TaxTMI 
TaxTMI 
2014 (6) TMI 621
X X X X Extracts X X X X
X X X X Extracts X X X X
....oncerned, the appeals are allowed and the order of the Tribunal is set aside and the matter is remitted to the Tribunal as the finding of the Tribunal that the advertisement charges incurred by PGG can be loaded to the assessable value of the soaps manufactured by GSL is based on grounds not taken in the show cause notice namely that GSL and PGG are related persons. In view of the same, the order of the Tribunal on other issues are also set aside and the Tribunal is directed to decided afresh on three issues, in accordance with law, namely (a) advertisement charges incurred by PGG; (b) amounts paid under the non-competition agreement; and (c) amounts paid by PGG to Godrej & Boyce for the trademarks can be loaded on to the assessable value. 6. The question of limitation regarding show cause notice issued by the Commissioner (Indore) related to Malanpur factory shall be decided by the Tribunal by recording a separate finding after considering all the relevant facts. 7. All contentions are left open to both the parties. 10. All penalties levied in the impugned order are also set aside and the same shall be decided by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... value of Soap Business including the goodwill thereof - Rs. 170 millions. (b) as consideration for the covenant not to compete- Rs. 170 millions. Clause 2.6 GSL will cause the trademarks described in Article 8.1 to be licensed to PGG for an advance fee of Rs. 70 millions. Clause 5.1 The Board of Directors of PGG shall be composed of eight (8) Directors. On the basis of the initial shareholding, PGFE and Godrej Designees shall nominate four (4) Directors each. The parties undertake to ensure that appropriate shareholder action shall be taken to effect the election of the Directors thus nominated. The Board shall at the request of any Director appoint an Alternate Director designated by him to serve in his absence. Clause 5.2 The Chairman of the Board shall be director nominated by Godrej Designees. The Chairman shall not have a casting vote in the event of a tie vote. Clause 8.1 GSL will cause to be made available to PGG the use of those trademarks which it is now using in connection with its soap business. Such ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; (ii) Assignment of Trademark dtd. 23/11/92 between GSL and G&B. As per the Deed of Assignment, GSL which was a wholly owned subsidiary of G&B, assigned the Trademarks to Godrej & Boyce & Mfg. Co, Ltd. (G&B in short) as a matter of corporate policy for a consideration of Rs. 6 Crores. (iii) Godrej Trademarks Licence Agreement dtd. 22/1/1993 between Godrej & Boyce Manufacturing Co. Ltd. (G&B) and PGG. By virtue of this Agreement, G&B granted to PGG the non-exclusive right to use the Trademarks in relation to Toilet Soaps marketed or distributed by PGG. In consideration of the Trademark Licence granted, PGG paid to G&B for the initial term of 7 years and advance licence fee of Rs. 70 millions to be apportioned at Rs. 10 millions for every year. As per this Agreement, PGG guaranteed that as and when the Trademarks are used by it in relation to the goods, the Trademarks shall be described in such a manner so as to indicate that the Trademarks are owned by G&B and that they are being used by PGG only with the permission of G&B. (iv) Manufacturing Agreement dated 22/1/1993 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....PGG for Godrej brands, Rs. 3,63,37,500/- on account of consideration received by GSL towards non-competition with PGG in marketing, distribution and sale of toilet soaps in the specified territory, Rs. 1,49, 62,500/- on account of consideration received by G&B as licence fee from PGG. The Commissioner also imposed equal amount of penalty on GSL under Section 11AC of the Central Excise Act, 1944, besides charging interest at the applicable rate under Section 11AB of the said Act. Plant and machinery of M/s. GSL were confiscated and an option to redeem the same was granted on payment of a fine of Rs. 5 lakhs. Penalties of Rs. 1 crore, Rs. 25 lakhs, Rs. 50 lakhs, Rs.20 lakhs and Rs. 2 lakhs each were imposed on PGG, PGIL, G&B, Sri. A.B. Godrej, M.D. of GSL and Sri. Sudhir Kulkarni, Sr. Vice President and Mr. Vijay Kulkarni, Dy. G.M. of GSL, respectively. 3.7 In appeal against the Commissioner's order, the Tribunal by its order dtd. 21/02/2002 [2002(148) ELT 161], while upholding the levy of central excise duty on account of advertisement and sales promotion, set aside the duty demands on account of non-competition agreement and trademarks licence fees. In ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and PGG are not related persons. Undisputedly, all the manufacturing cost has been included in the value of toilet soaps. There is no consideration which is flowing from PGG to the appellants. The advertisement cost incurred by PGG is not an additional consideration which is flowing from PGG to the appellants. The advertisement expenses have been incurred by PGG to increase its sale of toilet soaps. Hence, the demand of duty on advertisement by invoking Rule 5 is incorrect and not sustainable. 4.4 There is no allegation or finding in the present case by the Commissioner that there is a legally binding contract between the appellants and PGG to incur the advertisement expenses by PGG and therefore, the advertisement expenses incurred by PGG is includible in the assessable value of goods. In the present case, there is no binding stipulation in the joint venture agreement to incur certain advertisement expenses and if the same is not incurred, the joint venture would be terminated. It is a well-settled legal position that the advertisement expenses incurred by the buyer can only be included in the assessable value of goods only when there is a legal e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not includible in the assessable value of toilet soaps. In the case of Philips India Limited Vs. CCE - 1997 (91) ELT 540 (SC), the Hon'ble Supreme Court held that the advertisement expenses incurred by the buyer is not includible in the assessable value as the advertisement has benefited the buyer also. 4.7 The Hon'ble Tribunal following the above ratio laid down by the apex court has held that the advertisement expenses incurred by the buyer are not includible in the assessable value in the judgments cited below: i) CCE Vs. Chennai Bottling Company - 2007 (217) ELT 556 (T) ii) Varanasi Bottling Co. Vs. CCE - 2009 (245) ELT 345 (T) iii) Maruti Suzuki Vs. CCE 2008 (232) ELT 566 (T) iv) Havemore Ice Cream Company Vs. CCE - 1997 (89) ELT 65 (T) v) Ford India Limited Vs. CCE - 2007 (216) ELT 530 (T) vi) TVS Motors Vs. CCE - 2008 (229) ELT 559 (T) vii) Proctor & Gamble Vs. CCE - 2005 (190) ELT 490 (T) 4.8 In the case of A.K. Roy Vs. Voltas- 1997 (1) ELT J177 (SC), the Hon'ble Supreme Court held that excise is a tax on manu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessable value of goods cleared by him. In these facts, the Hon'ble Supreme Court held that the advertisement expenses incurred by the manufacturer assessee cannot be excluded from the assessable value, as the basis of excise duty is sale price of the goods. In the present case, the appellants had not claimed any deduction on account of advertisement expenses. The appellants had not incurred advertisement expenses at all. The buyer had incurred the advertisement expenses which have been proposed to be included in the assessable value. In the present case, the sale price is available which was not available before the Supreme Court in the aforesaid case. Hence, the reliance placed on the decision of Bombay Tyre International is incorrect. 4.11 PGG had marketed and sold soaps of Godrej brand as well Proctor and Gamble brand. Camay soaps are Proctor and Gamble Product. The advertisement expenses have been incurred by PGG on Camay brand soaps also. There is no demand raised by the department in respect of the advertisement expenses for Camay brand shop. The department cannot pick and choose by not demanding duty in respect of Camay brand and conf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4.13 In the present case, initially, the trademark was owned by the appellants. Subsequently, the appellants had assigned all the trademarks to their holding company G&B for a consideration of Rs.6 Crores. The reason of such transfer was that the appellants were going for public issue and therefore, it was agreed that all the trademark of Godrej group should be transferred to their holding company. The transfer was entirely for commercial reasons. G&B had given license to use trademark of Godrej to PGG to market toilet soaps for a consideration of Rs. 7 Crores. The Commissioner in the impugned Order-in-Original has demanded duty on the amount of license fees received by G&B from PGG. Firstly, the appellants submit that they have not received any amount from PGG towards license fees and therefore, the same is not includible in the assessable value. The amount was received by G&B which is the holding company of the appellants. The Hon'ble Supreme Court in the case of Vodafone International Holding Vs. UOI - 2012 (6) SCC 613, held that the holding and subsidiary companies are independent of each other and therefore, the amount received by G&B cannot be treated....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the allegation made by the Commissioner is incorrect. 4.16 The appellants vide letter dated 22.3.1993 had specifically informed the department about the JV arrangement. The letter was duly acknowledged and received by the department. Hence, all the facts were known to the department. Hence, the invocation of extended period of limitation is incorrect. For the reasons mentioned supra, the duty demand itself is not maintainable and therefore, there is no question of imposition of penalty or demand of interest. 5. The ld. Special Consultant appearing for the Revenue made the following submissions. 5.1 It is nobody's case that advertisement and sales promotion expenses are not includible in the assessable value of the goods. It is well settled that advertisement expenses, marketing and selling organization expenses and after-sales service promote the marketability of the goods and hence, the said expenses are includible in the assessable value of the goods as held by the Hon'ble Apex Court in the case of Union of India & Ors. V/s. Bombay Tyre International Ltd. & Ors. - 1983 (14) ELT 1896 (SC) = 5.2 In the present case, as per the JVA, PGG was formed to carry out ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ention that prior to 01/04/1993 i.e. before JVA, GSL was including in the assessable value advertising and sales promotion expenses. However, during the period of JVA, the expenses on account of advertisement and sales promotion of toilet soaps were not included in the assessable value. GSL had managed to reduce the expenditure on account of advertisement on toilet soaps to a very large extent and the same was paid by PGG. It may be mentioned here that after termination of JVA w.e.f. 31/07/1996, there was a sudden jump in advertisement expenses incurred by GSL for the Financial Year 1996-1997 which is shown as below: Advertisement Expenses Incurred Company Year Ending 92-93 93-94 94-95 95-96 96-97 GSL 31st March 24.15 2.77 6.22 7.43 24.48 PGG 30th June 5.13 23.29 25.41 32.21 Not Available 5.6 It is contended on behalf of the appellant that the expenses on advertisement incurred by the Distributor Company are not includible in the assessable value of the goods. In support of this contention, various case laws were cited at the time of hearing. Perusal of those case laws would show that the fact situation in those c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed trade mark in relation to the toilet soaps including ad-campaigns also indicates that the goods have originated from Godrej. However, on the wrapper it was mentioned that PGG was only marketing the goods and was the licensed user of the trade marks. Hence, it would be clearly seen that PGG was required to do advertisement for Godrej in respect of toilet soap brands. In essence, GSL/Godrej benefited as its brand-names were promoted. On the wrapper of the toilet soap, it was mentioned that the soap is manufactured by GSL and marketed by PGG. Be that as it may, use of the trademark/brand in advertisement of soaps would increase the value of the goods via 'brand equity'. 5.10 In view of the foregoing facts, the additional consideration received by G&B from PGG is to be taken as received by GSL as it is only a group company of Godrej family. Further, it may also be mentioned here that G&B held 67% shares in GSL. Therefore, the addition of Rs.7 crores received by G&B is required to be added to the assessable value of toilet soaps in terms of Rule 5 of the erstwhile Central Excise Valuation Rules, 1975. 5.11 As per the non-competition agreement, PGG was to do marketing of toilet ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment along with the price list in 1993; that none of the other agreements including JVA was submitted or disclosed to the Department along with the price list in 1993. In his further statement dtd. 19/02/1997, Shri Vijay R. Kulkarni was not in a position to bring the acknowledgement receipt evidencing submission of the manufacturing agreement with PGG to the Central Excise Department. This is, therefore, a clear case of non-disclosure of the fact regarding reduction of price of toilet soaps by not including the expenses of advertisement and sales promotion in the price of toilet soaps during the period of their alliance with PGG. In the light of these facts, extended period of limitation has been rightly invoked in the show cause notice. 5.14 At the outset, it may be mentioned that the Show Cause notice dated 27/3/98 covers the period of demand from 1/4/1993 to 31/7/1996. The Commissioner has imposed penalty on GSL under Section11AC of the Central Excise Act, 1944. The contention of the appellant is that Section 11AC was brought into force with effect from 28/9/96 by the Finance Bill of 1996. Therefore, no penalty is imposable on GSL for the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r decision would also be whether the confiscation of plant and machinery of GSL and the subsequent offer of redemption on payment of fine is sustainable in law? 6.2 From the show cause notice as well as the impugned order, the case of the department is that the valuation of the toilet soaps manufactured by GSL and sold to PGG has to be done in terms of section 4(1)(b) of the Central Excise Act read with Rule 5 of the Central Excise Valuation Rules, 1975. The said Rule as it stood at the relevant time read as follows:- "5. Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the act except that the price is nto the sole consideration, the value of such goods shall be based on the aggregate of such price and the amount of money value of any additional consideration flowing directly or indirectly form the buyer to the assessee." 6.3 Invocation of rule 5 itself implies that the other conditions stipulated in section4, namely, the price is the normal wholesale price of such goods for delivery at the time and place of removal and the buyer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her the non-compete fee of Rs. 34 crore paid by PGG to GSL can be included in the assessable value of toilet soaps manufactured by GSL. As per the Non-Competition Agreement dated 16/12/1992 among GSL, PGFE and PGG, at the request of PGFE and PGG, from the date of physical transfer of the business of marketing, distribution and sale of Toilet Soaps to PGG, GSL shall not undertake as a commercial activity, anywhere in the specified territory the distribution, marketing or sale of Toilet Soaps. The non-compete agreement, trade mark agreement and the manufacturing agreement are an integral part of the JVA as can be seen from clauses 2.1, 2.6 and 9.1(A). All these agreements are co-terminus with the JVA. One does not exist without the other. In view of this factual position, these agreements cannot be viewed separately or as existing independently. The manufacturing agreement would not have been entered into without the non-compete agreement or the trade mark agreement. Therefore, the consideration paid under any one of the agreements cannot be viewed as a separate transaction in itself and has a bearing on the entire transaction. The very fact that w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n terms of which it was not permitted to manufacture, sell or otherwise deal directly or indirectly in the sale and distribution of goods specified in the agreement for a period of 7 years and 14 years and in return thereto, the appellant received a non-compete fee. Considering the terms and conditions of the agreement, this Tribunal relying on its earlier decision in the case of Godrej Boyce & Mfg. Co. Ltd. [ 2002 (148) ELT 161] and Kwality Ice cream, held that non-compete fee is not includible in the assessable value of the goods cleared by the appellant. It is worth mentioning here that the Godrej Boyce & Mfg. Co. Ltd. case mentioned above, is the decision of this Tribunal in the present case during the first round of litigation which has been set aside by the hon'ble apex court. There was no discussion or consideration whatsoever about the applicability of Rule 5 of the Valuation Rules in the Agrimore and Kwality Ice Cream cases. Similarly in the case of Proctor & Gamble also, the question for consideration was whether the appellant PGIL and the sole buyer PGHP were related persons under section 4(4)(c) of the Central Excise Act. One of the contentions r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.'' Following the above ratio laid down by the hon'ble Apex Court, we are of the considered view that the reliance placed on the various decisions by the appellant has no relevance or application to the facts of the case before us. 6.7 The next issue for consideration is whether the trade mark licence fee paid by PGG to G&B can be included in the assessable value of the toilet soaps manufactured and sold by GSL. The contention of the appellant is that the payment has been made by PGG to G&B and not to GSL and therefore, the payment of licence fee for use of trademark has not influenced the sale price of the toilet soaps sold by GSL to PGG. It is a fact on record that prior to the execution of JVA, the trade marks were owned by GSL. Clause 2.6 of the JVA envisaged that GSL will cause the trademarks to be licensed to PGG for an advance fee of Rs. 7 crore. Further clause 8.1 of the JVA also envi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....marketing network. After giving away both also, in effect nothing had changed inasmuch the right to use the trade mark parted with by them was given back to them. Thus in the eyes of the customers nothing had changed. What had occurred behind the scene was transfers of substantial monies. The reason for such transfers is not known. The record shows that for every question, the concerned persons had pleaded 'business reasons'. In terms of the Supreme Court judgement in the case of Bombay Tyre International, all the expenses which enrich the value of the goods in the eye of the customers is to be included in the price. Brand names have a certain value and are reflective of goodwill of the manufacturer. Thus, in the instant case, the consideration paid for the use of the trade marks by PGG to GSL, routed through G&B, is an additional consideration flowing from PGG to GSL and therefore, should certainly form part of the value of the toilet soaps manufactured and sold by GSL to PGG during the currency of the JVA. The reasons adduced for inclusion of non-compete fee in the assessable value, in the preceding paragraphs, would apply equ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....into force only with effect from 28-9-96. It is a settled position in law that levy of interest is a substantive provision and cannot be applied retrospectively. Interest can be levied only when the provision comes into force. Therefore, in the present case, interest under Section 11AB on the duty demand confirmed will be operative only from 28-9-1996 and not earlier. 6.11 As regards penalties, section 11AC prescribing mandatory penalty was brought into the statute book only with effect from 28-9-1996. When the goods were cleared and duty became due, the said provisions was not in existence. Therefore, imposition of penalty under section 11AC of the Act on GSL cannot be sustained. As regards the penalties imposed on PGG, PGIL and G&B, the charge against them is one of abetment. In the present case, the responsibility of correct declaration of price, assessing and paying excise duty, complying with the statutory provisions was on GSL and not on PGG, PGIL and G&B. In other words, there was no statutory obligation or requirement on PGG, PGIL and G&B to do any act in respect of their transactions with GSL. Further the issues involved related to in....