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PETITIONER: SIDHOSONS & ANR. ETC. ETC.

       Vs.

RESPONDENT: UNION OF INDIA & ORS. ETC. ETC.

DATE OF JUDGMENT28/10/1986

BENCH: THAKKAR, M.P. (J) BENCH: THAKKAR, M.P. (J) RAY, B.C. (J)

CITATION:  1987 AIR   61            1987 SCR  (1)  82  1987 SCC  (1)  25        JT 1986   791  1986 SCALE  (2)737  CITATOR INFO :  RF         1990 SC 202  (9)

ACT:     Central  Excise  and  Salt Act,  1944,  s.  2(f)--Market value--What   is--For   payment   of   excise    duty--Brand name--Value of--When includible.

HEADNOTE:     The  petitinner-company  in  W.P. No. 1685  of  1979  is manufacturing  electrical goods for M/s.  Bajaj  Electricals Limited,  the buyers. As per agreement the goods are not  at all  sold  .in the open market  by  the  petitioner-company. After the manufactured goods are accepted by the buyers, the petitioner-company  applies the label of the brand  name  of the  buyers, namely, ’BajaJ’ on the manufactured goods.  The right  to sell these goods with the aforesaid brand name  is solely  and exclusively that of the buyers having regard  to the fact that they alone are owners of the brand name.     Counsel  for the petitioner in this writ  petition  con- tended  that the market value of the goods  manufactured  by the petitioner should be assessed at the price at which  the goods are agreed to be sold under the agreement between  the manufacturer  and  the  buyers. On the other  hand,  it  was argued by counsel in behalf of the respondent-Union of India that  the excise duty must be levied an the basis of  market value  fetched by the sale of these goods by the  buyers  to their  wholesalers.  Similar question of law  arose  in  the other writ petitions. Allowing the writ petitions, this Cart,     HELD:  1.1. Excise duty is payable on the market  value’ fetched by the goods, in the wholesale market at the factory gate  manufactured  by the manufacturers. It cannot  he  as- sessed  on  the  hams of the market value  obtained  by  the buyers  who also add to the value of the manufactured  goods the  value  of  their own property in the  goodwill  of  the ’Brand name’. [84F]     1.2. Where a manufacturer who manufacture and sells  his goods  under his own brand name or under a bland name  which he  has  acquired in use, the sale price  fetched  by  sales effected by him under 83

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such bland name in wholesale, will be the basis for computa- tion  of  excise duty payable by him. So also  nothing  said herein  will  come to the rescue of a brand name  owner  who himself  is the manufacturer of goods or to  sales  effected favour  of ’related’ persons as defined by the  Central  Ex- cises and Salt Act, 1944. [85A-B]     Union  of  India v. Cibatul Ltd., [1985] 22  E.L.T  302, Joint Secretary to the Government of India v. Food Speciali- ties Ltd., [1985] 22 E.L.T 324 ’and M/s. R.O. Industries  v. Union of India & Ors., Civil Appeal No. 1496 of 1977 decided on 3.4.86, relied upon.     In  the  instant case, the price fetched  by  the  goods manufactured  by the petitioner-company is the price  Of*the electrical goods sans the brand name. And that should be the market  value for the purposes of assessing the excise  duty payable  by  the petitioner-company which  manufactures  the excisable  goods. The enhancement in the value 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  peti- tioner-company  or  go into its coffers. It accrues  to  the buyers to whom the brand name belongs and to whom the fruits of the goodwill belong. [89D-E]

JUDGMENT: ORIGINAL JURISDICTION: Writ Petition No. 1685-1691 of 1979 Under Article 32 of the Constitution of India. Soli J. Sorabjee and K.C. Dua for the Petitioners.     V.  Parthasarthy, Girish Chandra and C.V. Subba Rao  for the Respondents. The Order of the Court was delivered by     THAKKAR,,J.  The question raised in this  Writ  Petition under Article 32 of the Constitution of India as regards the determination of the market value of the goods  manufactured by the petitioner company for the purposes of computation of the  excise  duty  leviable on  the  same.  The  petitioners (manufacturers)  are manufacturing electrical goods under  a contract with another company known as the Bajaj Electricals Ltd.  (here-after  referred  to as  buyers).  The  agreement between the parties provides for the buyers having the right to reject the 84 goods  if the goods are not in accordance with  the  buyers’ specifications or do not come up to the stipulated  standard of  quality.  After the manufactured goods are  tested,  ap- proved  and accepted, by the buyers the manufacturers  apply the  label  of the brand name of the buyers  (in  this  case ’Bajaj’) on the manufactured goods. The petitioners  contend that  the  market  value of the goods  manufactured  by  the petitioners  should  be assessed at the price at  which  the goods are agreed to be sold under the agreement between  the manufacturers and the buyers. On the other hand the respond- ent  contents  that the excise duty must be  levied  on  the basis of the market value fetched by the sale of these goods by  the buyers to their wholesalers. The goods  manufactured by the Petitioner Company, which are accepted by the  buyers and  to  which the brand name label ’Bajaj’ is  applied  are sold  by the manufacturers to the buyers at  the  stipulated price and to none-else. They are not at all sold in the open market  by the manufacturers. The right to sell these  goods with  the brand name is solely and exclusively that  of  the

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buyers  having  regard to the fact that they alone  are  the owners  of the brand name ’Bajaj’. The price fetched by  the goods manufactured by the petitioner company is the price of the electrical goods ’sans’ the brand name. And that  should be the market value for the purposes of assessing the excise duty  payable by the petitioner company  which  manufactures the  excisable  goods. The enhancement in the value  of  the goods  by  reasons 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 manufacturers  and which added market value does not  accrue to the petitioner company or go into its coffers. It accrues to the buyers to whom the brand name belongs and to whom  to fruits of the goodwill belong. Excise duty is payable on the market  value fetched by the goods, in the wholesale  market at  the factory gate manufactured by the  manufacturers.  It cannot be assessed on the basis of the market value obtained by the buyers who also add to the value of the  manufactured goods the value of their own property in the goodwill of the ’brand  name’--The Petitioners are therefore right  and  the respondents  wrong. This point is covered by  earlier  deci- sions  of this Court, namely, (1) Union of India v.  Cibatul Ltd.,  [1985]  22  E.L.T. 302, (2) Joint  Secretary  to  the Government  of  India v. Food specialities Ltd.,  [1985]  22 E.L.T. 324 and (3) Civil Appeal No. 1496 of 1977 disposed of by  a  Bench of three Judges of this Court by  its  judgment dated  3rd April, 1986. The petition must therefore  be  al- lowed.  The respondents shall levy excise duty on the  basis of  the  price charged by the manufacturers  to  the  buyers namely  M/s.  Bajaj Electricals Ltd. A word  of  caution  is however called for. Our decision must be understood correct- ly--not misunderstood conveniently. We, there- 85 fore,  clarify  that  our pronouncement will  not  enable  a manufacturer who manufactures and sells his goods under  his own brand name or under a brand name which he has acquired a right to use. In such a case the sale price fetched by sales effected  by him under such brand name in wholesale will  be the basis for computation of excise duty payable. by him--So also nothing said herein will come to the rescue of a  brand name  owner who himself is the manufacturer of goods  or  to sales effected in favour of ’related’ persons as defined  by the  Act.  The Central Excises & Salt Act,  1944.  The  Bank guarantee,  if  any,  furnished by the  petitioners  in  the context of the present Writ Petition will stand  discharged. No Other point has been argued. The petition is allowed  and the Rule is made absolute to the aforesaid extent. The  Writ Petition is disposed of accordingly. There will be no  order as to costs.     Writ  Petitions  Nos. 1686-1691 of 1979 raise  the  same point  in the context of other brand names. These  petitions will also stand disposed of in terms of this order with  the same  direction regarding computation of levy and  discharge of guarantee bonds and with no order as to costs. M.L.A.                                        Petition   al- lowed. 86