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CASE NO.: Appeal (civil)  2357-2361 of 2002

PETITIONER: Commissioner of Central Excise, Surat  

RESPONDENT: M/s. Surat Textiles Mills Ltd. & Ors.

DATE OF JUDGMENT: 26/04/2004

BENCH: S. Rajendra Babu Dr. AR. Lakshmanan & G.P. Mathur.

JUDGMENT: J U D G M E N T

WITH

Civil Appeal Nos. 13400/1996, 4672/1997 & 4762/1997

Dr. AR. Lakshmanan, J.

In Civil Appeal Nos. 2357-2361/2002         This appeal is filed by the Commissioner of Central Excise, Surat against the  final judgment and order dated 29.3.2001 of the Custom, Excise and Gold (Control)  Appellate Tribunal, West   Zonal Bench at Mumbai passed in Order No. C-I/1064- 1068/WZB/2001 in Appeal No. E/4563-4567/95 SB(WR).  In this case, the  Commissioner of Central Excise held that the expenses towards advertisement which  Garden Silk Mills Ltd. and owners of the processed fabrics incurred, but passed on to  the dealers of these goods, were includible in the assessable value of the processed  fabrics.  He further held that the assessable value of the second quality fabrics sold by  Garden Silk Mills Ltd. to Vareli Associates and Garden Associates should be the price  at which these two concerns sold them to their dealers.         The appeals filed by the assessee before the CEGAT were allowed and the  impugned order of the Commissioner was set aside.  Aggrieved by the said judgment  and order of the CEGAT, the Commissioner of Central Excise filed the above appeals.         According to the appellants, the question which arises for the determination is as  to whether the CEGAT was correct in not including the sales promotion expenses,  (Advertising expenses) recovered by the manufacturer from its own dealers in respect  of the goods sold to them, in the assessable value of the goods processed and sold by  them from their factory.         A further question also arises for consideration to the effect that as to whether  the CEGAT was correct in not appreciating the facts that all Merchant Manufacturers  were created by main Mills i.e., M/s Garden Silk Mills Ltd., and were created with a view  to camouflage and avoid excise duty, as subsequently most of the (Merchant  Manufacturers) were either dissolved or amalgamated with other companies.         It is pertinent to notice that the CEGAT, in the instant case, allowed the appeals  of the Mills and Merchant Manufacturers with the contention that in the case of Philips  India Ltd. vs. CCE, Pune, 1998 (74) ERC 722=(1997) 6 SCC 31, this Court held that  the expenses incurred by the dealers towards advertising of a manufactured product  should not form part of the assessable value of the product.  Applying the ratio of this  judgment, the expenses incurred by the dealers should not form part of the assessable  value. The expenses incurred towards advertisement by the owner of the fabrics which  Garden Silk Mills Ltd. processed, would in any case, not form part of the assessable  value of these goods.  The CEGAT also relied upon the judgment of this Court in the  case of M/s Ujagar Prints & Ors. vs. Union of India & Ors. , 1989(39) ELT  439=(1989) 3 SCC 531 wherein this Court laid down that it is the cost of raw material  and the cost incurred by the processor towards its processing should form the  assessable value of the goods.         When the above appeals came up before this Court on 24.2.2003, a Bench of  two Judges of this Court while placing the matter before Hon’ble the Chief Justice of  India for directions passed the following order:

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"Learned counsel for the appellant has relied upon the judgment of this  Court in the case of Govt. of India & Ors. vs. Madras Rubber Factory Ltd.  & Ors. reported in 1995(4)SCC 349 which is a judgment of a three Judge  Bench, while the Tribunal has relied upon the judgment of this Court in the  case of Philips India Ltd. vs.Collector of Central Excise, Pune reported  in 1997(6) SCC 31.  Since there appears to be some conflict in these  judgments, we think it appropriate that this matter should be referred to a  three Judge Bench. Hence, the papers be placed before Hon’ble the Chief  Justice for directions."   

       Several other grounds have also been taken by the appellants questioning the  correctness of the judgment and order of the CEGAT which is impugned in these  appeals.         A counter affidavit was filed by the respondents herein submitting that the matter  is squarely covered by the judgments of this Court in the case of M/s Philips India Ltd.  (supra) and in the case of M/s Ujagar Prints (supra) as also held in the impugned  judgment.  It was submitted that the sales promotion expenditure is not liable to be  added in the value of the fabrics and, therefore, not exigible to excise duty. Several other factual and legal contentions have also been taken in the counter  affidavit filed by the respondents.  In Civil Appeal No. 13400/1996         This appeal is filed by M/s Delhi Bottling Co. Pvt. Ltd. questioning the  correctness of the order dated 9.7.1996 passed by the CEGAT, New Delhi in Appeal  No.E/2751/84-A arising out of  order in Appeal No.68/84 dated 29.10.1984 passed by  the Additional Collector of Central Excise, New Delhi.  This matter relates to the  inclusion of the amount separately collected by the appellant \026 Delhi Bottling Co. Pvt.  Ltd., in short "DBC", by raising subsidiary invoices in the name of Cooperative All India  Advertisements, from their customers to whom they were supplying the beverage base,  while determining the assessable value of such beverage base.  The Department had  alleged that the value mentioned in the regular sale invoices as well as the value  collected separately through subsidiary invoices constitute the value of the beverage  base manufactured by DBC.  The DBC was availing of the benefit of exemption  Notification No. 120/75-CE dated 30.4.1975 and had declared the value collected  through regular sale invoices only.  The Department had alleged that the value  mentioned in the regular sale invoices as well as subsidiary sale invoices constituted  the value of the goods and for the assessment under Notification No.120/75-CE, the full  invoice price will be taken into consideration.  According to the appellants, the following  substantial questions of law arise for consideration in this appeal:    "(i) Whether the authorities were justified in including the cost incurred for  advertisement of aerated waters in the assessable value of the concentrate  required for the manufacture of aerated waters by treating the cost of the  advertisement so incurred as the cost of the advertisement of the  concentrate;

(ii) Whether CEGAT was justified in denying the appellant the benefit of  Notification No. 120/75-CE when the appellant had opted for the facility  contained therein specifically in respect of items falling under the erstwhile  Item 68 of the Central Excise Tariff as in the case of the appellant and  invoking instead contrary to the law settled by this Court, the provisions of  Section 4 of the Central Excise and Salt Act for determining the assessable  value due to mere suspicion without any proof that the appellant had not  made proper declaration of the Invoice value in terms of the Notification no.  120/1975 \026CE ibid;"          Several other factual and legal contentions were taken challenging the legality  and correctness of the order passed by the CEGAT. In Civil Appeal No. 4672/1997         This appeal is filed by Parle (Exports) Pvt. Ltd.  Here again, the appellants  engaged in the manufacture of Non-Alcoholic Beverage Bases (NABBs). NABB is sold  by the appellants to bottlers who are Franchise holders.  The Bottlers/Franchise holders  manufacture aerated waters under the Trade name of Thums Up, Gold Spot etc. from  NABB sold to them by the appellants.  There are 55 such bottlers/Franchise holders all  over the country.  The bottlers/Franchise holders decided that a cooperative and  consolidated advertising campaign should be organised on an All India basis on their  behalf for which initially the appellants and subsequently M/s.Advance Advertisement &  

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Services Pvt. Ltd. were to act  as monitoring agencies.  The advertisement campaign  was in respect of the finished products namely, aerated water being sold under the  Trade name of Gold Spot, Thumps Up etc.  for which proportionate contributions were  made by the Bottlers/Franchise holders.  A show cause notice was issued by the  Collector of Central Excise, Ahmedabad to the appellants alleging that the amounts of  the advertising expenses were includible in the assessable value of the NABB.  The  appellants filed their written explanation denying the allegation made in the show cause  notice.  The Collector, Central Excise, Ahmedabad by his order dated 29.3.1990  confirmed the demand for duty and also imposed penalty.   The appellants preferred an  appeal and the CEGAT by its order dated 18.2.1997 partly allowed the appeal of the  appellants while holding that the cost of advertisement expenses in respect of finished  products namely, aerated waters incurred by the bottlers/Franchise holders was liable  to be included in the sale price of the appellants.  The CEGAT also upheld the larger  period of limitation in the appellant’s case.           The present civil appeal was filed by the appellants against the order of the  CEGAT questioning the legality and correctness of the said order.           Before the CEGAT, several judgments were cited by the counsel appearing on  either side.  Several legal contentions were also taken by the appellants.   According to  the appellants/assesses, the CEGAT has grossly erred in law in holding that the  amount of advertising expenses incurred by and/or on behalf of the purchasers of  NABB was liable to be loaded on to the assessable value of the NABB manufactured by  the appellant and that the CEGAT failed to appreciate that the said advertising  expenses were incurred in respect of aerated waters which were a distinct and different  manufactured product as compared to the product manufactured by the appellant- Company, i.e. NABB.         It was further submitted that the advertisement expenses were not incurred for or  on behalf of the appellants or on the appellants’ product NABB but in order to advertise  the products manufactured by the appellants’ customers, the bottlers and for and on  their behalf. In Civil Appeal No. 4762/1997         This appeal is filed by the appellants-Parle International Ltd. against an Order  No. 260/1997-A dated 18.2.1997 of the CEGAT, New Delhi in Appeal No. E-1020/90-A.   Here again, the appellants are engaged in the manufacture of non-alcoholic Beverage  Bases (NABBs) which is sold by the appellants to bottlers who are Franchise holders.   This case stands on identical footings as that of Civil Appeal No. 4672/1997.  In the  present appeal, this Court on 9.2.1998 passed an interim order which reads as under: "In view of the order of the Customs, Excise and Gold Control Appellate  Tribunal dated 18.2.1997, the Commissioner shall determine the demand  for duty for the balance period as set out in paragraph 13 of that order within  four weeks from today after notice to both sides.  The appellants shall  deposit 50% of the amount so determined and give bank guarantee for the  balance amount to the satisfaction of the Commissioner.  In the event of  there being any existing deposit or bank guarantee, the credit for the same  shall be taken while furnishing the deposit or bank guarantee provided the  bank guarantee or guarantees are kept alive till the disposal of the present  appeals."      

       This interim order will be subject to the final outcome of the judgment and order  that may be passed by the CEGAT on remand by this Court.         It was submitted that the CEGAT upheld and confirmed the said addition of the  advertisement expenses to the appellants’ sale price of the ‘NABB’, even though the  said advertisement expenses were not incurred in respect of NABB at all but were  incurred only in respect of aerated waters which are an entirely distinct and different  manufactured product, which is produced by the bottlers and not by the appellants.   Further, the said addition to the assessable value has been upheld by the CEGAT even  though the Department had not even alleged, much less established that there was any  binding legal obligation cast on the bottlers to incur the said advertisement expenses.           We heard Mr. A.K.Ganguli, learned senior counsel, Mr. D.N. Mehta, Mr. U.A.  Rana, learned counsel, Mr. Joseph Vellapally and Mr. D.A. Dave, learned senior  counsel and Mr. P.H. Parekh, learned counsel.  Learned counsel for the respective  parties reiterated before us the contentions raised by them in their respective appeals.   We have perused the order passed by the CEGAT in Civil Appeal Nos. 2357-2361/2002  and the orders passed in other three appeals.  In Civil Appeal Nos.2357-2361/2002, the  CEGAT passed the judgment and order against the Revenue and in favour of the  assessee whereas a contrary view was taken by the CEGAT in the other three appeals

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holding in favour of the Revenue and against the assessee.           At the time of hearing, learned counsel appearing on either side placed strong  reliance on the following judgments for and against : 1.      Government of India and Others vs. Madras Rubber Factory Ltd. and  Others [(1995) 4 SCC 349]

2.      Philips India Ltd. vs. Collector of Central Excise, Pune [(1997) 6 SCC 31] 3.      M/s. Ujagar Prints and Others (III) vs. Union of India and Others            [(1989) 3 SCC 531]

4.      Pepsi Foods Ltd. vs. CCE, Chandigarh [2003(111) ECR 776 (SC) =               JT 2003(9) SC 595

5.       Union of India and Others vs. Bombay Tyre International Ltd. and Others  [(1984) 1 SCC 467]

6.      Assistant Collector of Central Excise and Others vs. Madras Rubber  Factory Ltd. etc. [1986 (Supp) SCC 751]  

7.      Assistant Collector of Central Excise and Others vs. Madras Rubber  Factory Ltd. [(1989) 3 SCC 238]

8.      Collector of Central Excise, Madras vs. T.I. Millers Ltd., Madras and T.I.  Diamond Chain, Madras [1988 (Supp) SCC 361]

9.      Collector of Central Excise, Hyderabad vs. M/s Jayant Oil Mills Pvt. Ltd.  [(1989) 3 SCC 343]

10.     Cosmic Dye Chemical vs. Collector of Central Excise, Bombay         [1995(75) ELT 721 (SC)

11.     Amco Batteries Ltd. vs. Collector of Central Excise, Bangalore       [2003(153) ELT 7 (SC)]

We have carefully perused the judgments and orders passed by the CEGAT  which are impugned in these appeals.  As rightly contended by the counsel appearing  on either side, the CEGAT failed to appreciate the arguments advanced before it by the  counsel appearing on either party in its proper perspective.  In fact, in Civil Appeal Nos.  13400/1996, 4672/1997 and 4762/ 1997, the CEGAT failed to appreciate that in several  earlier judgments, the CEGAT consistently held that the advertisement expenditure  incurred by a manufacturers’ customer can be added to the sale price for determining  the assessable value, only if the manufacturer has an enforceable legal right against  the customer to insist on the incurring of such advertisement expenses by the  customer.           In some cases, the CEGAT failed to appreciate that the appellants have acted  honestly and under bona fide belief that the NABB were exempted from excise duty by  such offence and that the appellants’ claim for exemption, in fact, upheld by the CEGAT  itself in its appellants’ own case in Parle Exports (P) Ltd. vs. CCE 1987(27) ELT 349.    The CEGAT in the orders impugned in these appeals have also failed to appreciate and   follow the ratio of several judgments of this Court wherein it has been laid down that if  the assessee acts honestly and under the bona fide belief and manufactured products  are exempted from duty, the longer period of limitation is not attracted.         We, therefore, feel that these matters require reconsideration by the CEGAT in  the background of several judgments cited, relied on and referred to in this judgment to  arrive at a correct finding on the issues involved.  All the appeals are remitted back to  the respective Tribunals to consider the matters afresh in the light of the judgments  relied on by the parties.  Both parties are at liberty to file additional pleadings and,  annexures and records, if any, in respect of their respective claim.         All the appeals stand disposed of accordingly with the above direction.  There  will be no order as to costs.