TMI Blog2015 (4) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... used in connection with the production and sale of goods by the assessee. What is clear from the present transaction is that the master tape contains within it music/picture in digital form. There is no doubt whatsoever that the music/picture supplied on the master tape ought to be valued and has been valued as additional consideration that flowed from the buyer to the assessee, and its value has been accepted at rupee one per CD. Copyright value in the duplicate CD is not used in connection with the sale of such goods inasmuch as no part of the copyright which may have been passed on by the distributor to the assessee is used by the assessee in selling the duplicate CDs to the distributor who is himself the owner of the copyright. Clearly therefore on the assumption that the music/picture embedded in the master tape is inextricably bound with the copyright thereof, the copyright is not “used” by the appellant while selling the duplicate CDs to the distributor. The distributor having paid a lump sum royalty to the producer of the music, then sells, after the job work done by the appellant, the duplicate CDs in the market with the cost of the royalty loaded thereon. Given th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e copies from the appellant loads part of the royalty paid to the music producer on each such CD which as has been stated above is then sold to the ultimate customer in the market. The entire stock of duplicate CDs can only be sold to the distributor/copyright holder and to nobody else. On 31.8.1998, provisional assessments for the period 1995 to 1998 were finalised by the Assistant Commissioner of Central Excise demanding duty inter alia on royalty charges incurred by the distributor/copyright holder. The Commissioner (Appeals) by an order dated 20.7.1999 set aside the order dated 31.8.1998 and held that the appellants were already including a royalty of one rupee per CD in the assessable value of the CD and remanded the matter back to the Assistant Commissioner. On remand, the Assistant Commissioner directed the appellant to file a price declaration along with cost break up certified by a chartered account. Such declaration reads as follows:- Declaration under Rule 173C dated 14.3.2000 for break up of the cost of CDs. Raw material and other expenses 6.31 Inlay Card 2.00 Jewel Box ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewel box. It is the distributor and others who are the copyright holders who then sell these duplicate CDs in the market loading on to them the royalty cost paid by the distributor and others in lump sum to the music producer. Since no part of the royalty had in fact passed, no amount of royalty could be included in the assessable value. 5. Shri Rupesh Kumar, learned counsel on behalf of the Revenue argued that when the master tape was handed over by the distributor who was also the copyright holder, obviously what was handed over was a CD with music on it, which music was inextricably bound with royalty that was paid for it. It is clear that the master tape could not be given to the appellant for duplication unless royalty had been paid which royalty would form part of the cost of the goods to be produced by the appellant and then sold to the distributor/copyright holder. In this view of the matter, it would be correct to say that the royalty that is payable would also have to be loaded on to the duplicate CDs produced by the appellant and apportioned in a manner stated in the circular dated 19.2.2002. This being so, there is nothing wrong with the order of the Tribunal that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the explanation to further their case. Since the explanation is determinative of the present case, it is important to note that where the master tape is supplied by the distributor who is the copyright holder to the appellant, whether free of charge or at a reduced cost such master tape must be used in connection with the production and sale of goods by the assessee. What is clear from the present transaction is that the master tape contains within it music/picture in digital form. There is no doubt whatsoever that the music/picture supplied on the master tape ought to be valued and has been valued as additional consideration that flowed from the buyer to the assessee, and its value has been accepted at rupee one per CD. So far as the royalty payable for such music is concerned, even if we agree with the learned counsel for the Department that such royalty is inextricably connected with the music and therefore would be used in connection with the production of the duplicate CDs, yet the explanation requires that such use must not merely be in connection with production but must also be in connection with the sale of such duplicate CDs. As has been pointed out earlier in this jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onent of the value of the goods for the purpose of assessment of excisable duty. 10. Similarly, in Sidhosons Anr. v. Union of India Others, 1986 (26) E.L.T. 881 (S.C.), the appellants were manufacturing electrical goods which were labeled with the brand name Bajaj and sold by the appellant only to Bajaj Electricals Limited and to none else. The price fetched by the goods manufactured by the appellant was the price of the electrical goods without the brand name. It was held:- .The enhancement in the value of the goods by reason of the application of the brand name is because of the augmentation attributable to the value of the goodwill of the brand name which does not belong to the manufacturers and which added market value does not accrue to the petitioner company or go into its coffers. It accrues to the buyers to whom the brand name belongs and to whom the fruits of the goodwill belong. Excise duty is payable in the market value fetched by the goods, in the wholesale market at the factory gate manufactured by the manufacturers. It cannot be assessed on the basis of the market value obtained by the buyers who also add to the value of the manufactured goods the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Collector of Customs [(2000) 1 SCC 727 : (2000) 1 Scale 72] the Bank had, under an agreement with the foreign company, imported a computer software and manuals, the total value of which was US $ 4,084,475. The Bank filed an application for refund of customs duty on the ground that the basic cost of software was US $ 401.047. While the rest of the amount of US $ 3,683,428 was payable only as a licence fee for its right to use the software for the Bank countrywide. The claim for the refund of the customs duty paid on the aforesaid amount of US $ 3,683,428 was not accepted by this Court as in its opinion, on a correct interpretation of Section 14 read with the Rules, duty was payable on the transaction value determined therein, and as per Rule 9 in determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly, as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. This clearly goes to show that when technical material is supplied whether in the form of drawings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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