1995 (11) TMI 136 - AT - Central Excise

Tribunal upholds decision on assessable value and duty evasion in Colgate Palmolive case

The Tribunal upheld the Collector's decision, dismissing the appeal. It was established that advertisement and testing expenses incurred by M/s. Colgate ... Assessable value - wholesale market price at factory gate - brand goodwill not accruing to manufacturer - exclusion from assessable value - principal-to-principal sale - effect on valuation - advertisement and publicity expenses - includibility in assessable value - testing charges incurred by buyer after purchase - nexus to manufacture and assessable value - negotiated price revisions and allegation of sale below cost - proof of evasion - extended period for assessment - invocation where suppression provedAssessable value - wholesale market price at factory gate - brand goodwill not accruing to manufacturer - exclusion from assessable value - advertisement and publicity expenses - includibility in assessable value - principal-to-principal sale - effect on valuation - Advertisement and publicity expenses incurred by the brand-owner C.P. are not includible in the assessable value of shampoos manufactured and sold by the respondents to C.P. - HELD THAT: - The Tribunal accepted the Collector's finding that the respondents manufactured the goods in their own factory out of their own raw materials and sold them on a principal-to-principal basis to C.P., and there was no evidence of any special relationship or of obligation on the respondents to have C.P. incur advertisement expenditure. Relying on the ratio of Sidho Sons and subsequent authorities, the court held that excise duty is payable on the market value fetched at the factory gate by the manufacturer and not on the enhanced value attributable to the brand goodwill owned by the buyer. Since the augmentation in value by reason of the buyer's brand name accrued to C.P. and not to the manufacturer, advertisement and marketing expenses incurred by C.P. for promoting its brand could not be added to the price charged by the respondents for determination of assessable value. [Paras 7, 8, 9, 10]Findings of the Collector that advertisement and publicity expenses incurred by C.P. are not includible in the assessable value are affirmed.Testing charges incurred by buyer after purchase - nexus to manufacture and assessable value - principal-to-principal sale - effect on valuation - Charges incurred by C.P. for testing representative samples in their laboratory after purchase are not includible in the assessable value of the goods sold by the respondents. - HELD THAT: - The Tribunal agreed with the Collector that the testing expenses were incurred by C.P. after the goods were purchased and there was no pleading or evidence that such tests were necessary for or carried out by the respondents as part of manufacture or sale. No nexus was shown between those post-purchase tests and the respondents' manufacture or pricing; consequently such testing charges could not be treated as part of the assessable value. [Paras 11]Collector's finding that testing charges incurred by C.P. are not includible in assessable value is upheld.Negotiated price revisions and allegation of sale below cost - proof of evasion - extended period for assessment - invocation where suppression proved - There is no sustainable finding of evasion in respect of sales for which price revisions were being negotiated; the alleged short-levy of Rs. 2,45,815.71 is not sustainable. - HELD THAT: - The respondents demonstrated, by a Chartered Accountant certified statement and documentary material, that overall there remained a margin on sales to C.P. and that increases negotiated were reflected prospectively in revised price lists on which duty was paid. The Tribunal found no evidence that any payment other than the declared price or the agreed increase was received by the respondents, and accepted the Collector's conclusion that the allegation of sales below cost or suppression was unsubstantiated; accordingly the demand based on that allegation could not be sustained. [Paras 12, 13]Collector's conclusion rejecting the proposed demand for Rs. 2,45,815.71 is affirmed.Final Conclusion: The Tribunal confirms the Collector's order dismissing the demand: advertisement and publicity expenses and post-purchase testing charges incurred by the buyer C.P. are not includible in the respondents' assessable value, and the asserted demand arising from negotiated price revisions is unsustainable; appeal dismissed. Issues Involved:1. Inclusion of advertisement and publicity expenses in the assessable value.2. Inclusion of testing charges in the assessable value.3. Alleged evasion of duty during price negotiation period.Issue-wise Detailed Analysis:1. Inclusion of Advertisement and Publicity Expenses in the Assessable Value:The primary issue was whether the advertisement and publicity expenses incurred by M/s. Colgate Palmolive (India) Ltd. (C.P.) should be included in the assessable value of the shampoos manufactured by the respondents. The respondents argued that the transactions were on a principal-to-principal basis and that the expenses were incurred by C.P. for promoting their own brand name. The Collector agreed with the respondents, stating that the advertisement expenses incurred by C.P. for their brand's promotion could not be added to the assessable value of the goods manufactured by the respondents. The Tribunal upheld this view, referencing the Supreme Court's decision in *Sidho Sons v. U.O.I.*, which held that excise duty is payable on the market value at the factory gate and not on the augmented value due to the buyer's brand name.2. Inclusion of Testing Charges in the Assessable Value:The second issue was whether the testing charges incurred by C.P. on the representative samples of the shampoos should be included in the assessable value. The respondents contended that these charges were incurred by C.P. after the goods were sold and were not related to the manufacturing process. The Collector found that the testing charges incurred by C.P. had no nexus with the manufacturing and sale of the products by the respondents. The Tribunal agreed, noting that the quality control tests done by C.P. post-purchase were not includible in the assessable value, as they were not part of the manufacturing process.3. Alleged Evasion of Duty During Price Negotiation Period:The third issue concerned the alleged evasion of duty amounting to Rs. 2,45,815.71 during a period when the respondents were negotiating for a price increase with C.P. The respondents argued that any losses on specific items were offset by profits on others, and they provided a Chartered Accountant-certified statement showing an overall profit. The Collector accepted this explanation, noting that there was no evidence of any additional amount received by the respondents other than the negotiated price. The Tribunal upheld this finding, agreeing that the demand for the alleged evasion was not sustainable.Conclusion:The Tribunal confirmed the findings of the Collector, dismissing the appeal. The judgment emphasized that the advertisement and testing expenses incurred by C.P. were not includible in the assessable value of the goods manufactured by the respondents, and there was no evidence of duty evasion during the price negotiation period.