TMI Blog2004 (6) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... has been detailed in the impugned order of the Commissioner (Appeals). From the DAT supplied by the customers, the appellants arrange to manufacture a stamper i.e. Nickel plate on which the data is coded. The stamper is used as a mould to manufacture CD, which while manufacturing CD transfers data from stamper to CD. The programme which is duplicated on the CD is owned by the customers who is either himself the producer of the said programme or is a copyright owner. The customer also supplied printed inlay card, containing the details of the programme contained in the CD. These inlay card are used while packing the finished goods, by using the jewel box. 3. The appellants filed a declaration under Rule 173B giving break up of the value of the raw material and declared the total value of the CDs ranging from Rs. 15 to 23. On a belief that the said assessable value declared by the appellants was on the lower side and does not reflect the correct assessable value in terms of the provisions of Section 4 of the Central Excise Act, 1944 read with the Customs (sic) [Central Excise] Valuation Rules, 2000, investigation were initiated against the appellants and statement of various perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he owner of the copy right. Therefore, the value of copyright cannot be added to sale price when manufacturer sells his goods to the copyright holder. At the most, submits the learned advocate, that the cost of the master tape exclusive of the value of the copyright can be added in the assessable value. He submits that the provision of Rule (6) of Central Excise Valuation Rules, 2000, relied upon by the authorities below speak of flow of additional consideration from the buyers to the seller. This additional consideration should be apart from the sale price which the buyers is required to pay to the seller and such consideration should be qua the goods. The property in the master cassettes is owned by the copyright holder and the appellants is not free to exploit the same in any manner. Inasmuch as the ownership of the music has not been passed on to the appellants, the value cannot be enhanced by adding the royalty paid by the copyright owner to the music companies. He also submits that it is not practicable and feasible to apportion the royalty towards each CD being manufactured by the appellants inasmuch as the same would depend upon the ultimate sale of the CD in the market as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the job work charges, which may include the profit margin of the job worker and the profit of the manufacturer also. As such, it is no longer a grey, area for holding the proposition that the cost of the raw material supplied by the principal manufacturer is to be added in the assessable value of the final product being manufactured on job work basis. 8. The question which primarily arises is as to what would be the cost of the said raw material i.e. DAT in the present case. Learned advocate has drawn our attention to the Supreme Court decision in the case of Food Specialities Ltd. - 1985 (22) E.L.T. 324 (S.C.) and Sidhosons v. U.O.I. - 1986 (26) E.L.T. 881 (S.C.) holding that the price of the brand name held by the principal manufacturer is not to be added in the assessable value of the goods where the goods are manufactured by job worker with the brand name of the brand name holder. It was observed in Paragraph 6 of the judgment that trade mark is a property of Nestle and not of the petitioner. The petitioner could not sell to Nestle what was the property of Nestle s and what was not theirs. It was for Nestle to include it in the price at which they sell the product to dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay excise duty not because they are owners of the goods but because they caused the manufacture of the goods. As such, criterion of retention of the ownership by the copyright holder is of no relevance. It may be mentioned here that learned advocate during the course of his arguments as also in the written submission has agreed that if the copyright owner would be himself duplicating the CDs, the value of such CDs were required to be arrived at by taking into account the royalty charges or the licence fee paid by him for use of such programme. He clarifies that in such case the manufacturer is the one who is exploiting the copyright by selling the manufactured goods to the open market and cannot claim any deduction from his sale price towards the royalty or licence fee paid to the copyright owner. In the said situation, he has fairly agreed that the price charged by him from the open market buyer will include a charge towards the use of the copyright. However, he submits that said principle will not apply in the present case inasmuch as the manufacturer, who is only a job worker, has no connection with the royalty. There is not much force in the above contention of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. Inasmuch as there is no sale of the appellants to the customers and the goods are being manufactured on job work basis out of the raw material (master DAT, inlay card, jewel box etc.) supplied by the customers, the value has to be determined in terms of the provision of Section 4(1)(b) read with Central Excise Valuation Rules, 2000. Rule 6 of the Valuation Rules, 2000 is as follows :- Rule 6 : Where the excisable goods are sold in the circumstances specified in Clause (a) of sub section (1) of Section 4 of the Act except where price is not the sole consideration for sale, the value of such goods shall be deemed to be aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation : For removal of doubts, it is hereby clarified that the value, apportioned as appropriate of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have manufactured moulded components as required by the customers. These moulds are essential and without their help finished product could not have come into existence. The fact that the same belong to the customer and were given back to them after use was held to be of no consequence. The Tribunal also observed that if the mould would have been procured by the customer, the value of finished product would have been far greater than the amount fixed between the appellants and customers. Similar is the situation in the present case. It is not possible for the appellants to manufacture the CDs without formulated DAT. If the DAT is not provided by the customer and the appellants is required to himself procure the same, he would have paid royalty to the music owners in which case the same would have become part of the assessable value of the final CD, as also conceded by the learned Advocate. The assessable value of the same product cannot be different depending upon two different situations i.e. as to who is the manufacturer. The Tribunal also observed in the said decision by referring to Rule (5) of erstwhile Central Excise (Valuation) Rules, 1975 that the price fixed between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rademark, but not as part of price for specific units of concentrate sold does not detract from the fact that the overall consideration for the sale of concentrate is not merely its price stated in the invoice. It is something more that, namely, royalty to be received periodically . Though the fact of the instant case are not at all four corners with the fact of the instant case but support can be drawn from the ratio of the same. 13. Reference can also be made to the Tribunal decision in the case of Garware Polyester Ltd. v. C.C.E., Bombay - 1999 (105) E.L.T. 705 (Tribunal), where it was held that the royalty charge paid for obtaining permission to record particular films, was includable in assessable value. The Tribunal, in Para 9, observed that the act of recording has enhanced the value of the unrecorded tapes and the tapes in the form in which they are cleared from the factory have been enriched by the recording. Therefore, royalty charges should be element in the assessable value and cannot be deducted. 14. Revenue has also placed reliance on a recent judgment of the Tribunal in the case of sound tracks being Order No. C-II/594/WZB/2004, dated 23-2-2004 [2004 (175) E.L.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the other technical material imported by the appellants were liable to duty when imported into India. It was observed by their Lordship that it may be true that what the importer wanted and paid for was technical advise or in information technology and intangible assets but the moment the information or advise was put on a media, whether paper or cassettes or diskettes or in other thing, than what is supplied becomes chattel. By observing so it was held that drawing, designs, manuals and technical material received by the appellant were goods liable to duty of customs. The observation made by their Lordship in Paras 39, 40 and 41 counters learned advocate s contention that the music recorded in the cassettes is intellectual property and the same cannot be valued. For better appreciation, we reproduce below the said paragraphs of the judgment. 39. To put it differently, the legislative intent can easily be gathered by reference to the Customs Valuation Rules and the specific entries in the Customs Tariff Act. The value of an encyclopaedia or a dictionary or a magazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, painting are also to be taxed. Valuable paintings are worth millions. A painting or a portrait may be specially commissioned or an article may be tailor made. This aspect is irrelevant since what is taxed is the final product as defined and it will be an absurdity to contend that the value for the purposes of duty ought to be the cost of the canvas and the oil paint even though the composite product, i.e., the painting is worth millions. The learned advocate has submitted that the said judgment of the Supreme Court is not applicable inasmuch as the Supreme Court was dealing with the cost of imported goods being sold by the copyright holders to a buyers on outright basis without any right of re production. In the present case, the appellants have not charged from their customer any amounts towards copyright since the customers are themselves the owner of the copyright. If the appellants were owners of the cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Valuation Rules, 2000, which have already been extracted by us as above and discussed. 20. The appellants have also submitted that it would by not only difficult but impracticable to apportion the royalty amount towards the cost of the CD inasmuch as the copyright may be for use of the music in audio cassette tapes and audio CD, Video CD, broadcast rights, one time use or multiple time use or may be for limited or unlimited period. We are of the view that merely because the said formula to arrive at the apportioned cost of the master CD for each CD is not easy, the same cannot be made the ground for not including the same in the assessable value. These practical difficulties expressed by the learned advocate are also equally present in the case of the duplication of the CD by the copyright owner himself, in which case the appellants cannot be heard arguing that the cost should not be included. Learned advocate has himself agreed that in the case of manufacture by the copyright holder, the cost is required to be included on apportioned basis. In any case, we find the answer to this problem in the Board s Circular No. 619/10/2002-CX, dated 19-2-2002. Paragraphs 6 7 of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, jacket, jewel box and other material supplied free of cost. Since net sales value and total royalty payment for the current year will not be available with the music company, duty should be determined on the basis of figures for the previous year. Till the figures for the previous year are provided assessments should be done provisionally. Assessments should be finalized immediately after the figures for the previous year are made available. 21. The appellants have further submitted that the said circular relied upon by the Commissioner (Appeals) can be challenged by them. There can be no dispute about above legal position. However, on the basis of the discussion made by us in the preceding paragraphs taking account of the entire relevant case law, we do not find any justifiable reason to take a view different from the one taken in the said circular. In view of our foregoing discussion, we hold that the cost of the master DAT is required to be added in the assessable value of the CD on the basis of the amortized or apportioned cost for each CD. Commissioner (Appeals) has already remanded the matter to the Deputy Commissioner for re-determination the assessable value on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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