TMI Blog1994 (6) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... waters who were licenced to produce and market their brands of aerated waters, produced out of such concentrate supplied by them. The Asstt. Collector of Central Excise, Patiala under his order dated 11-11-1993 had ordered the inclusion of royalty charges and advertisement/sale promotion expenses in the declared value and confirmed the amount of central excise duty of Rs. 12,55,687, Rs. 20,07,000, Rs. 1,35,30,144 and Rs. 62,07,566 demanded under the show-cause notices issued to them. On appeal the Collector of Central Excise (Appeals), Chandigarh have upheld the above order-in-original. He held that the royalty claimed and paid was linked with the concentrate and its manufacture. It was not available for sale to any and everyone but only to those who entered into the franchise agreement with the appellants, the person who bought the concentrate bought the brand name also. In the case of advertisement charges also it was held that the advertisements enhanced the marketability of the product and as per the decision of the Hon. Supreme Court in the case of Bombay Tyres International both royalty and advertisement charges were to be included in the assessable value. 3. The stay appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Seven Up Mirinda etc. It has been stated that for the use of brand names Pepsi Cola, Pepsi, Seven Up, Mirinda etc., no royalty was payable to the Multi-National M/s. Pepsi Co. Inc. USA. It has not been explained as to why a Multi-National allowed the usage of their popular brand name without any consideration. Full details of the relationship of M/s. Pepsi Foods Ltd. with M/s. Pepsi Co. Ltd. USA have not been divulged. As stated above M/s. Pepsi Foods Ltd. possessed the sole proprietary rights over the trade mark `Lehar . The bottlers were allowed to use the trade marks of M/s. Pepsi Co. Inc. USA only in conjunction with the trade mark `Lehar . M/s. Pepsi Foods Limited manufactured the concentrate for the production of these brands and supplied it to those manufacturers who were licenced by them under franchise agreements to manufacture their brand of aerated waters. The concentrate was sold only to those who had entered into such agreement with them. It was not available to each and every person. It was not a freely marketed/available commodity. The bottlers had no option but to pay the royalty in addition to the declared price of the concentrate. The agreement for sale of concen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, and secondly it has been stated that expenses towards advertising the name of their brand were already included in the value of the concentrate. Further as per Clause 18 of the agreement to bottlers were required to undertake appropriate advertising and sale promotion activities for the beverage. It therefore appears that the extra collections were for the concentrate supplied by the appellant, and obviously these collections in the name of royalty were extra collections/additional consideration for the sale of the concentrate. 8. The supply of the concentrate and the manufacture of branded aerated waters were inter-connected and were part of the same transaction. Concentration was specifically for their particular aerated waters. The concentrate itself was described with the name of the product in which it was to be used, such as Lehar Pepsi concentrate, Lehar Seven up concentrate, Lehar Mirinda concentrate etc. 9. At page 21 para D. 5 of their appeal memo the applicant have stated as under :- D.5. Without prejudice and in any case the advertisement expenses incurred by the appellants are for the soft drinks manufactured by the bottlers. Such expenses are not require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are ordinarily sold by the assessee to the buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale. We admit that we are liable to pay the Excise Duty on the value of the goods manufactured by us. i.e. units of concentrate. The duty is being levied because we manufacture and sell the concentrate to our customers in the course of wolesale trade and the price being the sole consideration of such a sale. We however, differ on the inclusion of royalty charges received by us from the bottler in the assessable value of Excise Duty under Section 4 of the Act. The royalty is not being received by us on the goods manufactured i.e. the concentrate and, theefore, cannot be construed as a part of the value of the manufactured goods. The show cause notice issued also states that the noticees receive the royalty charges over and above the value claimed for approval in the price lists submitted by us. This we submit is because royalty for use of trade mark received by us is separate from the payments received by us from the bottlers on the sale of concentrate. 11. It is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no link between the two. In Para 8 of their decision the Tribunal have held as under : In the absence of the above it is difficult to hold that the sale of concentrate and the franchise fee are interlinked and the agreement to purchase trade marke adds to the saleability of the product. The Tribunal held in that case that the value of goodwill paid for using trademark was relatable directly to manufacture of soft drinks by buyers of concentrate and not to the manufacture of concentrate and that franchise fees was not includible in assessable value especially in absence of evidence that sale of concentrate and franchise fees were interlinked. In the present case it is, however, seen that there is a definite relationship between the sale of concentrate and the extra amounts collected in the name of royalty. Clauses 2, 5 and 6 of the agreement are extracted below : 2. The Bottler shall buy only from pepsi Co s approved manufacturer, PFL, or a manufacturer approved in writing by Pepsi Co. and PFL (PFL and/or such approved manufacturer herinafter both called the Seller") all units of concentrate (hereinafter called units ) required for manufacture of the Beverage by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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