, if the warranty charges were incurred by M/s. V.B. Office, the price of the computer sold by the manufacturer would have been higher by 10% to 12.5%. Instead of incurring the warranty charges, which are nothing out manufacturing expenses, by themselves, M/s. V.B. Office have sought to unload a portion of the manufacturing expenses on to the account of M/s. VEL Computer Services and to that extent have suppressed the assessable value. Thus, it appears that there is a flow back from M/s. VCS to the manufacturer, viz. M/s. V.B. Office Systems (P) Ltd. and to that extent the price at which the computers are sold by M/s. V.B. Office are not the sole consideration of sale. Further, inasmuch as the computers are not marketable without free warranty duly is payable on the prices on which the computers are sold by M/s. VCS."
7. It had been held by the Tribunal in the case of Konark Televisions Ltd. v. CCE, Bhubaneshioar and Ors. -1988 (33) E.L.T. 481 (T) that warranty expenses for the first twelve months were includible in the assessable value. Para 9 from that decision is extracted below :-
"9. The learned representative of the department relied on paragraphs 47 and 49 in the aforesaid Supreme Court judgment in Bombay Tyre International case. The scope in these paragraphs has been further clarified by the Supreme Court in their recent judgment dated 20-12-1986 in the case of Madras Rubber Factory (Civil Appeal No. 3195 of 1979 and Others) according to which expenses incurred after removal of the goods from the factory are not to be included in the assessable value of the goods. Even according to the Bombay Tyre International judgment, it is the warranty expenses for the first twelve months which alone could be held to be necessary for initial marketing of the appellants' Television sets. The cost of such initial warranty is already included in their price as well as the assessable value. There is no case for adding in the assessable value optional service charge for the second and the third year. The learned representative of the department relied on this Tribunal's judgment in the case of M/s. Television Factory, Solan [1986 (26) E.L.T. 317 (Tribunal)]. We find that this reliance is mis-placed. The Solan case is distinguishable from the one before us for two reasons. First, the extra charge of Rs. 190/- per set was compulsorily recovered from all buyers in the Solan Factory's case while in the appellants' case the recovery was not compulsory but optional. Secondly, the extra charge in the Solan Factory case was for "service/warranty charges". The Tribunal's judgment aforesaid does not clarify whether it refers to the initial warranty for one year or for service in the subsequent years. The use of the word "warranty" suggests that the charge was for the initial warranty period. As already stated, in the appellants' case in charge for the initial warranty period of twelve months does stand included in the price as well as the assessable value."
Reference may also made to Tribunal decision in the case of Electronic Corporation of India Ltd. v. CCE -1989 (39) E.L.T. 414 wherein it had been held that if the warranty charges were compulsory, then they were includible in the assessable value. Warranty charges on TV sets were, however, not includible if they were optional, it was observed in that case.
As we have recorded above there is nothing on record to show that the warranty charges in this case were optional, they were compulsorily collected from the. customers and they were for the warranty for the first 12 months of the same. Thus their inclusion in the assessable value was correct.
8. As regards advertisement expenses, if incurred by the manufacturer, they were includible in the assessable value.
In the case of Union of India v. Bombay Tyre International Ltd. -1983 (14) E.L.T. 1896 (S.C), the Hon' ble Supreme Court had so held in para 49 of their landmark judgment on valuation as under: -
"49. We shall now examine the claim. It is apparent that for purposes of determining the "value", broadly speaking both the old Section 4(a) and the new Section 4(1 )(a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4(a) or under the new Section 4(l)(a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section. 4(l)(b). Now, the price of an article is related to its value (using this 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 its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery."
In the case of Steel City Beverages (P) Ltd. v. CCE, Patna - 1994 (72) E.L.T. 80 (T), the Tribunal in para 9 of their decision had also held that advertising charges were includible in the assessable value. Para 9 from that Tribunal decision is extracted below :-
"9. The assessable value under Section 4 of the Central Excises and Salt Act, 1944 is the price at which the excisable goods are sold for delivery at the time and place of removal. When two invoices are made for each sale one called the original for price of the goods and other supplementary for extra charges, the amount of supplementary bill is also to be taken into account and the cost of the excludible elements is any to be deducted. Without going into the controversy about the figures in respect of the amount realised by the appellants and spent towards transportation and delivery charges, it is settled that expenses incurred for loading of the goods within the factory upto stage of delivery are includible in the assessable value irrespective of who has paid for the same but charges for loading and unloading done outside the factory gate are not includible in the assessable value as it was held by the Supreme Court in the case of Indian Oxygen Ltd. v. Collector of Central Excise, reported in 1988 (36) E.L.T. 723. Following the ratio of the aforesaid decision we hold that transportation and delivery charges are not to be included in the assessable value. Similarly following the ratio of the decision in the case of Collector of Central Excise v. Indian Oxygen Ltd., reported in 1988 (36) E.L.T. 730 and Aqueous Victuals Pvt. Ltd. v. Collector of Central Excise, reported in 1988 (38) E.L.T. 42 we hold that rent and retention charges in respect of empty bottles and crates are not includible in the assessable value since rental would be though ancillary but would not be the price for the manufacture and accordingly would not constitute part of the assessable value. Since factory gate sales is available even if it is 1% out of total sales, additional transportation, special packing, loading and unloading charges are not includible in the assessable value being post manufacturing expenses. It is not the case of the department that additional bill was raised in every transaction. Nor the bill was raised for recovery charges due to cost escalation. That so-called additional bill/second bill or debit note was not even placed on record for our perusal. If the bill was raised, for the recovery of transport and delivery charges same cannot be included in the assessable value, but the legal position is clear in view of the Supreme Court case of Bombay Tyre International Ltd. that advertisement and publicity charges are includible in the assessable value. As regards advertisement cost, we are not convinced with the argument advanced on behalf of the appellants that it was done on behalf of the area dealers and subsequently it was recovered by way of job charges. In the absence of agreement or prior request it is difficult to accept the plea that advertisement was done at the behest of the customers and the decision Kerala Electric Lamp Works Ltd. (Supra) is clearly distinguishable on facts as it was rightly argued by the Senior Departmental Representative. Concurring with the findings given by the Collector on this issue and following the ratio of the decision in the case of Bombay Tyre International [1983 (14) E.L.T. 1896 (S.C.)] and the decisions cited above by the Senior Departmental Representative, we hold that advertisement charges form part of the assessable value for the purpose of excise duty. In the facts and circumstances of the case and on considering the submissions made by the party with reference to case law we set aside the penalty imposed on them. Accordingly we direct the adjudicating authority to determine the assessable value as indicated above and exact duty payable by the party may be worked out on the modified assessable value after hearing them since some discrepancies have been pointed out by them during the course of arguments with reference to calculation. Thus appeal is disposed of in the above terms."
We may also refer to the following Tribunal decisions in this regard :-
CCE, Bangalore v. R. GAC Electronic (P) Ltd., Bangalore -1988 (33) E.L.T. 485 (Tribunal).
Organisation of sales promotions, publicity and advertisement by the buyer of goods being an additional consideration for sales, money value of same was includible in the assessable valve of goods.
Eddy Current Controls (India) Ltd. v. CCE, Cochin - 1989 (39) E.L.T. 147 (Tribunal).
Advertisement and after sale service during warranty period, provided by sole distributors being additional consideration, money value was to be added.
Delhi Bottling Co. (P) Ltd. v. CCE, New Delhi - 1996 (15) RLT 685 (CEGAT-A).
Advertisement charges collected through a separate invoice were to be included in the assessable value.
Extra collection made through a separate invoice were not disclosed to the Deptt. Extended period of limitation was invokable.
9. As regards the case law cited by the learned Counsel for the appellants, we find that the Supreme Court decision in the case of Philips India Ltd. v. CCE, Pune - 1997 (91) E.L.T. 540 (S.C.) related to the advertisement and free after-sales service during the warranty period, which was provided by the dealers to the product of M/s. Philips under an agreement. Such an agreement was found to be at arm's length and the genuineness thereof was not in dispute. The manufacturer was sharing half and half advertisement expenses. Such advertisement benefited both the manufacturer as well as the dealer. It was in these circumstances that the Apex Court ruled that reduction of trade discount by 2% representing adjustment for an advertisement expenses and free of after-sales service was not called for. We do not consider that the facts in the present case are similar to the one that were before the Apex Court in the above referred case.
Similarly, in the case of V.S.T. Industries Ltd. v. CCE, Hyderabad - 1999 (114) E.L.T. 676 (T), the advertisement charges were incurred by the dealers and no part thereof was flowing back to the assessee as additional consideration.
In the case of Havmore Ice Cream v. CC, Ahmedabad -1997 (89) E.L.T. 65 (T), the advertisement expenses were incurred by the distributor and the distributor was undertaking advertisement to enhance sale of goods as there was no mutuality of interest.
In the case of CCE, Madurai v. Soft Beverages Pvt. Ltd. - 2000 (37) RLT 786 (CEGAT) the advertisement and sales promotion expenses were incurred by the wholesale dealers and the transactions were found on to be principal to principal basis. We have analysed the facts in the present case. The inter-relationship between the manufacturing concern and the marketing company had been clearly brought out both in the SCN and in the adjudication order. There is nothing on record to controvert this interrelationship in the facts and circumstances. We therefore consider that the case law cited by the Counsel for the appellants does not advance their case and the advertisement expenses were correctly included in the assessable value by the adjudicating authority.
10. On careful consideration of the matter, we agree with the view taken by the adjudicating authority, we do not find any merit in this appeal and the same is rejected. Ordered accordingly.