M/S PEPSI FOODS LTD. versus COLLECTOR OF CENTRAL EXCISE, CHANDIGARH

Citation: [2003] SUPP. 6 S.C.R. 232 · Decided: 25-11-2003 · Supreme Court of India · Bench: P. VENKATARAMA REDDI · Disposal: Dismissed

Judgment (excerpt)

A 
MIS PEPSI FOODS LTD. 
v. 
COLLECTOR OF CENTRAL EXCISE, CHANDIGARH 
NOVEMBER 25, 2003 
B 
(P. VENKATARAMA REDDI AND DR. AR. LAKSHMANAN, JJ.] 
Central Excise and Salt Act, 1944 : Section 4(a). 
Excise Duty-AYs 1992-93 and 1993-94-Sole consideration for 
C sale-Royalty amount-lnclusibility of-Jn assessable value of goods-
Assessee sold 'concentrate' to bottlers :Jut of which the bottlers manufactured 
soft drink beverages-Assessee collected royalty amountfi·om these bottlers 
/or use of its trademark-Held : The sale of 'concentrate' and payment of 
royalty were integral operations and could not be dissociated from each · 
D other-The invoice price of 'concentrate' alone was not the sole 
consideration for sale of 'concentrate 'c.-Jt also included royalty amount-
Hence, royalty amount includible in the assessable value of the 'concentrate'. 
Words and Phrases : 
' 
E 
"Sole consideration for sale"-Meaning of-Jn the context of S. 4(a) 
of the Central Excise and Salt Act, 1944. 
The appellant-assessee sold 'concentrate' to the bottlers out of 
which soft drink beverage under the trademark 'lehar' was 
F manufactured by the said bottlers. The appellant and the bottlers were 
governed by an agreement under which the appellant received royalty 
amount from the bottlers, calculated at a certain percentage of the 
beverage bottles despatche8 from the plant. 
The appellant filed pricelists of their product for the A Ys 1992-
G 93 and 1993-94 before the Assistant Collector of Central Excise and 
Customs who propose<! to inclu_de the royalty amount in the assessable 
value of the 'concentrate' and demanded duty on that basis. 
The adjudicating officer took the view that the sale of the 
H 'concentrate' was interlinked with the royalty charges inasmuch as the 
232 
PEPSI FOODS LTD. v. C.C.E. 
233 
'concentrate' was sole only to those who agreed to pay for the brand A 
name. The appellant Collector rejected the appellant's appeal, which 
was upheld by the Central Excise, Customs and Gold (Control) 
Appellate Tribunal. Hence the appeal. 
On behalf of the appetlant, it was contended that the sale of B 
'concentrate' by the appellant to the bottler and the collection of 
royalty from the bottler for the use of the trademark were two different 
transactions and there was no nexus between them; that the payment 
of royalty was directly related to the use of the trademark and that 
the royalty was paid when the bottle was moved out from the plant 
of the bottler and it had nothing to do with the sale value of the C 
'concentrate' 
The following question arose before the Court : 
Whether the royalty amount collected by the appellant-assessee D 
from the bottlers for use of the trademark 'lehar' on the soft drink 
beverages manufactured out of the 'concentrate' sold by the appellant 
is includible in the assessable value of the 'concentrate'? 
Dismissing the appeal, the Court 
HELD : 1.1. The Agreement between the appellant-assessee and 
the bottler sets in motion a series of steps aimed at promoting the 
appellant's business in collaboration with the bottler and also realizing 
E 
the royalty. The agreement makes it clear that the realization ofroyalty 
was as important as the realization of the sale price of the concentrate F 
from the assessee's point of view. In reality and in substance, the 
component of royalty cannot be dissociated from the ostensible 
consideration for the sale of 'concentrate' by the assessee. The assessee 
would not have parted with the goods, namely, 'concentrate' if the 
royalty payment did not enter into the bargain. The bottler is obliged G 
to purchase the 'concentrate' from the assessee and assessee ~lone, use 
the trademark of the assessee on the bottled beverage in addition to the 
trademark of Pepsico and comply with tht> instruction of the assessee 
in regard to manufacture, sale and distribution of beverages. There is 
an element of control in respect of the entire business operations of the 
bottlers. There exists an inextricable bond between the obligation of the H 
234 
SUPREME COURT REPORTS (2003] SUPP. 6 S.C.R. 
A bottler to purchase the 'concentrate' exclusively from the assessee and 
the user of trademark of the assessee subject to payment of royalty. The 
royalty, which is realizable as a consideration for authorizing the use 
of the trademark, cannot, therefore, be viewed in isolation. The 
appellant's sale of'concentrate', the bottler's manufacture of beverages 
B out of that and the sale t

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