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CASE NO.: Appeal (civil)  772 of 2001

PETITIONER: Commissioner of Central Excise,Meerut-I.                                         

RESPONDENT: Bisleri International Private Limited    

DATE OF JUDGMENT: 27/07/2005

BENCH: B.P. SINGH & S.H. KAPADIA

JUDGMENT: J U D G M E N T WITH

C.A. Nos.769, 770  771  & 1403-1404 OF 2001,  C.A. No.6765 OF 2002, C.A. Nos.120, 1763 &  5215-5219 OF 2004 AND C.A. No.672 OF 2005.  

KAPADIA, J.

       A short question which arises for determination in these  appeals filed by the department under Section 35-L (b) of the  Central Excise Act, 1944 (for short "the said Act") is \026 whether  the assessee had undervalued the aerated water by excluding  two items, namely, the amounts received under credit notes as  price support incentive and rent on containers (ROC) from the  assessable value?

       For the sake of convenience, we mention hereinbelow the  facts in civil appeal no.772 of 2001, in the case of  Commissioner of Central Excise, Meerut-I v. Bisleri  International Private Limited  (formerly known as M/s Coolade  Beverages Ltd.).

       M/s. Coolade Beverages Ltd. (hereinafter referred to as  "the assessee") were manufacturers of aerated waters.  The  manufacturing activity of the assessee basically consisted of  bottling.  The assessee obtained the concentrate (raw-material)  for aerated water from a subsidiary of Coca Cola Corporation.   The name of that subsidiary was M/s Britco Food Company  Ltd.  (hereinafter referred to as "M/s Britco").  The assessee  sold the bottled aerated water to the wholesale dealers.

       The department found that the assessee used to collect  from some wholesale dealers ROC @ Rs.7.50 per crate.  The  department further found that the assessee used to receive price  support incentives in the form of credit notes from M/s Britco.   Accordingly, the department issued show-cause notice  contending that the cost of ROC and the value of price support  incentive were liable to be included in the assessable value in  terms of rule 5 of the Central Excise (Valuation) Rules, 1975.   The assessee contested the show-cause notice.  The assessee  submitted that the ROC had no relation to the value of the  aerated water; that the leasing of the bottles was a separate  activity which had no connection with the manufacture of  aerated water and, therefore, realizations from such ancillary  activity were not includible in the assessable value of the  aerated water.  In this connection, the assessee placed reliance  on the judgment of this Court in the case of Collector of

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Central Excise v. Indian Oxygen Ltd. reported in 1988 (36)  ELT 730.   

       With regard to the amounts received as price support  incentive from M/s Britco, the assessee contended that the said  payment was immaterial to the wholesale price of the aerated  water; that the sale to the wholesale dealers was on principal to  principal basis and that the wholesale price was the sole  consideration.  Therefore, the sale price constituted the ’normal  price’ under section 4(1)(a) of the said Act and that rule 5 of the  said Rules, 1975 had no application to the facts of the present  case.  

       The Commissioner accepted the submissions of the  assessee and dropped the duty demand contained in the show  cause notice.   

       So far as the price support incentive was concerned, the  Commissioner held that the credit notes were not received from  the buyers of aerated water; that they were received from M/s  Britco (supplier of concentrate); that the credit notes were  received from M/s Britco on account of reduction in the price of  the concentrates and, therefore, the question of including the  amount received under such credit notes in the assessable value  did not arise.  The commissioner further held that no additional  consideration had flown directly from the buyers of aerated  water and, therefore, rule 5 was not applicable to the facts of the  present case.  The commissioner further found that the benefit  of reduction in prices of concentrates was in fact passed on by  the assessee to the buyers in the form of reduced sale price of  the aerated waters; that, with effect from 12.9.1994, the sale  price of aerated water was reduced by Rs.27/- per crate i.e. from  Rs.108/- per crate to Rs.81/- per crate whereas the gain to the  assessee from the credit notes was only Rs.1.66 per crate and,  therefore, there was no additional consideration flowing back to  the assessee from their buyers.  The commissioner further  found that with effect from 12.9.1994, the assessable value  went up from Rs.46/- per crate to Rs.52/- per crate.  The  commissioner further found that the consumers were benefited  on account of acute competition between Coca Cola and Pepsi.   In the circumstances, the adjudicating authority came to the  conclusion that the department had erred in invoking rule 5.   

       On the question of ROC, the commissioner came to the  conclusion that the facts of the present case were similar to the  facts in the case of Collector of Central Excise v. Indian  Oxygen (supra).  The commissioner found that in the present  case also, the ROC was related to an ancillary activity; that the  said ROC had no connection with the manufacture of aerated  water and, therefore, ROC was not includible in its assessable  value.          Aggrieved by the aforesaid decision, the department went  in appeal to the Customs, Excise & Gold (Control) Appellate  Tribunal (hereinafter referred to as "the Tribunal").  By  impugned decision, the tribunal confirmed the order of the  adjudicating authority (commissioner).  Hence, this civil  appeal.   

       Mr. Rajiv Datta, learned senior counsel appearing on  behalf of the department submitted that the assessee had  reduced their wholesale price on instructions of M/s Coca Cola  Company in order to lower the incidence of excise duty; that  this reduction in price of aerated water was compensated by  issuance of credit notes by M/s Britco (subsidiary of M/s Coca  Cola Company); that the giving of price support incentive by

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M/s Britco to the assessee constituted additional consideration  which in turn depressed the prices of aerated water and,  therefore, the entire arrangement was entered into in order to  lower the incidence of excise duty.  It was further submitted  that M/s Britco the manufacturer of concentrates (raw-material)       had  nothing  to  do  with  the marketing activity of the  assessee.  It was urged that M/s Britco was a medium to flow  back the additional consideration to the assessee.  It was urged  that but for the credit notes issued by M/s Britco, the assessee  was required to increase the assessable value and the sale price  of aerated water.  It was submitted that with the reduction of the  prices of aerated water, the sales had increased which was  directly relatable to the reduction in prices.  It was submitted  that the price support incentive was given by M/s Britco to the  assessee in order to make good the loss sustained by the  assessee in making the price of aerated water competitive.  It  was submitted that receipt of price support by the assessee was  enough evidence to justify that the normal price was more than  the price actually charged to the buyer.  Learned counsel further  submitted that the prices of the product were lowered on  account of incentive received by the assessee from M/s Britco  (supplier of the raw-material).

       At the outset, it may be mentioned that under section  4(1)(a), "value" in relation to any excisable goods is a function  of the price.  In other words, "value" is derived from the normal  price at the factory gate charged to an unrelated person on  wholesale basis and at the time and place of removal.

       It is for the department to examine the entire evidence on  record in order to determine whether the transaction is one  prompted by extra-commercial considerations.  It is well settled  that under section 4 of the said Act, as it stood at the material  time, price is adopted as a measure or a yardstick for assessing  the tax.  The said measure or yardstick is not conclusive of the  nature of the tax.  Under section 4, price and sale are related  concepts.  The "value" of the excisable article has to be  computed with reference to the price charged by the  manufacturer, the computation being made in accordance with  section 4.  In every case, it will be for the revenue to determine  on evidence \026 whether the transaction is one where extra- commercial considerations have entered and, if so, what should  be the price to be taken into account as the value of the  excisable article for the purpose of excise duty.  These  principles have been laid down in the judgment of this Court in  the case of Union of India & Others v. Bombay Tyre  International Ltd. etc.  reported in AIR 1984 SC 420.

       The short question which arises for determination in the  present case is \026 whether the department has been able to show  that the intrinsic price of aerated water was more than the price  actually charged to the buyer?  According to the department,  the actual price was lower on account of incentives given by  M/s Britco, the supplier of concentrates to the assessee.  As  found by the adjudicating authority as well as by the tribunal,  the prices had to be reduced by the assessee on account of  competition in the market.  Further, the prices stood reduced on  account of concession given by M/s Britco, supplier of  concentrates (raw-material), to the assessee.  There is no  evidence of flow back of any additional consideration from the  buyers of aerated water (beverage) to the assessee.  On account  of cut throat competition from Pepsi, M/s Britco had to provide  incentive to the assessee.  But for the incentive from the  supplier of concentrates (raw material), the assessee was not in  a position to face acute competition from Pepsi.  On the other

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hand, the evidence on record indicates that price uniformity was  maintained.  No favour for extra commercial reasons was  shown to any of the buyers of aerated water.  There is no  evidence of any concession to any of the buyers.  There is no  evidence of existence of any favoured buyers.  In the  circumstances, rule 5 is not applicable.   

       So far as ROC is concerned, the commissioner found that  the rent equivalent to interest was collected by the assessee on  account of delay in returning of empty crates/bottles.  The  purpose of charging interest was to get back empty  bottles/crates immediately as otherwise the assessee was  required to make additional investment towards stock inventory  on crates/empty bottles.  Further, the said levy did not form the  price of the aerated water and, therefore, ROC was not  includible in the assessable value.  In the circumstances, the  commissioner was right in applying the ratio of the judgment of  this Court in the case of Collector of Central Excise v. Indian  Oxygen (supra).   

       For the aforestated reasons, there is no merit in these  appeals preferred by the department.   Accordingly, all the  appeals are dismissed with no order as to costs.