SUPREME COURT OF INDIA
Commissioner of Central Excise, Surat
Vs.
Messrs Surat Textiles Mills Limited
C.A.No.2357-2361 of 2002
(S. R. Babu and A. S. Lakshmanan JJ.)
26.04.2004
JUDGMENT
Dr. A.R.Lakshmanan, J.
1. 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, and 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 pat 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.
2. 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.
3. 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.
4. 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 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.1 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.
5. 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:
"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. p& Ors. reported in2 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
in3. 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."
6. 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.
7. 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 padded 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.
8. In Civil Appeal No. 13400/1996
9. 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 pNo.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-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-CE ibid;"
10. Several other factual and legal contentions were taken challenging the
legality and correctness of the order passed by the CEGAT.
11. In Civil Appeal No. 4672/1997
12. 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 & 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.
13. The present civil appeal was filed by the appellants against the order of
the CEGAT questioning the legality and correctness of the said order.
14. 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.
15. 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
16. 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.
17. 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."
18. 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.
19. 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.
20. 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 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
[ ]
2. Philips India Ltd. vs. Collector of Central Excise, Pune [ 3]
3. M/s. Ujagar Prints and Others (III) vs. Union of India and Others4
4. Pepsi Foods Ltd. vs. CCE, Chandigarh5
5. Union of India and Others vs. Bombay Tyre International Ltd. and Others
6. Assistant Collector of Central Excise and Others vs. Madras Rubber Factory
Ltd. etc.6]
7. Assistant Collector of Central Excise and Others vs. Madras Rubber Factory
Ltd. [ ]
8. Collector of Central Excise, Madras vs. T.I. Millers Ltd., Madras and T.I.
Diamond Chain, Madras7]
9. Collector of Central Excise, Hyderabad vs. M/s Jayant Oil Mills Pvt. Ltd.
[ ]
10. Cosmic Dye Chemical vs. Collector of Central Excise, Bombay (SC)
11. Amco Batteries Ltd. vs. Collector of Central Excise, Bangalore (SC)]”
21. 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.
22. 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.
23. 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. CCE8 . 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.
24. 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.
25. There will be no order as to costs.
11989 (3) SCC 531
21995(4)SCC 349
31997(6) SCC 31
4[1989 (3) SCC 531]
52003 (9) JT 595
61986 Indlaw CEGAT 149
71988 Supp(SCC) 361
81986 Indlaw CEGAT 289