Case: Pepsi Foods Vs. Collector Of Central Excise, Chandigarh

2. For the period 1.9.1992 to 31.3.1993 (which is covered by C.A. No. 4051 of 1996) and for the period 1.4.1993 to 31.12.1993 (which is covered by C.A. No. 1385 of 1999), the appellant filed pricelists of their product. On perusal of the details furnished with the pricelist, the Department became aware of the fact that royalty charges were being received by the appellant under the terms of an agreement permitting the use of trademark lehar. The Assistant Collector of Central Excise and Customs, Patiala issued show cause notices proposing the inclusion of the royalty charges in the assessable value and demanding duty on that basis. We are not concerned here with the advertising expenses which was also the subject matter of show cause notices issued for the earlier period. The objections filed by the appellant-assessee were overruled by the adjudicating authority and orders were passed approving the pricelists subject to the addition of royalty charges and advertising expenses and demanding differential duty for the clearances made during the said period. The adjudicating officer took the view that the sale of the concentrate was interlinked with the royalty charges inasmuch as the concentrate is sold only to those who agree to pay for the brand name. The appellate Collector rejected the assessees appeal and confirmed the order of adjudication. On further appeal to the Tribunal, no relief was granted as regards the royalty charges though the appeal was allowed in regard to the other disputed items. The Tribunal observedIt is thus plain that the licence to use the appellants trademark is granted to the bottlers bound up with obligation to purchase the concentrate only from the appellants. The two are inextricably intertwined. The agreement with the bottlers is thus an indivisible and composite agreement for the sale of concentrate to them by the appellants and for the grant of licence to them for the use of appellants trademark on the beverages manufactured by the bottlers".This decision of the Tribunal which is the subject matter of appeal in C.A. 4051 of 1996 was followed by the Tribunal in respect of the subsequent period. C.A No. 1385 of 1999 is preferred against that order.

Court's reasoning:
In our view, the substratum of the agreement regulating the terms of dealings between the parties unmistakably indicate that the invoiced price alone was not the sole consideration for the sale of concentrate. The finding of Tribunal is, therefore, unexceptionable.12. The fact that the royalty is charged for permitting the use of the trademark, but not as part of price for specific units of concentrate sold does not detract from the fact that the overall consideration for the sale of concentrate is not merely its price stated in the invoice. It is something more than that, namely, royalty to be received periodically.13. Under the agreement, the obligation to buy the concentrate at the price fixed by the seller (appellant) and the obligation of the buyer to manufacture the bottled soft drinks, to sell the same by using the trademark of the appellant and to remit the prefixed royalty charges is inseparable from oneDuke & ;Sons vs. Commissioner of Central Excise (1991 (55) ELT 577) which stood affirmed by this Court by reason of dismissal of S.L.P. That was also a case of franchise fees payable by the buyers of concentrate to the assessee for using the trademark of the assessee on the soft drink bottles. The Tribunal made the following crucialagreement under which the buyers are permitted to use the trademark is not filed either before the lower authorities or before us. Therefore, no views can be expressed as to whether it is interlinked with the sale of concentrate. There is also no evidence on record to indicate that the concentrate is sold only to those who also enter into agreement to buy the trademark. In other words, there is no evidence to establish that the agreement to purchase trademark is essential before a buyer purchases the concentrate. Similarly, there is no evidence that a buyer is not willing to purchase the concentrate without purchasing the trademark. In other words, there is no evidence to establish that the sale of concentrate is dependent on the purchase of trademark. In the absence of such evidence it is difficult to hold that the sale of concentrate is interlinked or closely connected and without the sale of trademark there is no sale ofwas under those circumstances the royalty payment was excluded from the assessable value of the concentrate. The distinguishing features are self-evidence from the observations quoted above.