Case: Commissioner of Central Excise, Pune Vs. Poona Bottling Co. Ltd

1. The question in these appeals is whether the amounts on account of "crate hire charges", "loading and unloading charges", "sales, promotion and publicity charges" were includible in the assessable value of the bottles which were manufactured by the respondent assessee. The period in question is 1-3-1994 to 31-10-1995.2. The Commissioner (Appeals) had come to the conclusion, affirming the findings of the Assistant Commissioner, that they were so includible. As far as the crate hire charges were concerned, it was said that there was an increase in the rate of crate hire and this has not been satisfactorily explained by the appellant. It was found that the reason given by the appellant for the increase in the crate hire charges was misleading and incorrect. It was noted that there was at the same time a corresponding increase in the cost of production by reason of the increase in the quantum of the aerated water and the size of the bottles which were being manufactured. According to the Commissioner, this additional cost of production had been "adjusted" with the increase in the crate hire charges.3. The Tribunal, however, was of the view that crate hire charges were not includible. The chartered accountant of the assessee had certified that the cost of production had not been passed on under the head of increased crate hire charges. The Tribunal acted on the chartered accountants certificate in view of the fact that the departmental authorities had not questioned the same. It was therefore of the view that the increase of the crate hire charges could at best be termed to be a profit on freight and that this was not includible in the assessable value.4. It is not in dispute that the crate hire charges are not normally included in the assessable value. It may be that there was no explicit challenge that the chartered accountants certificate was unacceptable, however, the tenor of the orders of the departmental authorities would show that the chartered accountants certificate was questioned. In that view of the matter, we are of the view that this issue needs to be reconsidered in the light of facts actually prevailing for the period in question on the basis of such evidence as may be adduced by the parties.5. The Commissioner also held that the loading and unloading charges were includible in the assessable value. The loading and unloading charges which were sought to be included were in respect of the costs incurred by M/s Gaurav Investments Pvt. Ltd., a distributor of the assessee. The Commissioner sought to include the charges of M/s Gaurav Investments Pvt. Ltd. on the ground that it was really a dummy company of the assessee. The learned counsel appearing on behalf of the appellant, however, does not seek to press this ground. The Tribunal held that only those charges incurred for loading the finished goods within the factory of the assessee are includible. We find no reason to differ from this view. The appeal insofar as it pertains to this finding is, therefore, dismissed.6. The final item which was sought to be included in the assessable value of the goods, related to the sales, promotion and publicity charges. As we have said earlier, the Commissioner had included this in the assessable value but the Tribunal did not. According to the Tribunal the factual situation was covered by the decision of this Court in Philips India Ltd. v. CCE (1997 (6) SCC 31 ). 7. In the decision in Philips India Ltd. (1997 (6) SCC 31 ) this Court had held that where there is an agreement between the manufacturer and dealer which is a genuine agreement entered into at arms length as between principal and principal which provides that the dealer shall carry out at their own expenses advertisement campaign to promote sales of the company product, the entire amount could not be included in the assessable value. The reasoning of the Court was that the advertisements which the dealer was required to make at his own cost benefited in equal degree the manufacturer and the dealer and that for this reason the cost of advertisement was borne half and half by the manufacturer and the dealer. The expenses attributable to the dealers interest therefore, were not includible in the assessable value. This decision clarified the principle enunciated in Union of India v. Bombay Tyre International Ltd. (1984 (1) SCC 467 : 1984 SCC (Tax) 17) which held that expenses incurred by the manufacturer, including marketing and selling organisation expenses, which contribute to the value of the goods up to the date of sale at the factory gate are includible in the assessable value of the goods. Philips India Ltd. (1997 (6) SCC 31 ) was subsequently considered by a three Judge Bench in CCE v. Surat Textiles Mills Ltd. (2004 (5) SCC 201 ) In that case the question was whether the costs incurred in advertisement of aerated waters was includible in the costs of the manufacture of the concentrate required for the manufacture of the aerated water by treating the cost of advertisement of aerated waters as the cost of advertisement of the concentrate. In dealing with this question, the Court held that the advertisement expenditure incurred by a manufacturers customer could be added to the sale price for determining the assessable value only if the manufacturer had an enforceable legal right against the customer. The decision has left untouched the principle enunciated in Philips India Ltd. (1997 (6) SCC 31 ) that ultimately the question will have to be resolved with reference to the benefit secured as well as the principle laid down in Bombay Tyre (1984 (1) SCC 467 : 1984 SCC (Tax) 17) that the question will have to be determined with reference to the sale ex factory. The principle laid down in Surat Textiles Mills Ltd. case (2004 (5) SCC 201 ) has been followed by a Bench of this Court in CCE v. Eicher Tractors Ltd. (2004 (9) SCC 22 ) 8. We are of the view that the factual foundation on which either the Commissioner or the Tribunal came to the conclusion has not been clearly set out. We are of the view that unless the factual foundation is clear there can be no question of applying any of the aforesaid principles as enunciated in the earlier decisions. Therefore, we remand this aspect of the matter back to the Assistant Commissioner as well.

Decision reasoning: 1[ds]The chartered accountant of the assessee had certified that the cost of production had not been passed on under the head of increased crate hire charges. The Tribunal acted on the chartered accountants certificate in view of the fact that the departmental authorities had not questioned the same. It was therefore of the view that the increase of the crate hire charges could at best be termed to be a profit on freight and that this was not includible in the assessable value.4. It is not in dispute that the crate hire charges are not normally included in the assessable value. It may be that there was no explicit challenge that the chartered accountants certificate was unacceptable, however, the tenor of the orders of the departmental authorities would show that the chartered accountants certificate was questioned. In that view of the matter, we are of the view that this issue needs to be reconsidered in the light of facts actually prevailing for the period in question on the basis of such evidence as may be adduced by the parties.5. The Commissioner also held that the loading and unloading charges were includible in the assessable value. The loading and unloading charges which were sought to be included were in respect of the costs incurred by M/s Gaurav Investments Pvt. Ltd., a distributor of the assessee. The Commissioner sought to include the charges of M/s Gaurav Investments Pvt. Ltd. on the ground that it was really a dummy company of the assessee. The learned counsel appearing on behalf of the appellant, however, does not seek to press this ground. The Tribunal held that only those charges incurred for loading the finished goods within the factory of the assessee are includible. We find no reason to differ from this view. The appeal insofar as it pertains to this finding is, therefore, dismissed.6. The final item which was sought to be included in the assessable value of the goods, related to the sales, promotion and publicity charges. As we have said earlier, the Commissioner had included this in the assessable value but the Tribunal did