TMI Blog2010 (11) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that arises for our consideration in these appeals is whether M/s. Kwality Ice Cream Company on the one hand and Brooke Bond Lipton India Limited - (BBLIL) on the other (which later merged with Hindustan Lever Limited -HLL) are treated to be related persons in the matter of computing assessable value of ice cream manufactured by M/s. Kwality Ice Cream and as to whether duty should be demanded from M/s. Kwality Ice Cream on the basis of the price at which BBLIL sold the said product from its depot. 2. M/s. Kwality Ice Cream (respondent-assessee) is engaged in the manufacture of ice cream falling under the Schedule to the Central Excise Tariff Act, 1985 (for short `the Act'). It entered into an agreement for the sale of the entire production to BBLIL, which later merged with HLL, for marketing. It has entered into agreement with BBLIL for a period ending on March 21, 1997. Later an agreement was entered into with M/s. HLL with effect from March 22, 1997. The terms and conditions of this agreement are the same as those with BBLIL. 3. The contention raised by M/s. Kwality Ice Cream that the entire transaction between the parties covered by the agreement was on principal to prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is one on principal to principal basis and the price was the sole consideration for the sale of the goods and assessable value cannot be computed on the basis of the price at which BBLIL sold the products from its depot. It is that order which is under challenge in these appeals preferred under Section 35-L of the Central Excise and Salt Act, 1944. 6. Learned counsel for the Department strenuously contended before us that the Tribunal committed an error in coming to the conclusion in characterizing the same as on principal to principal basis, and not as between related persons. The submission was that the nature and extent of control over the activities of M/s. Kwality Ice Cream and huge interest free deposits, complete control over price fixation mechanism unerringly point to the fact that the M/s. Kwality Ice Cream and HLL were `related persons'. Learned counsel for the respondent - assessee submitted that the findings recorded by the Tribunal do not warrant any interference by this Court as the same were based on proper appreciation of the material available on record. It was submitted that the Tribunal merely applied the principle enunciated by this Court and came to the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof; (iii) Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail; (b) Where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. (2)........... (3)......... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiction. It was reiterated that it is well settled that in a suitable case the Court could lift the corporate veil where the companies share the relationship of a holding company and a subsidiary company and also pay regard to the economic realities behind the legal facade. This aspect was further examined by this Court in Union of India Vs. ATIC Industries Ltd. [ 1984 (17) ELT 323 SC = 1984 (3) SCR 930]. This Court referred to the decision of Bombay Tyre International Ltd. (supra) and also referred to the first part of the definition `related person' in clause (c) of Section 4 (4) which defines `related person'. This Court observed that if the transactions between the manufacturer and his customers were on principal to principal basis and the whole sale price charged by the assessee to the customers was the sole consideration for the same and no extra commercial considerations entered in the determination of such a price, the customer cannot be held to be a `related person' merely because he holds 50% share in the manufacturing company. It is held: "It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company, whether a manufacturer or a buyer, to see it was not wearing that mask of not being treated as related person when, in fact, both, the manufacturer and the buyer, are in fact the same persons. Under sub-section (1) of Section 4 of the Act, value of the excisable goods shall not be deemed to be normal price thereof, i.e., the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, if the buyer is a related person and price is not the sole consideration for sale. As to who is a related person, we have to see its definition in Section 4(4)(c) of the Act. It is not only that both the manufacturer and the buyer are associated with each other for which corporate veil may be lifted to see who is behind it but also that they should have interest, directly or indirectly, in the business of each other. But once it is found that persons behind the manufacturer and the buyer are same, it is apparent that the buyer is associated with the manufacturer, i.e., the assessee and then regard being had to the common course of natural events, human conduct and public and private business it can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. It had been selling its products to its holding Company, PP Ltd. as well as to PB Ltd. which was also a subsidiary Company of PP Ltd. The appellant had been paying duty at the price at which the goods were sold to the holding Company. Having regard to the fact that both appellant as well as PB Ltd. were subsidiary Companies of PP Ltd., this Court took the view that though the relationship between the appellant and PB Ltd. is indirect, they had mutual interest in the business of each other. The facts and circumstances of the case reveal that there is a mutuality of interest between the three Companies as 60% of the products of the appellants was sold to PP Ltd. and remaining 40% of the total products of toothpaste was being sold to PB Ltd. Moreover, it was found that PP Ltd. was incurring expenses for sales promotion and advertisement for the sale of the appellants' products namely "Prudent Toothpaste". It was under those circumstances it was held that the parties to the transactions were `related persons'. The said decision in no manner supports the point urged by the learned counsel for the appellants. 14. In CCE vs. Xerographic Ltd.[(2006) 9 SCC 556 ) this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing such investment for upgradation or modification, the pricing agreed upon is on a formula which has taken into consideration the investments made by M/s. Kwality Ice Cream for upgradation, modification. The Tribunal rightly arrived at the conclusion that pricing in terms of clause (6)(iii) would not lead to the conclusion that the transaction was not one between principal to principal. 17. The Tribunal while interpreting clause (6) (ii) found that M/s. Kwality Ice Cream, as contended by the Department, was not under the control of BBLIL/HLL as it was not under any obligation to shut down its unit or even move to some other location against its will as contended by the Department. The clause provides that an option was given to M/s. Kwality Ice Cream to accept the suggestion of BBLIL/HLL and to discontinue or close down its manufacturing facilities or not to accept the same since liberty was given to M/s. Kwality Ice Cream to intimate BBLIL/HLL about its view in the matter. There is nothing to show in that clause that BBLIL/HLL can compel M/s. Kwality Ice Cream to close down the factory or move it from its current location. The only affect of M/s. Kwality Ice Cream not acceptin ..... 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