ORDER
K.S. Venkataramani, Member (T)
1. The appellants manufacture glass and glassware falling under Chapter 70 of the C.E.T., 1985. They were filing the price list in respect of the goods. The department initiated proceedings against the appellants because the department found that the appellants had gradually transferred the expenditure on sales promotion and publicity of their product ‘Yera Ware’ to M/s. Darshak Ltd., as evident from the expenses incurred towards sales promotion and publicity by both the companies from 1986 onwards which were as follows:-
Expenditure on Sales Promotion & Publicity :
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"Year M/s. Alembic M/s. Darshak --------------------------------------------------------------- 1986 Rs. 18,91,192/- Rs. 1,91,928/- 1987 Rs. 16,192/- Rs. 2,25,945/- 1988-89 (1-1-1988 to 31-3-1989) - Rs. 43,81,732/- ---------------------------------------------------------------
2. Shri R.S. Parikh, Factory Manager of M/s. Darshak gave a statement on 17-4-1990 saying that Darshak were engaged in the printing/decora ting of plain glass and glassware of ‘Yera’ trade mark purchased from the appellants and marketing the same. Shri R.D. Guard, General Manager (Marketing) of Darshak also gave a statement on 23-4-1990 saying that the appellants incurred publicity expenses for Yera Ware up to 1987 and gave the figures of expenditure. He further said that the increasing expenditure on publicity of the product by Darshak was attributable to increase in sale of the product as evident from the sales figures in the balance sheet. He agreed that Darshak had spent substantial amount towards publicity and sales promotion of Yera Ware from 1988 onwards. He further stated that in marketing Yera Ware Darshak had to incur expenses for packing the goods. The packing clearly indicated appellants as the manufacturer and Darshak as its marketing organisation for ‘Yera Ware’. A statement was also given by Shri Y.D. Trivedi, Executive Director of the appellants on 15-5-1990 saying that the appellants found themselves in a very difficult situation due to prolonged strike in 1987 and had to stop advertising for their product. To minimize the overheads it was necessary for them to locate a bulk buyer. Hence, the entire change in the pattern of sale was based on economic consideration. They gave their decorating plant and machinery to Darshak under an agreement. They were selling Yera Ware to wholesale buyers including Darshak. The percentage of sale of Yera are to Darshak was up to 98% in 1987. The department also found that as per Chartered Accountant’s certificate Darshak had spent a total of Rs. 71,61,049/- towards publicity and sales promotion expenses for Yera Ware during 1-1-1988 to 31-3-1989 and 1-4-1989 to 28-2-1990 respectively. In view of the above, it appeared to the department that Darshak had spent sizeable amount towards effective advertisement of the product manufactured by the appellants and also it appeared that the price charged by the appellants from Darshak was not the sole consideration for the sale of Yera Ware inasmuch as the amount spent by Darshak on publicity and sales promotion was additional consideration for the sale. The department further noted the reply given by the appellants in negative to question No. 4 on the lists of questions accompanying price list indicating that their buyers had not incurred any expenses i.e. for advertisement on their behalf or under express or implied instructions. This amounted according to the department suppression of fact for invoking longer period for demanding the duty and also reflected the intention to evade payment of duty. The appellants were alleged to have suppressed the material facts of the expenses towards sales promotion being borne by Darshak. The department’s case is that this amount of cost incurred by Darshak has to be added to the assessable value as it is an additional consideration for the sale of product in terms of Rule 5 of the Central Excise (Valuation) Rules, 1975. Show cause notice was issued on 4-4-1991 for demanding duty of Rs. 18,79,775.31 under Section 11A of the Central Excise Act, 1944. It was also proposed to impose penalty on the appellant under Rule 173Q of Central Excise Rules. The Commissioner of Central Excise & Customs, Vadodara adjudicated the case by the impugned order dated 3-9-1992. He considered their defence plea that advertisement expenses were incurred by Darshak on their own and not on behalf of the appellants. The appellants contended that Darshak cannot be regarded as related person of the appellant. Since the expenses were incurred by the customer after the clearances of the goods, they argued that it could not be added to the assessable value thereof. The Commissioner, however, did not accept this contention and came to the conclusion that advertisement expenses by the appellants were reduced and ultimately stopped as part of well thought out policy. He relied on the statement of the Executive Director of the appellant Mr. Trivedi. The Commissioner, therefore, held that the expenses incurred by Darshak on advertisement has to be added to the assessable value of the goods cleared by the appellants. He confirmed the demand under Section 11A of the Central Excise Act and imposed a penalty of Rs. 10 lakhs on the appellant. He ordered confiscation of the land buildings, plant and machinery belonging to the appellant under Rule 173Q(2) levying a fine in lieu of confiscation of Rs. 2 lakhs.
3. Shri Dushyant Dave, Sr. Counsel appeared for the appellant along with Shri R.C. Saxena, ld. Counsel. It was argued that there was no special relationship between the appellants and Darshak. They were selling the goods at the same price for other dealers also. Hence, there was a factory gate price ascertainable for their product and that should be given as assessable value under Section 4 of the Central Excise Act. The ld. Sr. Counsel also referred to the circumstances under which the appellants were agreeable to sell a bulk of their product to Darshak in order to get over a difficult economic situation of their unit and if the bulk buyer in his own interest incurred the advertisement expenditure for the product, it is equally for his benefit and the sale of the product had also increased. He referred to the decision of the Tribunal in their own case reported in 1996 (88) E.L.T. 296 in which the Tribunal had given a finding that Darshak was not a favoured buyer, by pointing out that there was no evidence of discriminatory and favoured treatment to them. The ld. Sr. Counsel further relied upon Madras High Court in the case of Standard Electric Appliancesv. Superintendent of C. Excise, reported in 1986 (23) E.L.T. 302 wherein the High Court has held that merely because the product was being advertised by a whole sale dealer and advertising their product by a whole sale dealer is also one of the well-known method by which the whole sale dealer attract the customer, this could not be a ground for enhancing the assessable value. Reliance was also placed on the Bombay High Court decision U.O.I, v. Mahindra & Mahindra reported in 1989 (43) E.L.T. 611 and also in the Tribunal decision in the case of General Industrial Controls (P) Ltd. v. Collector reported in 1991 (52) E.L.T. 449 wherein the Tribunal held that expenses incurred by a buyer for advertisement, sales promotion is not includible in assessable value if sale is on Principal to Principal basis and property in goods passess on to the buyer. In this decision the Tribunal had followed both the Madras and Bombay High Court judgments. The ld. Sr. Counsel further argued that admittedly in this case the advertisement expenses were incurred only by the customer and up to the point of clearance from the factory the appellants have not incurred any such expenditure. Therefore, according to the ratio of the Supreme Court judgement in Bombay Tyres International reported in 1983 E.L.T. 1896 it is not a cost incurred by the appellants as manufacturer therefore it cannot be included in the assessable value of their product. The ld. Sr. Counsel further argued that there was no ground for invoking the longer period for demanding the duty under Section 11A. The appellants had not wilfully suppressed any material from the department but have made their balance sheet available to the department. The Collector’s findings in Para 26 of the order goes against narration in Para 3 of the show cause notice which refers to scrutiny of the balance sheet of the appellant by the office. The ld. Sr. Counsel contended that there was no intention on their part to evade duty and hence longer period under Section 11A is not applicable as per Supreme Court decision in Cosmic Dye Chemicals v. Collector reported in 1995 (75) E.L.T. 721. In any case there was no contumacious conduct on the part of the appellant to justify penalty on them or for confiscation of land and building.
4. Shri D. Gurnani, ld. D.R. contended that the expenses on advertisement incurred by Darshak is an additional consideration enriching the marketability of the product which is an element to be added to the assessable value thereof. It is significant the ld. D.R. pointed out that initially appellants themselves were incurring advertisement expenses which they gradually shifted to Darshak who were purchasing 98% of their product. The ld. D.R. relied upon the Tribunal decision reported in 1993 (44) ECR-6 that even where there is a tacit understanding for sharing advertising expenses on a 50%, 50% basis the expenses have to be added to the assessable value. Another case law reported in 1989 (39) E.L.T. 147 of the Tribunal was cited saying that even where the distributor is not related advertisements cost has to be added to the assessable value. On limitation also there was clear misrepresentation in their answers to the questions enclosed to the price lists by the appellants which will justify invoking the longer period.
5. The submissions made have been carefully considered. The first issue is whether the expenditure incurred by M/s. Darshak is an additional consideration for the sale of the Yeraware glass by the appellants to them and whether its money value is to be added to the assessable value of the goods. In this context, it is noted that admittedly Darshak purchased any substantial portion of the appellants’ product and at one stage it was 90% of the sale. The back ground of facts leading to this bulk purchase was the economic crisis of the appellants in 1987 and one of the methods of recovery and rehabilitation was through an assurance by Darshak that they will lift a major portion of the goods. Thereafter they also started incurring expenses on advertisement and sale promotion. Till 1987 it is significant that appellants themselves were incurring such expenses. Another noteworthy feature is that the ‘Yera’ brand name under which the Glass and Glassware were sold is owned by the appellant and in the packing for the glassware provided by Darshak, it was mentioned that the goods were manufactured by the appellants and marketed by Darshak. The circumstances under which Darshak gave an assurance of bulk purchase and commenced progressively increasing out-lay on advertising the appellants product clearly indicates that it is a package deal for revival of the appellants factory arrived at between them and Darshak and as part of the cost reduction exercise of the appellant. It is also clear from the appellants own submission before the Commissioner that but for this package deal and the shifting of the advertisement and sale promotion cost to Darshak, the appellants themselves would have had to incur such expenditure. This is clear from the appellants’ reply to the Commissioner dated 21-11-1991 in which they have stated that they did not concentrate upon advertisement activity because of the assured sale of product to Darshak. The appellants further stated therein that “if tomorrow M/s. Darshak Ltd. decide not to purchase 85% of the total production of our client Company then in that case our client may have to think and consider once again on advertising its products for the purpose of maintaining its sale”. In such a situation, therefore the expenditure on advertisements and sale promotion incurred by Darshak on conditionality of their lifting 90% of the appellants’ production and undertaking the marketing of the product is an expenditure which otherwise the appellants would have themselves had to incur. In that reasoning, it would become an additional consideration which has to be reflected in the price. This reasoning finds support in the judgment of the Supreme Court in the case of Metal Box India Ltd. v. Collector 1995 (75) E.L.T. 449. In that case one of the contentions raised was that the ad hoc interest on advances given by M/s. Ponds (I) Ltd. to M/s. Metal Box should not have been loaded to the purchase price of the metal containers sold by M/s. Metal Box to Ponds (I) Ltd. In that case Ponds (I) Ltd. was lifting 90% of the total production of metal containers for that purpose huge amounts were being advanced free of interest by Ponds (I) Ltd. to M/s Metal Box. The Supreme Court observed that it has to be appreciated that if Ponds (I) Ltd. has not given these amounts, the appellant therein would have been required to borrow these amounts for purchasing raw materials and other accessories from outside like banks, etc. and would have been required to take large amounts of interest which only would have got reflected in the purchase price to be charged from the buyer as it would be a part of cost of production which was to be passed on to the customers of the appellants goods. The Supreme Court observed that it has been laid down by Section 4(1)(a) that normal price would be price which must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of the goods and only under such a situation Sub-section (1)(a) would come into play. If the price in a particular transaction is not the sole consideration flowing directly or indirectly from the buyer to the assessee-manufacturer, either in cash or any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods. This ratio clearly applies to the present case. The Supreme Court in the same decision also approved special trade discount given to the bulk buyer lifting 90% of the assessee output on guarantee basis as admissible discount, but after observing that such a deduction would be justified in the context of the fact that the purchase price had been loaded with the notional value of the interest on advance. It may also be recalled in this context that Supreme Court has held that selling cost cannot be considered as post-manufacturing element of cost. In such a view of the matter, the Collector’s order that the expenditure on advertisement and sale promotion incurred by Darshak so forms an additional consideration to be added to the sale price under Rule 5 of the Valuation Rules, is well founded and is sustainable. It is also to be noted that it is not being done on the ground that Darshak is favoured buyer or that they are related persons of the appellant.
6. The demand is also being resisted on grounds of limitation that appellants cannot be said to have deliberately suppressed material facts from the department with intention to evade payment of duty. Reliance is placed on the previous two show cause notices issued by the Asstt. Collector without invoking longer period. A perusal of the show cause notices shows that these show cause notices were within six months so there was no need for invoking the longer period. Reference has also been made to the correspondence with the Supdt. of the Range of the appellant calling for documents like balance sheet and annual report. But all these correspondance did not relate to any period anterior to the period covered by the present show cause notice issued by the Collector. It is also noted that no document giving details of the package deal under which the whole arrangement of shifting of the selling cost to Darshak came about is available on record. In such a context, the appellants merely answering questionnaire in the price lists with a simple ‘No’ against question No. 19 will not amount to full disclosure of information. Hence demanding duty under proviso to Section 11A is sustainable.
7. However, in the matter of quantum of penalty on the appellant, considering the amount of duty involved, the penalty appears to be on the higher side and accordingly it is reduced from Rs. Ten lakhs to Rs. Two lakhs. As regards the order confiscating land building, plant and machinery, etc., under Rule 173(2), Central Excise Rules, Sub-rule of 173Q has two Sub clauses and the adjudication order does not indicate the precise ground on which confiscation of land, building, plant and machinery, etc., has been ordered and because of this infirmity, the confiscation is set aside. The appeal is disposed of by holding that the loading of the sale price by including the element of expenditure on selling cost incurred by Darshak is sustainable. However, in the circumstances of the case, a lower penalty is called for, as ordered above. The confiscation of the land, building, plant and machinery, etc., is not in order and is set aside.
