Customs, Excise and Gold Tribunal - Bangalore
Madurai Soft Drinks Pvt. Ltd. vs Cce on 27 September, 2002
Equivalent citations: 2003(86)ECC269, 2002(150)ELT1244(TRI-BANG)
JUDGMENT S.S. Sekhon, Member (T)
1. The applicants were engaged in the manufacture of aerated waters falling under Chapter Heading 2202.12 and Chapter Heading 2201.12 of the Central Excise Tariff Act, 1985. The aerated waters manufactured by the applicants were sold to M/s. Sakthi Soft Drinks Ltd., on payment of appropriate Central Excise duty and after following the concomitant Central Excise formalities.
2. They were issued nine show cause notices by the jurisdictional Superintendent of Central Excise, proposing to demand differential duty on the ground "as to why the price at which the goods are sold by M/s. Sakthi Soft Drinks should not be taken as the assessable value under the provisions of Section 4 of the Central Excise and Salt Act, 1944 and why an amount of Rs. 33,44,955 being the differential duty for the clearances made from August 1994 to January 1995 should not be demanded from them in terms of Rule 9(2) read with Rule 173C(4) of Central Excise Rule, 1944, Section 4 and Section 11A of Central Excise and Salt Act, 1944." (As extracted from Show Cause Notice No. 209/95 dtd. 22.2.95). The other Show Cause Notices are also on similar grounds. It also appeared as mentioned in the Show Cause Notice that the price charged is favourably low based on the mis-declarations. The notices, inter alia, also alleged that M/s. Sakthi Soft Drinks cannot be treated as the wholesale buyer and sales to them can be treated as a related person only.
3. The applicants in their replies to the show cause notices contended, inter alia, that the proposals in the show cause notices to consider M/s. Sakthi Soft Drinks Ltd., as a "related person" of the applicants was not sustainable. A personal hearing was also held. On receipt of this reply, the Department again conducted certain investigations and issued the results of the same by a letter alleging the nexus between the two companies and based on them made further allegations against the applicant. The Department sought to infer that although M/s. Madurai Soft Drinks and M/s. Sakthi Soft Drinks Ltd., are two separate entities, there appeared to be a mutuality of interest and extra consideration given by M/s. Sakthi Soft Drinks Ltd., to M/s. Madurai Soft Drinks. It was, therefore, proposed that in terms of Proviso (iii) to Section 4(1)(a) of the Central Excise Act, 1944, the re-sale price of the "related person" was to form the basis of the assessment. The applicants filed again a detailed reply rebutting the various allegations and contentions raised by the Department.
4. The Assistant Commissioner after hearing the applicants, held that "the expenses incurred by the distributor viz. M/s. Sakthi Soft Drinks towards advertising and promotional activities are not to be included in the assessable value. The rental charges at Rs. 7.50 per crate collected by the assessee as discussed above do not appear to be based on actuals. The loading charges up to the factory gate, the cost of transportation of the empty bottles back to the assessee's factory and so also breakages and shortages in the market if any, are borne by the distributor. All the aforesaid charges are liable to be incurred by the assessee and should form part of the assessable value. Under the circumstances, I hold that the alleged rental charges of Rs. 7.50 per crate which is being collected by the assessee from M/s. Sakthi Soft Drinks Ltd., represents the amount towards the aforesaid expenses and is in the nature of a flow back over and above the declared assessable value and is there to be included in the value for the purpose of assessment of duty."
5. The Commissioner (Appeals) vide his impugned order considering the appeal by Revenue and by the appellants, formulated the case and found as follows:
"4. There was abnormal variation between the factory gate price and the price at which M/s. Sakthi Soft Drinks sold the goods. The advertisement charges and other expenses connected with the sale promotion were stated to be incurred by M/s. Sakthi Soft Drinks Ltd. There was no written agreement between them. The department issued 9 show cause notices to the assessee asking them as to why the selling price of M/s. Sakthi Soft Drinks should not be taken as assessable value under the provisions of Section 4 of the Central Excise and Salt Act, 1944. The Assistant Commissioner in his adjudication order (Original) No. 94/97 dtd. 9.12.97 held that the rental charges at Rs. 7.50 per crate collected by the assessee are not based on actuals. The loading charges upto the factory gate, cost of transportation of empty bottles back to the assessee's factory, breakages and shortages in the market, if any, are borne by the distributor. All the aforesaid charges are liable to be incurred by the assessee and should form part of the assessable value. The 0/A, therefore held that the rental charges of Rs. 7,50 per crate collected by the assessee from M/s. Sakthi Soft Drinks Ltd., represents the expenses and is in the nature of flow back over and above the declared assessable value and is therefore, to be included in the value for the purpose of assessment of duty and accordingly confirmed the demand of duty of Rs. 38,82,684. The O/A has held that the expenses incurred by the distributor towards advertisement and sale promotional activities are not to be included in the assessable value.
5. The rental charges at Rs. 7.50 per crate was in the nature of a flow back and for this the Assistant Commissioner came to the conclusion that the transaction between M/s. Sakthi Soft Drinks Ltd., and Madurai Soft Drinks Ltd. were not on principal to principal basis and the sale are not at arms length. Once he has came to this conclusion, the decision to drop the demand relating to advertisement charges and sales promotion expenses was wrong. Basing Supreme Court judgment in M/s. Philips India Ltd. and other cases, relief is given when there is an agreement at arms length and the genuineness thereof is therefore not in dispute. As stated in the Order-in-Original, there is no written agreement in the present case and that the transaction is proved to be not at 'arms length'. As per Clause 7 of the Franchisee (Licensee) agreement the bottler is bound to vigorously and diligently promote and solicit the sale of the said beverages and assure full and complete distribution of the said beverages to meet the market demand for the beverages. The manufacturers viz., M/s. Chamundeshwari Sugars Ltd. and M/s. Madurai Soft Drinks Ltd. are not doing advertisements or promotional activities except bottling of the beverages with the logo on the bottles. But it is evident that M/s. Sakthi Soft Drinks Ltd. are doing the advertisement and other promotional activities which ought to have been done by the manufacturer i.e. M/s. Chamundeshwari Sugars Ltd. arid M/s. Madurai Soft Drinks Ltd. as per the Franchisee (Licensee) agreement and for this purpose the distributor is getting the product at a lower rate. Had this activity been done by M/s. Chamundeshwari Sugars Ltd. and M/s. Madurai Soft Drinks Ltd. these expenses would have definitely formed a part of the assessable value and to this extent also the assessee has tried to evade the duty. Hence the Assistant Commissioner should not have dropped the demand relating to advertisement charges and sales promotion expenses. As per the latest decision on advertisement expenses, Hon'ble Tribunal in the case of Sri Sarvaranya Sugars Ltd. v. Commissioner of Central Excise, Guntur, 1997 (93) ELT 794 (Trib.) has observed that extra amount towards advertisement expenses being related to service done for branded goods of appellant and not being incurred on behalf of dealers, cost thereof is includable in the assessable value. Hence the amount towards advertisements expenses and sales promotion expenses incurred by the distributor should have been included in the assessable value."
And held:
"11 M/s. Chamundeshwari Sugars Ltd. were clearing their entire products through M/s. Sakthi Soft Drinks Ltd. upto the time of the take over of the unit on 27.3.95 by M/s. Madurai Soft Drinks. M/s. Madurai Soft Drinks Ltd. were also marketing their entire products through M/s. Sakthi Drinks Ltd. There was no written contract between M/s. Chamundeshwari Sugars Ltd. and M/s. Madurai Soft Drinks Ltd. with M/s. Sakthi Soft Drinks Ltd. It is noticed that there was abnormal variation in the factory gate selling price and the price at which M/s. Sakthi Soft Drinks Ltd, sold the goods. The advertisements charges, the expenses connected with promotion of marketability of the goods, the loading charges upto the factory gate, the cost of transportation of empty bottles back to the factory, the breakages and shortages in the market were borne by the distributor. These expenses are normally liable to be incurred by the manufacture and should form part of the assessable value of the goods. The assessee also collected rental charges from the distributors at the rate of Rs. 7.50 per crate.
12. It is observed that the manufacturers were not doing any advertisement or sale promotion activities except bottling of the beverages with the logo of the bottles. Their claim that they are manufacturing soft drinks of renowned, popular brand and the brand name has already an impeccable as well as established image and popularity among the customers and market and their marketing activities stand complete at their doorsteps itself since they can get any number of takers cannot be accepted. As per Clause 7 of the Franchisee (Licensee) agreement, the bottles is bound to vigorously and diligently promote and solicit the sale of advertisement and sales promotion are required to the undertaken. Had these activities been undertaken by the manufacturer, the expenses would have definitely formed a part of the assessable value.
13. Sales promotion and publicity expenses incurred by a bulk dealer is includible in the assessable value of the product. Otherwise, the manufacturer would have to incur these expenditures. This is the ratio of the decision of the Hon'ble Tribunal in the case of Alembic Glass Industries v. Commissioner of Central Excise, Baroda, 1997 (95) ELT 292. In the case of Bisleri Beverages Pvt. Ltd. v. Collector of Central Excise, Ahmedabad the Hon'ble CEGAT has held that advertisement expenses carried out in this respect of aerated waters enhances the marketability of the beverage base and adds to its value hence includible in the assessable value of beverage base as reported in 1999 (109) ELT 333. The Hon'ble Supreme Court disposed of the Civil Appeal against the above-said order of the CEGAT as reported in 2007 (128) ELT.
14. M/s, Sakthi Soft Drinks are also incurring expenses of loading of the goods, return of the crates and bottles to the factory. The loading charges upto the factory gate and transportation charges for return of the containers are also includibie in the assessable value. M/s. Sakthi Soft Drinks Ltd. as well as M/s. Madurai Soft Drinks (P) Ltd. had earlier admitted that the loading/unloading and transportation charges are paid by M/s. Sakthi Soft Drinks Ltd., M/s. Madurai Soft Drinks subsequently claimed that the loading charges inside the factory were borne by them and included in the assessable value. This cannot be accepted as the assessee has not produced any documentary evidence in support of their subsequent claim. The breakages and shortages in the market are borne by M/s. Sakthi Soft Drinks Ltd. The loading charges at the factory gate, the cost of transportation of the empty bottles back to the factory, the breakages and shortages borne by the distributor are liable to be incurred by the assessee and therefore should form part of the assessable value. The manufacturer collects rental charges from the distributors at the rate of Rs. 7.50 per crate. The assessee has not produced any evidence to prove that the rental charges collected are based on actuals. Rental charges recovered from the distributors should be included in the assessable value applying the ratio of Hon'ble CEGAT's decision in Kota Oxygen (P) Ltd. v. Commissioner. 2000 (121) ELT 369 (T). The Hon'ble Supreme Court has dismissed the Civil appeal filed against the above order as reported in 2007 (728) ELT. In view of the factual position discussed above, that the transactions between the manufacturers viz., M/s. Chamundeshwari Sugars Ltd. and M/s. Madurai Son Drinks Ltd. with the distributor viz. M/s. Sakthi Soft Drinks Ltd. cannot be held to be on principal to principal basis and sales are not at arms length. The expenses incurred are in the nature of ensuring the marketability of the goods and has complete nexus in the manufacturing of the excisable products. Such expenses have, therefore, to be included in the assessable value."
Hence the present appeal by the assessee, against the duty demands determined by the Commissioner (Appeals).
6. We have heard both sides and considered the submissions and find:
(a)(i) The order of the Assistant Commissioner to the effect that the advertisement expenses were not liable to be included and that the rental charges collected by the applicants from M/s. Sakthi Soft Drinks Ltd., were liable to be included, had the effect that the two companies cannot be considered as "related" to each other and the only course open to the Assistant Commissioner was to drop the proceedings initiated in the Show Cause Notices and if necessary to initiate fresh proceedings for inclusion of either the advertisement expenses or the rental charges as the case may be. This route was not adopted.
(ii) The Prayer in the Revenue's appeal to seek the inclusion of the advertisement expenses was clearly beyond the show cause notice as issued. Therefore it should not have been entertained at all. As a result, the order of the Commissioner (Appeals) is also beyond the proposal made in the show cause notice.
(b) That part of the order passed by the Assistant Commissioner holding that the amount of Rs. 7.50 was liable to be added to the assessable value on the ground that the same represented loading charges upto the factory gate, the cost of transportation of the empty bottles, the breakages and shortages incurred by the distributors etc., is also similarly beyond the show cause notice.
(c) The applicants were one of the franchise holders of M/s. Coco Cola Company, Atlanta, United States and there was no need for them to incur any advertisement expenditure to market their product. The advertisement and sale promotion expenses incurred by the marketing company viz. M/s. Sakthi Soft Drinks Ltd., were in the nature of expenses incurred by a marketing company for expanding its own interest, with no evidence of any kind of control and/or directions from the applicants. The applicants are not found to be collecting any amounts from the purchasers. If they are not claiming any deduction towards advertisement expenses, it only means that the expenses incurred by the applicants are out of the Sale Price accruals from sales of the product in question. Consequently, no further addition could be called for towards advertisement expenses. Reliance in this regard is placed on the decision of the Tribunal in the case of Pepsi Foods Ltd. v. CCE, 1996 (82) ELT 33. This decision of the Tribunal has been confirmed by the Hon'ble Supreme Court in CCE, Chandigarh v. Pepsi Foods Ltd., 1997 (91) ELT 544; following the same, we find no reasons to add the advertisement expenses, in view of the facts of the case law.
(d)(i) The Commissioner (Appeals) has confirmed the view of the Assistant Commissioner that the amount of Rs. 7.50 per crate collected by the applicants towards rental charges was not based on actuals and that the same was a flow-back covering various expenses. He has relied on the decision of the CEGAT in the case Kota Oxygen (P) Ltd. v. CCE, 2001 (42) RLT 137 (CEGAT) : 2000 (121) ELT 369. The only ground not to exclude the rental charges from the assessable value is that no evidence has been produced to show that they been collected based on actuals. This logic of the authorities below is not sound. As once it is accepted and found by them that this amount represents rental charges, then notwithstanding the fact that such amounts are or are not in excess of the actuals, they are not liable to be included since the element of rental charges is not liable to be included in the assessable value. The issue is also covered by Circular dtd. 7.7.89 issued by the Board wherein they have clarified that the rental charges in respect of durable and reusable containers are not to be included in the assessable value. Revenue cannot argue against this Circular advice which is binding on them. Reliance is placed in this regard on the decision of the Hon'ble Supreme Court in the case of CCE, v. Indian Oxygen Ltd., 1988 (18) ECC 172 (SC): 1988 (36) ELT 730 (SC) is binding law and the same was required to be followed by the Commissioner (Appeals). We following the same, do not approve the increasing of Rs. 7.50 per crate.
(ii) The Assistant Commissioner of Central Excise, Madurai-I Division, Madurai, vide his Order-in-Original No. 211/96 dtd. 30.8.96, has followed the above decision of the Hon'ble Supreme Court and the instructions of the Board and has dropped the proceedings initiated in respect of rental charges in respect of the other unit of the applicants. The Commissioner's (Appeals) order therefore cannot be upheld.
(e) As far as the cost of transportation of the empty bottles back to the applicants' factory is concerned, it was submitted that these are expenses incurred by the buyer on his own. The applicants do not receive any amount from the buyer in this regard. It is now settled taw that the cost of transportation of the empty bottles from the buyer is not liable to be included in the assessable value. Reliance is placed on the following decisions:
(a) Duke & Sons Pvt. Ltd. v. Union of India, 1993 (67) ELT 76 (Bom.)
(b) Pure Drinks Ltd. v. CCE, 1991 (56) ELT 619
(c) Spring Fresh Drinks v. CCE, 1991 (54) ELT 333
(f) As far as the breakages and shortages in the market being borne by M/s. Sakthi Soft Drinks Ltd., is concerned, it was submitted, that as ascertained by them from M/s. Sakthi Soft Drinks Ltd., the latter indicate to their dealers that they are supposed to pay Rs. 6.50 per bottle and Rs. 30 per crate towards breakages. But in practice such amounts are not recovered by M/s. Sakthi Soft Drinks Ltd., from the market as the actual breakages cannot be ascertained due to the volume spread in the market. The Commissioner's order has found no nexus of these expenses with the prices. These expenses being in nature of post clearance expenses incurred in the market, they cannot be loaded in the assessable value of 'manufacture'.
(g) The finding of the Commissioner (Appeals) of loading charges upto the factory gate to be included cannot be found fault with. However, there is no finding arrived at in Para 14 of the impugned order viz.
".... M/s. Sakthi Soft Drinks Ltd. as well as M/s. Madurai Soft Drinks (P) Ltd. had earlier admitted that the loading/unloading and transportation charges are paid by M/s. Sakthi Soft Drinks Ltd. M/s. Madurai Soft Drinks subsequently claimed that the loading charges inside the factory were Dome by them and included in the assessable value. This cannot be accepted as the assessee has not produced any documentary evidence in support of their subsequent claim......."
has to be considered in view of the plea made all along; that loading charges upto gate are borne by the appellants and subsequent charge by M/s. Sakthi Soft Drinks is corroborated by the submissions made in Para 18 of the reply dtd. 12.11.97 to the Assistant Commissioner. It was therefore for the Revenue to rebut this claim. We find no cause to include charges after clearance to the assessable value.
In view of the findings arrived by us, these appeals are allowed after setting aside the order.