ORDER
S.L. Peeran, Member (J)
1. These are Revenue appeals against two different assessees passed by Collector (Appeals), Trichy by two different orders and as the issue is common in respect of both the appeals, they are taken up together for disposal, as per law.
2. The appeal against the assessee M/s. Soft Beverages (Pvt.) Ltd. arises from Order-in-Appeal No. 170/97 dated 9.9.97 by which the Commissioner has set aside the Order-in-Original passed by the Assistant Commissioner confirming the demand of Rs. 51,31,761 being the differential duty for the period from April 94 to March 96 under Rule 9(B) of Central Excise Rules read with Section 11A of Central Excise Act on the ground that the advertisement and sales promotion expenses incurred on behalf of the appellants and the interest on deposits (other than deposits) on containers and ice-boxes) are to be included in the assessable value of the goods and finalised the provisional assessment ordered vide his letter dated 17.8.94. The Counsel before the Commissioner had submitted that on the same issue, the Assistant Commissioner had confirmed the demand on account of inclusion of advertisement and sales promotion expenses and also interest on advances for properties, etc. with regard to the month of March 94. When the duty became ad-valorem they had also gone to the Madras High Court and accordingly the Assistant Commissioner had confirmed the demand vide Order-in-Original No. 12/95 dated 24.7.95. On appeal, the Commissioner had set aside the Assistant Commissioner’s order vide Order-in-Appeal No. 142/95 dated 25.9.95. It was represented that since the present show cause notice were on the same lines as per the Order-in-Appeal, the Assistant Commissioner could not pass the order on the same set of circumstances and hence the impugned order should be set aside on this ground itself. It was also represented that although the Assistant Commissioner had directed to file provisional assessment with bond, they had not agreed to do so since they had filed a declaration for the period April 1994 onwards and as per amended Rule 173C of Sub-rules (3) & (4) of Rule 9(B) would not be applicable except the same asked for by the assessee. The Madras High Court’s decision in Writ Petition No. 4144/94 dated 9.4.94 was also pointed out. It was pointed out that show cause notice issued in November 96 would be time barred for the period covered therein. On merits also the Counsel pointed out that the Tribunal’s decision rendered in the case of Hav Mor Ice-cream as reported in 1997 (89) ELT 65 would be applicable as it was held therein that advertisement expenses incurred by the distributors cannot be added to the assessable value. It was also pointed out that with regard to interest on deposits, advances, etc. a certificate of Chartered Accountant was referred to to show that Assistant Commissioner had allowed part of the deposits on containers and ice-boxes, etc., but the deposit not allowed by him also referred to the same issue and so this should also be allowed. The Counsel had submitted copies of Bill books to show that all the deposits received from the various dealers was only for the use of the assessee’s property/bottles/crates, Ice-boxes, etc. is clearly printed on the reversal of the vouchers.
3. The Collector (Appeals) after hearing the issue noted that on the same issue arising in the case of M/s. Madurai Soft Drinks Pvt. Ltd. He had held that the issue was covered by the above noted Tribunal judgment and also the Apex Court judgment rendered in the case of Phillips India v. CCE as wherein the Apex Court had held that the advertisement expenses incurred by the buyer for promotion of the product should not be included in the assessable value of the assessee. Therefore, he noted that the issue being covered he was bound to allow the appeal. He also accepted the plea that the Assistant Commissioner had accepted the assessable value declared by them for the period 1.4.96 to 28.4.97 and therefore, subsequent demands were all barred by time.
4. In the case of M/s. Madurai Soft Drinks Pvt. Ltd., the Commissioner (Appeals) passed Order-in-Appeal No. 156/97 dated 26.8.97 set aside the Order-in-Original passed by Assistant Commissioner of Central Excise, Madurai-I Division by which he held that the entire advertisement and publicity expenses incurred by the sole selling agent (by taking it as additional consideration) is required to be added in the assessable value and on this basis finalised the provisional assessment and demanded differential duty of Rs. 24,85,258 for Aerated Waters (250 ml. & 300 ml.) including Soda under Rule 9(B) of CE Rules read with Section 11 -A of the Act. It was pleaded before the Commissioner (Appeals) that the case pertained to advertisement expenses incurred by the wholesaler (the distributor). It is pleaded that the Assistant Commissioner had gone by the judgment of Bombay Tyres International. However, the facts of the case differed with the facts of the Bombay Tyre Internationa! as in that case, the expenses were incurred before the sale of the goods. However, in this case, the expenses are subsequent to the clearances of goods on payment of duty. It was also represented that the Tribunal in the case of Hav Mor Ice-creams (supra) held that expenses like advertisement expenses of the distributors are not includible in the assessable value since the distributor undertook the advertisement to enhance the sale of goods. The advertiser in the present case was Shakti Soft Drinks Ltd. Another ground made out in the show cause notice by the department was proposing to revise the A.V. on the basis of value of comparable goods manufactured and cleared by M/s. Prabha Beverages covering the period of March 94 and ordering provisional assessment by a separate letter dated 17.8.94 for the period from 1.4.94 onwards. Another show cause notice had also been issued for the period 1995-96. Assessees had pleaded against these show cause notices that M/s. Shakti Soft Drinks Ltd. were a separate limited company and they were dealing not only with their business, but of other manufacturers also. They had got their own right to purchase and sell soft drinks and soda from many other manufacturers in the country and they were continuing to do so. They were spending from their own benefits, i.e. to make more sales volume, which any marketing concern aspires for. And that they had neither spent on their behalf nor the assessee had interfered with whatever M/s. Shakti Soft Drinks had done. It was also pointed out to the Commissioner that the first show cause notice for the period from April 94 had been dropped and M/s. Shakti Soft Drinks had declared to Assistant Commissioner (Cost) Central Excise, that the advertisement and sales promotion expenses were all incurred by themselves only on their own interest and for their own benefit. The assessee had also explained that they do not feel any necessity to do advertising.
5. The Commissioner (Appeals) on due consideration, accepted all their pleas and facts and held that the facts was totally covered by the CEGAT’s judgment rendered in the case of Hav Mor Ice-creams (supra) and that the Apex Court judgment rendered in the case of Phillips India v. CCE as it had been held that the advertisement expenses incurred by the buyer for promotion of the product should not be included in the assessable value.
6. The Revenue’s contention in the Soft Beverages is that the manufacture and marketing of the product go hand-in-hand and normally, marketing/advertisement expenses are borne by the manufacturer and such expenses form part of the assessable value of the product. It is stated that shifting of such expenses to a wholesale dealer would amount to transferring this essential area of cost from the realm of manufacture to the wholesale dealer with an intent to pay reduced excise duty. Therefore, it is pleaded that such advertisement expenses and sales promotion expenses incurred by the buyers can be considered as an additional consideration flowing indirectly from the buyer to the assessee. It was also stated that marketing/ advertisement expenses would normally benefit both the manufacturer and the dealers/ distributor and hence expenses on this account cannot be taken as that of distributor alone. It is stated that in the case of M/s. Philips India Ltd. (supra) It is seen that the manufacturer (Philips) and dealers have borne the advertisement expenses on a 50:50 basis. And in the case of Hav Mor Ice-Cream, the dealer was free to incur whatever expenses it liked for promotion of the proprietary interest in Ice-Cream. Therefore, the ratio decedent of the above cases would not apply to the facts of this case as facts are different. In the instant case, the buyers have been made to incur huge amount on advertisement and major chunk of sales promotion activities during 1994-95 and 95-96, which had been borne by this assessee only till September, 1993 as admitted by themselves, when all the above four partnership firms were formed. Only after the formation of the above buyer firms, the manufacturer shifted the entire burden of advertising and the most of the sales promotion activity to the buyers with a view to have a reduced assessable value. It is stated that the manufacturers had expended Rs. 4,56,869 during 1994-95 and Rs. 2,33,558 during 1995-96 on sales promotion, the buyers were made to spend Rs. 42,15,146 during 1994-95 and Rs. 55,02,177 during 1995-96, on account of sales promotion activity. It is stated that the expenses spent by M/s. SBL on sales promotion diminished by half during 1995-96, when compared to 1994-95 and spending by buyers on this account had been on increase every year. It is stated that no amount towards advertisement was spent by M/s. SBL during these years and the entire expenses were met by the four buyers, which accounted for Rs. 8,70,384 during 94-95 and Rs. 24,31,225 during 95-96. Therefore, the claim of the appellant that these expenses have been included in the value of the goods during these years is fallacious. They state that the facts of this case are similar to the case of Alembic Glass Industries Ltd. wherein the assessee had gradually changed the pattern of sale following economic crises and as a result amount spent on account of publicity and sales promotion by the manufacturer diminished and the buyers spending increased. Therefore, on these facts, the Tribunal held that the expenses incurred on these aspects by the buyers was includible in the assesable value of the goods. Therefore, it is contended that the price is not the sole consideration for sale to these buyers and the additional consideration arising out of these activities will nave to be included in the assessable value of the goods in terms of Rule 5 of Valuation Rules.
7. It is further stated that the order with regard to advances obtained free of interest from the buyers is not correct. Notional interest on deposits on the properties like ice-boxes and containers had already been not considered by the Asst. Commissioner a necessary ingredient for fixation of the assessable value but only interest accrued on advances against sales and security deposits received from the buyers were held as elements that would go into the value of the product. Therefore, it is pleaded that M/s. SBL may not claim that these advances were inadvertantly mentioned as advances received against sales from customers in the books of account, when these advances were obtained against sales, as specifically mentioned in the Profit and Loss account of them for the years 1993-94, 94-95 and 95-96. It is stated that these advances when obtained free of interest from the buyers could not have been used in any other activity other than the manufacturing activity of the appellant. When such advances/deposits are collected from each and every buyer, the influence it would have on the sale price cannot be determined and the burden to prove that they were not used in the manufacture of excisable goods and kept separately rests squarely on M/s. SBL, in terms of Tribunal judgment in the case of Resistance Alloys (P) Ltd. . It is stated that in that case the Tribunal held that such deposit would enhance the working capital and therefore affects the assessable value and is in nature of additional value flowing indirectly from the buyer to the assessee. It is stated that the manufacturer could not substantiate that these deposits/trade advances were not used in the manufacture of the goods. Therefore, Revenue contends that the assessable value of the goods should be loaded with the interest that have accrued on such deposits as the deposits/ trade advances would enhance the working capital and affect the assessable value, and they are in the nature of additional value flowing indirectly from the buyer to the assessee. Therefore, they seek for reversal of Commissioner (Appeals) order.
8. In the case of Madurai Soft Drinks (P) Ltd., Revenue has raised only one point and that is with regard to includability of marketing/advertisement expenses and the case is identical as taken in the case of M/s. SBL. There is no other issue other than this in M/s. Madurai Soft Drinks Pvt. Ltd.
9. Ld. DR Shri S. Kannan argued for the Revenue and pressed that the citations referred to in the order and took us through the balance sheet to contend that such huge advances and advertisement expenses incurred by the purchasers were not bona fide and they are required to be added proportionately in the assessable value. He also pointed out from the balance sheet that the advances are very huge and therefore the notional interest as claimed is required to be added in the assessable value.
10. The respondents on behalf of M/s. SBL was represented by Shri P.C. Anand, Ld. Chartered Accountant while there was no representative despite services of notice on M/s. Madurai Soft Drinks Pvt. Ltd.
11. Learned Chartered Accountant pleaded that the department has not proved that there was flow back in the advertisement expenses or in respect of advances received and assessees have taken these advances as security for properties handed over to distributors such ice-boxes, containers etc. The case was closed for orders. However, while the order was being prepared, there were several points noticed from the balance sheet which required clarification. Therefore, the matter was reopened for hearing. The respondents filed detailed objection including the affidavits and certificates from the respondents Chartered Accountant with regard to the nature of security deposits for properties and the certificates certified that there were no advances from customers against supplies of materials etc. The Chartered Accountant explained that value of the properties was much more than the advances received on security deposits and each year the value of properties was more than the deposits received from customers through 4 distributors. It was also pointed out that there was variance in deposits in the matter but there was no difference in prices and there was no nexus between the advance and the price charged and thus there can be no question of adding the notional interest on the advance to the assesable value. It was pleaded that the sale was at arms length and the department had not proved the excess commercial consideration with reference to manufacturer’s sale price. It was pointed out that nowhere in the show cause notice or in the Order-in-Original there was an allegation that the sale values are not at arms length as between the manufacturer and the four trading companies. It was also pointed out that the four trading companies are in no way related to the manufacturer and they purchased the entire lot of production from the manufacturer and there was also no allegation that the trading companies are related under excise law. The judgments relied upon by the Commissioner in the memorandum of appeal were all distinguished by the Commissioner (Appeals) on facts and submits that those citations relied upon are not relevant to the facts of the present case. It was pleaded that the order of the authorities below was in consonance with the judgment of the Apex Court and hence appeals are required to be rejected.
12. We have carefully considered the submissions and records of the case.With respect of Revenue’s Appeal No. E/2584/87 and E/2585/87 v. Soft BeveragesPvt. Ltd., the issues agitated by Revenue can be summarised as follows:
(a) The advertisement and sales promotion expenses incurred by the buyers would be additional consideration indirectly available to the respondent and hence would be includible in the assessable value particularly because upto 9/93, these expenses had been borne by the respondents and thereafter 4 partnership firms took up the marketing of these goods and consequently, the amounts spent by the manufacturer/respondents decreased in subsequent Financial years while that spent by these four buyers increased substantially and that no amount towards advertisement was spent by the respondents in 1994-95 and 1995-96 at all. Therefore, in view of the decision of the Tribunal in the case of Alembic Glass Industries Ltd. as , the price not being sole consideration for sale to these buyers, such expenses would be includible.
(b) Interest accrued on advances against sales and security deposits would also be includible in view of the Tribunal decision in the case of Resistance Alloys Pvt. Ltd. as in because such deposit would enhance the working capital and would therefore affect the assessable value as the respondents could not prove that such advances were not used to fund the manufacturer of goods, interest on such advances were not used to fund the manufacturer of goods.
(c) That property advances were wrongly taken as advances against supplies for the period from 1.4.96 to 28.4.96 as per the decision of the Asst. Commissioner for that period would not be applicable to this case being for subsequent period and being subject to review.
13. As far as the first issue of advertising and sales promotion expenses isconcerned, the department’s reliance on Alembic Glass Industries Ltd. (supra)appears to be not correct as the facts in that case were that single buyer lifted more 90% of the goods, and advertised for the same on their own. In this case, the marketing structure is that there are four main dealers and in addition, the goods are also sold to a number of smaller buyers. The records before us do not contain any evidences led by the department to conclusively prove that the transaction between the respondents and its four dealers are not at arm’s length. On the contrary, since the price charged is the same to every buyer, since the sale is only at wholesale level, and in view of Superintendent of Central Excise letter dated 6.7.95, these buyers are not related persons and there is no evidence to show that any extra amounts have been flowing back from the buyers to the respondents manufacturer for the sale of these goods, therefore we clearly hold that there is no evidence to show that the price at which these goods were sold was depressed or it did not represent the price in the normal course of wholesale trade etc. as per Section 4(1)(a). In fact, we note that the show cause notice itself contains no allegation to the effect that the buyers are related persons. Merely because over a period of time, the respondents have incurred less and less expenditure on advertisement and sales promotion and that it was these four dealers who had borne such expenditure on their own account to further sell the goods purchased in wholesale from the respondents, we cannot come to a conclusion that these post-manufacturing stage expenses incurred by the said buyers would form an additional consideration to the price particularly in view of non-applicability of the decision in the case of Alembic Glass Industries Ltd. (supra). As against this, we find that the Hon’ble Supreme Court in the case of Philips India Ltd. v. CCE as in had held that legitimate business considerations are to be kept in mind by the excise authorities while determining the assessable value on the basis of agreement between the manufacturer and the buyer. In this case, the transactions between the respondents and the four buyers has not been shown by Revenue to be not on principal to principal basis and therefore the marketing pattern cannot be said to be not as per legitimate business considerations. Furthermore, in the case of Hav Mor Ice-Cream Co. as in , it had been clearly held that advertisement expenditure incurred by an independent buyer/distributor is not to be added to the assessable value because advertising a product by wholesaler, is one of the well known methods by which the wholesaler attracts the customers and if as a result of increasing his business the demand for the product of a manufacturer also increases, the advertising by the wholesaler cannot be said to be for and behalf of the manufacturer. Since, we have held that the four dealers were independent buyer/distributors, therefore the ratio of this decision is clearly applicable to the facts of this case.
14. With regard to the question of includibility of interest on advances, Revenue contends that while some advances were received by the respondents in respect of properties, such as, ice-boxes and creates (shells) from the buyers but the other items were on sales of the excisable goods. The respondents on the other hand submits that the allegation that the advances pertained to sale of goods is factually incorrect. They submit that this has been recongnised by the jurisdictional Asst. Commissioner while adjudicating on the same marketing pattern for a subsequent period. They submit that this was an incorrect appreciation of facts. As against this, the department contends that since that decision of the Asst. Commissioner was for a subsequent period and was liable to be challenged by review of the Commissioner, therefore it had no relevance to this case. Revenue also submits that the interest accrued on these advances are used as working capital and therefore should be considered as additional consideration in terms of Tribunal decision in the case of Resistance Alloys Pvt. Ltd. (supra).
15. On a careful consideration of these grounds of appeal, we find that as far as the law on this issue is concerned, it is now well laid down that unless it is clearly shown by the department that there is a nexus between the interest accrued on such advances and the sale price leading to the sale price being artificially depressed, such value of interest cannot be added to the assessable value. The Hon’ble Madras High Court in the case of LakshmiMachine Works Ltd. as had held that notional interest on such advances would be includible in the assessable value only if such consideration has a nexus to sale price of excisable goods. The Hon’ble Supreme Court in the case of Metal Box India Ltd. as in had considered the facts that M/s. Ponds (I) Ltd. were given 50% discount from the normal price and that Ponds were receiving 90% of the assessee’s goods. In those circumstances, the Supreme Court had ruled that interest would be addable to the assessable value. However, the facts of the present case are quite different inasmuch as that there are four major buyers and a number of smaller buyers on record and that sale price to all irrespective of the quantum of deposits or quantum of goods purchased remained the same. Therefore, we find that, we are in agreement with the certificate dated 21.10.99 of the respondents’ Chartered Accountant to the effect that security deposits as on 31.3.1995 were not merely from the major dealers but also from a number of smaller purchasers and since sale price was made constant to all, therefore there was no nexus between these advances and the sale prices. The decision of the Hon’ble Supreme Court in the case of Metal Box India Ltd., therefore stands distinguished on facts of this case. As against this, the Supreme Court had in the case of CCE v. Indian Oxygen Ltd. as in , held that either notional or actual interest earned on deposits is not includible in the assessable value as the deposit was made for safe return of the gas cylinders. In this case, the deposit has been made for the safe return of the bottles, creates (shells) and ice-boxes. Therefore, this decision is applicable to the facts of this case also. While scrutinising the balance sheets, it was seen that the quantum of these deposits were very high and hence the respondents were invited to submit further on this issue. Responding to these directions, the respondents have given an affidavit to the effect that it is common practice in Soft Beverage Industries to collect security deposits/advances for safe return of the items such as ice-boxes, shells and bottles and that quantum of such advances as a percentage of the total value of these assets was only 72% for the year 1994, 53% for 1995 and 51 % for the year 1996 as per the respective balance sheets extracted therein. They also submitted that advances on items (a) & (d) of the affidavit are not on excisable goods (beverages supplied) but only on such ice-boxes, containers and bottles but were wrongly taken as deposits on sales of excisable goods by the Asst. Commissioner. They have relied on the certificate of the Chartered Accountant, Auditors of the company in this behalf and have pleaded that since the price remains constant to all, therefore, there is no nexus between that and the advances taken. As against this, the Revenue’s only grounds of appeal is that the interest accrued on such advances are used as capital in the manufacture of these goods. Since the law laid down by the Hon’ble Supreme Court in the case of Indian Oxygen Ltd. (supra) as well as by Madras High Court in Lakshmi Machine Works (supra) is that unless such a nexus is clearly proved, interest whether notional or actual shall not be added to the assessable value, therefore, applying the ratio of these decisions to the facts of the case before us, we find that merely on a presumption that such interest would have formed part of working capital of the respondents, we cannot include the same in the assessable value. Since the price at which the goods have been sold has been shown to be independent of the quantum of the advances received, and since the quantum of these advances have not exceeded the value of these assets supplied to the buyers, therefore the benefit of doubt in this respect would go clearly too the respondent M/s. SBL.
16. As far as the submissions of the department that certain advances have been taken as against sales and not against supply of ice-boxes/crates/bottles, this is a matter pertaining to verification of facts. Since in their affidavit, the respondents have enclosed the Chartered Accountant’s certificate for one Financial Year, there appears to be force that the facts may be as claimed by them. However, this Tribunal is not in a position to verify these facts on the basis of records before us. Therefore, to this extent, the matter needs to be remanded to the original authority for verification of these proceedings of de novo consideration and therefore the appeals of Revenue in respect of M/s. SBL is remanded only to the extent as indicated above and the other issues pertaining to includibility of advertising charges and security deposits/ advances towards certain properties like ice-boxes, shells and bottles are rejected. The matter referred to the original authority is only with regard to plea of the department that certain advances had been taken as against sales and not supply of ice-boxes/ crates/bottles for de novo consideration. The respondents should be given full opportunity of hearing and detailed order shall be passed in respect of M/s. SBL.
17. With regard to appeal of Revenue against Madurai Soft Drinks Pvt. Ltd., the issue pertains only with regard to includibility of advertisement and sales promotion expenses. We have already held as noted above that the same is not includible in the assessable value. The grounds made out in these appeals are same as made out in M/s. SBL’s case. Therefore, the findings rendered in M/s. SBL’s case apply in toto to this case as the issue in these appeals is restricted to this point only. Therefore, following the said ratio, we hold that the appeals of Revenue in respect of Madurai Soft Drinks Pvt. Ltd. are required to be rejected. Ordered accordingly..
18. The appeals are disposed of in the above terms.