of Central Excise, Surat Vs. M/S. Surat Textiles Mills Ltd.
& Ors  Insc 318 (26 April 2004)
Babu Dr. Ar. Lakshmanan & G.P. Mathur.
Appeal Nos. 13400/1996, 4672/1997 & 4762/1997 Dr. AR. Lakshmanan, J.
Civil Appeal Nos. 2357-2361/2002 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, 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 at which these two concerns sold them
to their dealers.
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.
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.
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
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, 1998 (74) ERC 722=(1997) 6 SCC 31, 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. , 1989(39) ELT 439=(1989) 3 SCC 531 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.
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:
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. & Ors.
reported in 1995(4)SCC 349 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 in 1997(6) SCC 31.
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."
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
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 added in the value of the fabrics and, therefore, not exigible
to excise duty.
other factual and legal contentions have also been taken in the counter
affidavit filed by the respondents.
Civil Appeal No. 13400/1996 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 No.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:
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;
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;" Several other factual and legal contentions were taken
challenging the legality and correctness of the order passed by the CEGAT.
Civil Appeal No. 4672/1997 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.
present civil appeal was filed by the appellants against the order of the CEGAT
questioning the legality and correctness of the said order.
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.
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.
Civil Appeal No. 4762/1997 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.
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
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
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." 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.
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.
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
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
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.
time of hearing, learned counsel appearing on either side placed strong
reliance on the following judgments for and against :
Government of India and Others vs. Madras Rubber
Factory Ltd. and Others [(1995) 4 SCC 349]
Philips India Ltd. vs. Collector of Central Excise, Pune [(1997) 6 SCC 31]
M/s. Ujagar Prints and Others (III) vs. Union
of India and Others [(1989) 3 SCC 531]
Pepsi Foods Ltd. vs. CCE, Chandigarh
[2003(111) ECR 776 (SC) = JT 2003(9) SC 595
5. Union of India and
Others vs. Bombay Tyre International Ltd. and Others [(1984) 1 SCC 467]
Assistant Collector of Central Excise and Others vs. Madras Rubber Factory Ltd.
etc. [1986 (Supp) SCC 751]
Assistant Collector of Central Excise and Others vs. Madras Rubber Factory Ltd.
[(1989) 3 SCC 238] 8. Collector of Central Excise, Madras vs. T.I. Millers Ltd., Madras and T.I.
Chain, Madras [1988 (Supp) SCC 361] 9. Collector
of Central Excise, Hyderabad vs. M/s Jayant Oil Mills Pvt. Ltd.
[(1989) 3 SCC 343]
Cosmic Dye Chemical vs. Collector of Central Excise, Bombay [1995(75) ELT 721
Batteries Ltd. vs. Collector of Central Excise, Bangalore [2003(153) ELT 7 (SC)]
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.
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.
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. CCE 1987(27) ELT 349.
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.
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.
the appeals stand disposed of accordingly with the above direction. There will
be no order as to costs.