TMI Blog1995 (10) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... plant. The period in dispute in this case is from 1-9-1992 to 31-3-1993. The appellants filed price lists of their product during the relevant period. In answer to a question in the questionnaire annexed to the price list, the appellants informed that they have been receiving royalty as a percentage from turn-over of the product using the brand name `lehar belonging to the appellants. Royalty charges were received by the appellants, over and above the value claimed for approval in the price list. The department was of the view that such royalty charges were includible in the assessable value and two show cause notices were issued dated 24-3-1993 and 23-6-1993 covering the period from 1-9-1992 to 31-12-1992 in which duty of Rs. 12,55,687.00 and in the other show cause notice the duty demand of Rs. 20,07,040.00 was demanded on inclusion of the royalty charges in this assessable value. Further, the department found on scrutiny of the appellants record including the franchise agreement between the appellants and their bottlers which showed that the bottlers were given a licence to use the appellants brand name `lehar on their beverage products and as per clause 18 of the said agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible in the assessable value on the principles laid down by the Supreme Court in the case of Union of India v. Bombay Tyre International reported in 1983 (14) E.L.T. 1896. Therefore, he confirmed the demand as made in the four show cause notices, mentioned above. The Assistant Collector s order was upheld by the Collector (Appeals) in the impugned order leading to the present appeal. 2. The ld. Counsel, Shri Lakshmi Kumaran appearing for the appellants, contended that in respect of the demand by adding advertisement expenses to the assessable value, that the appellants have paid duty on the value inclusive of such expenses on clearance of concentrate. They have deducted only the excise duty element from price of concentrate as per Section 4(4)(d)(ii) Central Excises Salt Act. The advertisement expenses had been incurred only out of sales income from concentrate. No abatement had also been claimed on this account in the price list for concentrate. There is no evidence to show that the appellants had collected extra amounts towards advertisement expenses from the bottlers and in this context, the invoices for the sales were shown alongwith the prices declared in the price list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged from bottlers of soda using appellants trade mark although there is no sale of concentrate for the purpose. In law the trade mark owner is entitled to charge royalty on such use of trade mark by others. Further, the royalty amount is payable not immediately but only after the sale of soft drinks made by the bottlers immediately on its sale. Citing the Tribunal decision in the case of Collector v. Birla Yamaha - 1995 (77) E.L.T. 170 the ld. Counsel pointed out that as held in that case here also royalty charged is not a condition for the sale of the concentrate and hence is not includible in the assessable value. The ld. Counsel argued that the department has to show that price is not the sole consideration before they can add any amount as extra accruals to the assessable value. The ld. Counsel cited the Tribunal decision in the case of Collector v. Maruti Udyog - 1987 (28) E.L.T. 390 as confirmed by the Supreme Court in 1989 (22) ECR 482 in the case of Collector v. M/s. Maruti Udyog Ltd. Mere payment of royalty does not create mutuality of interest. These decisions were followed by the Tribunal in an appeal involving the same issue in the case of Duke Sons v. Collector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions made by both the parties have been carefully considered. Taking up the question whether the expenditure incurred on advertisements by the appellants, should form part of the assessable value, it is their claim that the expenditure thereon has been met out of the price received for the sale of the concentrates, and no separate amount has been collected towards such expenses from the bottlers, nor had they claimed any deduction from the assessable value of the advertisement expenses. Their further contention is that they had incurred the expenses on the advertisement of the beverages made out of the concentrates and not for sales promotion of concentrates which is in fact their final product. Tracing the allegation in this regard to the show cause notice, the charge there is, further enquiries revealed that the assessee is also advertising for their product which was not disclosed by them with intent to evade Central Excise duty on the same. On being asked, Shri S. Rajan, their President of the assessee s unit, ... stated that they advertised for their brand name `Lehar only. However, scrutiny of their advertisement bills revealed that they are advertising for their final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of valuation under Section 4 of the Central Excises Salt Act, 1944 has been laid down in the Supreme Court judgment in Bombay Tyre International case wherein it has been held that advertising expenses cannot be deducted from the assessable value because these expenses promote the marketability of the article and enter into its value in the trade. The appellants case is that they are already paying duty on these expenses as they are incurred out of the price realisation on the sale of their concentrates. Their claim is supported by the absence of any deduction claimed towards this in price list (which in any case could not have been allowed deduction). Further, in order to substantiate the case the department has not been able to show evidence of collection of any amount separately for advertisement expenses, as they have been able to do in respect of the other element of cost in dispute in this appeal relating to royalty charges. The price shown in the invoices for the goods was found to be as per that declared in the price list. Shri S. Rajan, Vice-President of the appellants has also said in his statement on 12-11-1991, Advertisement expenses are incurred by the company o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement provides the vital linkage between the grant of the licence to use the trademark and the condition prescribing purchase of concentrates ONLY from appellants. This clause reads as follows : The bottler shall buy only from Pepsi Co s approved manufacturer, PFL, or a manufacturer approved in writing by Pepsico and PFL (PFL and/or a such approved manufacturer hereinafter both called the Seller ) all Units of concentrate (hereinafter called Units ) required for manufacture of the beverage by the Bottler, at a price and other terms and conditions established by the Seller . 7. Again, clause 6 of the agreement stipulates, The Bottler, in preparing, bottling, selling and distributing the beverage will use only the units purchased from the seller. Read with clause 1, it is clear that the purchase of concentrates ONLY from the appellants as stipulated in clause 2 6 above, is among the terms under which only the licence to use the appellants trademark is granted to the Bottler. Appellants own perception of the nature and scope of the agreement, as encompassing indivisible twin objects of grant of licence and sale of concentrate is brought in their reply dated 18-5-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate that the `concentrate is sold only to those who also enter into agreement to buy the `trade mark . We have seen that in the present case, on the contrary, there is such evidence. Hence, it is in the present case, on the contrary, there is such evidence. Hence, it is clear that the appellants can derive no support at all from the Tribunal decision in the Duke Sons case (supra). In the result, it is held that the royalty charged for the use of the trade mark of the appellants by the bottlers on the beverage products manufactured by them from the concentrate purchased from the appellants as per a composite and indivisible agreement is an extra accrual over and above price collected for sale of concentrate and is hence includible in the assessable value of the concentrate. However, in the case of soda manufactured with the appellants trade mark since there is no concomitant sale of concentrates for the purpose, the royalty paid thereon is not so includible. The appeal is disposed of in the above terms. Sd/- (K.S. Venkataramani) Member (T) 4-9-1995 [Order per : Lajja Ram, Member (T)]. - I have carefully gone through the order proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the period 1-1-1993 to 31-3-1993, during which an amount of Rs. 2,23,34,387/- had been incurred on the advertisement of their final product - that is soft drink concentrate. For this specific allegation with exact quantification, the appellants had not produced any evidence to establish that the above amounts had been so included in their declared assessable value. They have made general denials but have not produced any proof to disprove the above specific allegation. 10. The appellants had sought to distinguish the advertisement for concentrate, from the advertisement for the beverage, and had contended in their reply to the show cause notice that the advertisement incurred, if any, for the buyers product has nothing to do with the product manufactured and cleared by us . They had admitted that from the advertisement actually done it could be easily seen that the advertisements were undertaken only for the soft drinks and not for the concentrate . (refer para A-6 at page 101 and page 112 of the Paper Book). They had pleaded on that account the advertisement expenses incurred in respect of the product not manufactured and cleared by us cannot be added to the assessable va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertisement did not enrich the value of their product and did not enhance its marketability in the trade and that the advertisement cost should not form part of the value of their product. 12. It has been contended by the appellants that in order to include any amount in the assessable value on the ground that it is an additional consideration, the burden of proof is on the department. The burden of proof is the obligation to establish a fact by proof. The responsibility of offering convincing proof rests upon the affirmitive side in the case proceedings. According to Section 106 of the Indian Evidence Act when any fact is specially with the knowledge of any person, the burden of providing that fact is upon him. In an adjudicating proceeding, the initial burden of establishing the charge lies on the department but when once this initial burden is discharged then the onus shifts to the delinquent to rebut the evidence against him. In the instant case before us, the appellant had not produced any evidence to establish that the advertisement expenses incurred by them formed part of the value of their product. No correlation with the value of the product and the advertisement com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the incidents attached to it, and also includes the expenses incurred by the appellants for advertising the final product, and that no separate amounts are being charged from their customers. They also contend that they have not sought any deductions for such expenses from the assessable value. No evidence is brought on record to disprove this factual claim made by the appellant. It may at the same time, be observed that the appellants have also not disclosed how the costing is worked out to arrive at the specific price. Such non- disclosure, however, in view of admitted position that they have been incurring the expenditure for advertisement and sale promotion and with no evidence to indicate realisation of the same, wholly or partly in cash or otherwise, does not assume any importance and rational presumption can be raised that the appellants have been spending for advertisement and sale promotion from whatever they realise as sale price from their customers. 18. Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) deals with ascertaining of the assessable value, and as a supplement thereto, Central Excise (Valuation) Rules, 1975 (hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, must have been worked out on the basis of cost of raw material, cost of labour, enterpreneure s profit, return on Capital, cost of packing, market research and survey and such other incidental costs including the cost incurred on advertising and sale promotion. 23. The expenses incurred by the appellants, in relation to advertising would therefore become includable in the assessable value. The contention of the appellants that, they are the manufacturers of only `concentrates for beverages, and that they have never advertised for sale promotion of such concentrates, or that what they were advertising for, was only for their `Brand Name, and not the beverages, and because of that, the advertising expenses are not includable in the assessable value, do not appear convincing as, by such advertisements, they have been ultimately enhancing marketability in trade, of their `concentrates for beverages . 24. If the price is so fixed, then the same has to be accepted as assessable value, unless it is shown that the price is not the sole consideration. 25. The Tribunal, in Collector v. Metal Box India Ltd. - 1989 (39) E.L.T. 79 (Tribunal) have held, and which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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