SC quashes Pepsi plea on Lehar royalty

The Supreme Court (SC) has dismissed the appeal of Pepsi Food Ltd holding that the royalty amount collected by it from its bottlers for use of the trade mark 'Lehar' on soft drinks manufactured out of the concentrates sold by it could be included in the assessable value of the concentrates.

The company had argued that the sale of concentrates to the bottlers and the collection of royalty from them for use of the trade marks were two different transactions and there was no connection between them.

The payment of royalty was directly related to the use of the trade mark and it was realised as a percentage of the maximum retail price of the soft drink sold by the bottlers.

Royalty was paid when the bottle was moved out of the plant of the bottler and It had nothing to do with the sale value of the concentrate.

The Supreme Court rejected this contention. The agreement, it said, made it clear that the realisation of royalty was as important as the realisation of the sale price of the concentrate from the company's point of view.

"In reality and in substance, the component of royalty cannot be dissociated from the ostensible consideration for the sales of concentrate by the assessee. The assessee will not have parted with the concentrate if the royalty payment did not enter into the bargain," the judgment delivered by justice P V Reddi and justice A R Lakshmanan clarified.