2015 (4) TMI 856 - SC - Central Excise

Court rules royalty charges not part of assessable value for duplicate CDs. Appellant allowed refund.

M/s. KRCD. (I) Pvt. Ltd. Versus Commissioner Of Central Excise, Mumbai

M/s. KRCD. (I) Pvt. Ltd. Versus Commissioner Of Central Excise, Mumbai - 2015 (319) E.L.T. 364 (SC) Issues Involved:1. Inclusion of royalty charges in the assessable value of CDs.2. Application of Section 4(1) of the Central Excise Act and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.3. Relevance of previous judgments and their applicability to the current case.Detailed Analysis:1. Inclusion of Royalty Charges in the Assessable Value of CDs:The appellant was involved in manufacturing duplicate CDs from a master tape/CD provided by a distributor who held the copyright. The Assistant Commissioner of Central Excise demanded duty on royalty charges incurred by the distributor/copyright holder. The Commissioner (Appeals) initially set aside this order but later directed the inclusion of royalty charges in the assessable value. The appellant argued that the job work did not include any royalty element, as the royalty was only for the music embedded in the CD and not for any additional royalty. The Revenue contended that the royalty paid for the master tape/CD should be included in the assessable value as it formed part of the cost of goods produced by the appellant.2. Application of Section 4(1) of the Central Excise Act and Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000:Section 4(1)(a) was deemed inapplicable as price was not the sole consideration for the sale. Hence, Section 4(1)(b) and Rule 6 were applied. Rule 6 states that the value of excisable goods shall be deemed to be the aggregate of the transaction value and any additional consideration flowing from the buyer to the assessee. The master tape provided by the distributor was considered additional consideration. However, the court noted that the royalty for the music/picture embedded in the master tape was not used in connection with the sale of duplicate CDs, as these were sold only to the distributor who owned the copyright. Therefore, the royalty could not be included in the assessable value.3. Relevance of Previous Judgments and Their Applicability to the Current Case:The appellant relied on two judgments: *Joint Secretary to Government of India v. Food Specialties Ltd.* and *Sidhosons & Anr. v. Union of India & Others*. Both cases established that the value of goodwill or brand name should not form part of the assessable value when the goods are sold only to the owner of such goodwill or brand name. The court found these judgments applicable, concluding that the enhancement in value due to copyright should not be included in the assessable value of the CDs sold to the distributor.The Revenue cited *Associated Cement Companies Ltd. v. Commissioner of Customs*, where the value of drawings and designs was included in the assessable value. However, the court distinguished this case, noting that the appellant did not exploit the intellectual content of the CDs, as they were sold only to the copyright owner.Conclusion:The court concluded that no part of the royalty should be included in the assessable value of the duplicate CDs. The impugned judgment was set aside, and the appellant was allowed to claim a refund of additional duty collected. The appeal was allowed in these terms.