T.K. Jayaraman, Member (T)

1. This is an appeal against Order No. 14/04, dated 28-9-2004 passed by the Commissioner of Central Excise Bangalore III Commissionerate. The brief facts of the case are as follows :-

2. The appellants manufacture P or P Medicaments. They have entered into agreement with Glaxo India Ltd., presently known as Glaxosmithkline Pharmaceuticals Ltd., (GIL) and Meghdoot Chemicals (MCL). The entire production of these goods was purchased by the above mentioned customers bearing their trade mark. The appellants were paying duty based on the value at which these products were sold by GIL and MCL to their wholesale dealers up to 30-6- 2000, since 1-7-2000, they have adopted the agreed price at which these goods are sold to the buyers but placed the orders on the appellants. Revenue proceeded against the appellant for undervaluation. The case of the Revenue is that the advertisement/marketing charges incurred by GIL and MCL should be included in the assessable value for purposes of excise duty. In the impugned order, the Commissioner has demanded a duty of Rs. 1,96,69,883/- under Section 11A of the Central Excise Act. He has imposed a penalty of Rs. 64 lakhs under Rule 173Q of the C.E. Rules. Further interest under Section 11AB has been demanded.

3. Shri M. Raghuraman and C.R. Raghavendra learned advocates appeared for the appellant. Shri R.V. Ramakrishnappa learned JDR appeared for the Revenue.

4. The learned advocates adduced the following arguments.

(1) Duty is payable on the transaction value. On the basis of the agreement entered between the appellants and GIL/MCL, the amount spent by GIL/MCL does relate to the transaction value.

(2) The Board itself has clarified this point in the clarification issued by C.B.E & C Circular No. 643/34/2002-C. Ex., dated 1-7-2002.

Learned JDR reiterated the points in the adjudication order.

5. We have gone through the records of the case carefully. The adjudicating authority has stated that prior to 1-7-2000 the appellants were discharging duty on the sales price of M/s. GIL and M/s. MCL. She has also stated that the appellants are only hired labourers of their principals and duty should be paid on the intrinsic value of the goods. The Commissioners finding that the appellant is a hired labourer has not much basis. The agreement between the appellants and GIL/MCL indicate the transaction value. The advertisement charges incurred by the buyer on behalf of the seller can be included but in the present case the goods bore the brand name of GIL/MCL. Therefore, we cannot come to the conclusion that GIL/MCL incurred the advertisement charges on behalf of the appellant. The definition of transaction value is reproduced herein below :

"Transaction value" means the price actually paid or payable for the goods, when sold, and include in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if not, actually paid or actually payable on such goods. :"

GIL spent some amount on advertisement of its own brand of goods. The department held that the appellants who manufacture the goods as per specification in the contract should pay duty on these charges. Moreover, the issue is clarified in the Board clarification mentioned (supra). We are reproducing the said clarification below :-

Whether advertisement and publicity charges, borne by the dealers/buyers are to be excluded from the assessable value

However, where the brand name/copyright owner gets his goods manufactured from outside (on jobwork or otherwise), the expenditure incurred by the brand name/copyright owner on advertisement and publicity charges, in respect of the said goods, will not be added to the assessable value, as such expenditure is not incurred on behalf of the manufacturer (assessee)".

5. In view of the above, the OIO cannot be sustained. Hence we allow the appeal with consequential relief.

(Operative portion of the Order already pronounced in open Court on conclusion of the hearing)