TMI Blog2013 (5) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The manufactured goods were to be subjected to inspection and approval by the buyer prior to the delivery - It is also specifically stipulated that the transaction under the said agreement were not based on and do not create any relationship between the parties otherwise than as the one between two independent principals and mutually exclusive in their interests and trading activities and having absolutely no dependence on each other in respect of whatsoever either as agent or related person etc. As far as loan is concerned the same was taken as a short term accommodation Loan and interest @8% p.a was paid to M/s BIL, against the lower rate interest around 4% to 5% p.a charged by SIDBI as the said Loan was converted into Foreign Currency Term Loans. Hence, such short term loan had no influence on the commercial relation between the Appellant and M/s BIL. Packing & wrapping machines from M/s BIL - held that:- supply of packing machines, on bailment, the cost of which is around 10 lakhs and approximately 5% of the total investment in plant & machinery of the Appellant, and used only for the purpose of packing of finished goods, cannot lead to an inference that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Appeal Nos.573/06 & 350/09 - Final Order Nos. A-49-50/KOL/2013 - Dated:- 26-2-2013 - Shri S. K. Gaule and DR. D. M. Misra, JJ For the Appellant: Shri R. N. Das, Sr.Advocate For the Respondent: Shri A. K. Raha, Spl. A.R. JUDGEMENT Per Dr. D. M. Misra These two appeals E/573/06 E/350/09 are directed against the Order-in-Original Nos. 03/Commissioner/Kol-VII/ADJN/2006-07 dated 31.7.2006 12-16/Commissioner/Kol-VII/ADJN/2008-09 dt.18.03.2009, respectively, passed by the Commissioner of Central Excise, Kolkata. 2. Briefly stated facts common to both these Appeals are that the appellants were engaged in the manufacture of cakes falling under Sub-heading No.1905.20 of the First schedule to the Central Excise Tariff Act, 1985. They had commenced production of the said excisable goods from January, 2000 and the entire quantity of manufactured cakes bearing the brand name of M/s Britannia Industries Ltd. (herein after referred to as M/s BIL) had been sold to M/s BIL at an mutually agreed price as per agreement dated 10th December, 1999. They had been registered with the Central Excise Department and discharged excise duty on the price at which the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Rule 9 of Central Excise Valuation(Determination of Price of Excisable Goods) Rules,2000. 3.1 The ld. Sr. Advocate informing the background of the appellant submitted that initially their company was known as M/s Hari Mercantile (P) Ltd. (M/s HMPL). The said M/s HMPL in order to commence the business of manufacture of cakes, biscuits, etc., sought permission for construction of factory on its land from Sarisha Gram Panchayat, and it was granted on 24th July, 1998. Also, on application, registration as SSI Unit for manufacture of bread, biscuits, cakes was also granted by the Directorate of Cottage Industries,West Bengal, in July, 1998. In November, 1998, M/s HMPL made an application before the Small Industries Development Bank of India (SIDBI) and vide its letter dated 8th April, 1999 to M/s HMPL, SIDBI had agreed to sanction in principle a term loan not exceeding ₹ 140.00 lakhs. M/s HMPL approached M/s BIL for selling the cakes proposed to be manufactured by them, which resulted in Memorandum of Understanding (MOU) between M/s HMPL and M/s BIL in June 1999. When the project for manufacture cakes materialized, M/s HMPL proceeded further to execute the said proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Goods to the BUYER as excise duty paid goods at the factory gate of the SELLER soon after their removal. (In case the SELLER obtains refund of the taxes paid by him, he shall pass on such refund/benefit to the BUYER). (h) The SELLER as manufacturer of excisable goods and the assessee for Central Excise duties on the Goods shall discharge all excise duty liabilities before clearance of Goods at the place and time of removal and shall delivery the goods to the BUYER on wholesale sale and shall remain responsible and liable for all the obligations and requirements under the Laws of Central Excise as the Central Excise duty on the goods so sold is included in the wholesale sale price charges as agreed upon between the parties herein, (i) The SELLER and the BUYER agree that the transactions under this agreement are not based on and do not create any relationship between the parties herein otherwise than as the one between two independent principals and mutually exclusive in their interests and trading activities and having absolutely no dependence on each other in any respect whatsoever either as agent or related person etc. (j)The SELLER shall ensure quality of Goods requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reflected in their audited balance sheets and also paid income tax in accordance with law. It is absurd on the part of the adjudicating authority to hold that as the Appellant did not produce any correspondences on price negotiation, cost sheet, etc. their claim that the price had been fixed mutually was not acceptable. 3.5 The ld. Sr. Advocate further contended that a bare perusal of the various clauses of the agreement would also clearly show that there had been no interest directly or indirectly in the business of the appellant by M/s BIL nor is there any interest directly or indirectly in the business of M/s BIL by the Appellant. The Ld. Advocate submitted that the apparent tenor of the Agreement ought to have been accepted keeping in view the fact that the Appellant being an SSI Unit having a meagre turnover of ₹ 4 corores to ₹ 5 crores, in contrast to the turnover of the buyer M/s BIL which in the range of around ₹ 4000 to ₹ 5000 crores, could not have appointed M/s BIL as their sole selling agent and had direct or indirect interest in the business of selling of cakes supplied by them to M/s BIL. The Ld. Commissioner failed to appreciate that like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chines, but they were entitled to, under Section 158 of Indian Contract Act, 1872, reimbursement of expenditure on account of major maintenance/ repairs and replacements of the parts of such machines. Such expenditure were recovered by issuance of debit notes to M/s BIL and being statutorily authorized, cannot be considered as any flow back or additional consideration. He has referred to the Judgement of the Tribunal in the case of Surindra Engg. Co. Ltd. Vs. Commissioner of Central Excise reported in 2003 (156) ELT 811 (Tri.-Del.), stressing the point that mere supply of plant and machinery by the principal to the job worker cannot result in any extra commercial relationship between the parties. Further, he has submitted that the amortized cost of these packing machines had already been apportioned at the time of determining the cost of the product on which appropriate duty has been paid at the time of removal of the goods. 3.10 Answering to the allegation that various letters addressed to M/s BIL by the appellant in the normal course of business, revealed existence of mutual interest in the business of each other, the Ld. Advocate submitted that these letters were interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the price fixing mechanism could not be used against the appellants to conclude that the appellants and M/s BIL were related persons. Regarding letter dated 16.07.2001 on the problem of packing and for financial approval from M/s BIL, the ld. Advocate submitted that it was to inform M/s BIL about the possible delay in production that might be caused due to problem in packing machines and seeking financial approval from M/s BIL was merely to inform M/s BIL about the escalation in the price of goods sold by the appellants to M/s BIL. 3.12 In response to the allegation based on the aforesaid correspondence addressed by the appellant to M/s BIL where they sought prior approval and concurrence from M/s BIL before purchase of assets, increase of man power etc., the ld. Advocate submitted that these correspondences were in the normal course of their business to keep the buyer M/s BIL informed about the financial burden incurred by the appellants in order to ensure manufacture of Britannia brand cakes in the working environment as desired by M/s BIL and the same were essential for fixing the price of the goods from time to time. It is his submission that these documents, on the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Advocate challenged the impugned order of the ld. Commissioner, which proceeded on an erroneous basis to confirm the duty demand by taking resort to Rule 9 of the Valuation Rules, 2000, which is unsustainable and liable to be set aside. The ld. Advocate further submitted that during the period 2000 to 2005, they have paid an amount of ₹ 31,70,857.53 as duty on account of differential price received from M/s BIL. Also, he has submitted that the method of value adopted in the present case is incorrect. It has taken into consideration the price on which the goods were sold by M/s BIL, which includes the amount paid towards freight for transit of finished goods from the premises of the appellants up to the customers premises., VAT paid by the appellants and Excise duty paid on the final products by the appellants. 3.16 Further, the ld. Advocate submitted that the demand in the show-cause notice dated 16.3.2005 for the period from January, 2000 to February, 2004, is barred by limitation. He has submitted that the Departmental Authorities visited their factory and issued spot memos on 18.04.2002, 19.04.2002 and 06.05.2002, seeking information regarding receipt of advances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to establish any mutuality of interest between the appellants and M/s BIL and hence, the findings of the ld. Commissioner are contrary to the principle of law laid down by the Hon'ble Supreme Court, the Honble High Courts and the Tribunal in the following cases : UOI Vs Atic Industries Ltd. 1984 (17) ELT 323 (SC); (ii) Alembic Glass Indus. Vs. CCE:2002 (143) ELT 244 (SC); (iii) CCE Vs Kwality Ice Cream Co.2010 (260) ELT 327 (SC); (iv) Calcutta Chromotype Ltd. Vs. CCE 1998 (99) ELT 202 (SC); (v) CCE Vs Besta Cosmetic Ltd.2005 (183) ELT 132 (SC); (vi) UOI Vs Playworld Electronics (P) Ltd.1989 (41) ELT 368 (SC); (vii) Supreme Washers (P) Ltd. Vs CCE 2003 (151) ELT 14 (SC); (viii) CCE Vs ITEC (P) Ltd.2002 (145) ELT 280 (SC); (xi) Utkal Alloys (P) Ltd. Vs CCE 2005 (188) ELT 56 (Tri.-Kol); (x) Citabul Ltd. Vs. UOI 1979 (4) ELT (J407) (Guj.); (xi) Rajashree Foods (P) Ltd.Vs CCE 2003 (160) ELT 965(Tri.-Chennai); (xii) Plus Cosmetics Pvt. Ltd. Vs CCE :1999 (108) ELT 71 (Tribunal); Affirmed by SC in 2002 (143) ELT A268 (SC); (xiii) Interbright Appliances (P) Ltd. Vs CCE : 2009 (240) ELT 592 (Tri.Chennai); (xiv) CCE Vs Themis Medicare Ltd.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss by raising debit notes. Further, referring to Clause (f) of the said Agreement, the ld. Spl.A.R has submitted that it is stipulated in the said Clause that the goods sold and delivered by seller to the buyer at the factory gate of the seller, shall be on wholesale basis subject to the modalities of payment of the price of the goods by the buyer to the seller as mutually agreed upon through correspondences from time to time. Mutuality, as mentioned under the said clause, were never made clear by the appellants to department. Further, he has submitted that Clause (l) of the said Agreement reflects that the appellant are capable independently for manufacture and supply of entire goods in respect of its production capacity and agreed that without prior consent of M/s BIL manufacture and supply or sell the goods to any other customers on the ground that the recipes formulae and information Provided by M/s BIL are highly confidential in nature. It is his contention that the bailment agreement between the appellants and M/s BIL makes the buyer M/s BIL, responsible for all expenses incurred with regard to repair maintenance of the said machines, whereas, as per Sec. 158 of the Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutual interest in the business of each other and hence had been rightly concluded by the adjudicating authority, as related person. In support his submission, the ld. A.R. has placed reliance on the judgment in the case of Pilky Footwear Co. Pvt. Ltd. 1980(6)ELT 338(Bom.) later upheld by the Supreme Court reported in 2000 (120) ELT 289 (SC) and CCE,Faridabad Vs. M/s Food and Health Care 2012 (277) ELT3(SC). 4.4 The ld. Spl. A.R. for the Department further referring the judgement in the case of Commr. of Customs (Import), Mumbai Vs. Jagdish Cancer Research Centre reported in 2001 (132) ELT 257 (SC) submitted that the show-cause notice has to be read as a whole and should not be read parawise and confining it in a watertight manner within each paragraph but to be read as a whole. He has further referred to the decision of the Hon ble Supreme Court in the case of Collector of Customs, Madras Others Vs. D. Bhoormull reported in 1983 (13) ELT 1546 (SC) in submitting that the Department is not required to prove the case with mathematical precision. Also, relying the decisions of the Tribunal in the cases of Devi Dass Garg Vs. Commissioner of Central Excise, Delhi I reported in 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section be deemed to be - (a) the normal price thereof, that is to say, 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, where the buyer is not a related person and the price is the sole consideration for the sale : Provided that - (i)..... (ii).... (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)...... (2)...... (3)...... (4) For the purpose of this section, - (a) assessee means the person who is liable to pay the duty of excise under this Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of each other. (c) .. (d) transaction value means the price actually paid or payable for the goods, when sold, and includes 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 any, actually paid or actually payable on such goods. 5.5 Reading the above provisions, designed for determination value of excisable goods, under the old Section 4, the assessable value of excisable goods chargeable to ad valorem rate of duty, is the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assesse, in wholesale trade, at the time and place of its removal, to a buyer, who is not a related person, and the price is the sole consideration for sale. In the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant and M/s BIL were interconnected undertakings and confirmed in the impugned Order, however, clarifying the same the Ld. Spl. A.R. for Revenue has submitted that the Appellant and M/s BIL were interconnected undertaking in the sense that they had mutual interest in the business of each other, hence, related. In other words, the allegation against the Appellant centres around the definition of related person as per clause (iv) of Sub-Section(3) of amended Section4 and clause (c ) of Sub-Sec.(4) of old Sec 4 of CEA,1944,. 5.10. The true meaning and scope of the aforesaid expression has been explained by the Hon ble Supreme Court in Atic Industries case(cited supra), under the old Section 4, which has been followed subsequently in almost every cases and has been adopted as the litmus test, to ascertain in a given circumstances, whether the buyer is a related person of the manufacturer-seller of the excisable goods. Their Lordships laying down the meaning of the said expression in Atic Industries case (supra) observed as: What the first part of the definition requires is that the person who is sought to be branded as a related person must be a person who is so associated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip between the parties otherwise than as the one between two independent principals and mutually exclusive in their interests and trading activities and having absolutely no dependence on each other in respect of whatsoever either as agent or related person etc.. 5.13. Now, reverting to the facts of the present case, it is not in dispute that the appellant has been registered as a Private Limited Company, and came into existence in the year 1999 whereas the buyer, M/s BIL, has been a Public Limited Company, whose shares are listed and in existence for more than forty years. It is not in dispute that none of the Directors or employees of M/s BIL had been a Director or employee of the appellant. Also, there is nothing on record to show that there had been any shareholding by M/s BIL in the Appellant s company, nor the appellant company holds any share in the buyer s company i.e. M/s BIL. Each of them has been separately registered under various laws, namely, Company Law, income tax, sales tax etc, as an independent legal entity and discharged their statutory obligation accordingly. 5.14. The entire gamut of allegation common in all the seven Notices, on the basis of which the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the dealings between the Appellant M/s BIL had been on principal to principal basis as these financial help did impinge the price of the product sold by Appellant to M/s BIL. The Ld. Spl. A.R, reiterating the finding of the adjudicating authority also submitted that Loans advances were in the interest of both the buyer and seller as the seller found their working capital at no or nominal rate of interest, whereas, the buyer was assured of receiving the finished goods at subsidized price. The Ld. Commissioner has also observed that the buyer M/s BIL had been engaged in the business of purchase of goods and not for charity purpose and hence such financial relations between the Appellant and M/s BIL could not be said to be transactions between two principals but refers to transaction between two related persons. 5.17 Rebutting the said allegation, it is the contention of the Appellant that these amounts were received during normal course of business transaction, and it is in an accepted trade practice and a routine commercial dealing between seller and buyer, particularly in those cases, where the entire production had been sold to a sole buyer. Explaining the exigencies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal basis. 5.19. We also find that the appellants had requested and received advance payments against future delivery of goods from M/s BIL. The first such request was made in December, 1999 and periodically, thereafter, on few occasions during the period 2000-01 2001-02, advances were received from M/s BIL. It is not the case of the Revenue that the activity of manufacture of Britania Branded cakes were carried out only on the amount of advances received from M/s BIL by Appellant, without investing any amount from their side. We find that no investigation had been carried in this direction to substantiate the allegation that the entire working capital in running the factory had along been provided by M/sBIL to the Appellant. One or two stray incidents of advances provided in the initial days of operation by the buyer cannot lead to the conclusion that the factory only on the financial support of the buyer. We agree with the Ld. Advocate, that such advances for a short period ranging between 15 to 30 days and adjusted against delivery of goods, is a normal business practice. Similarly, the deposits collected from M/s BIL carrying interest of 8% p.a., also a normal commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llants. The appellants stand is that since M/s BIL wanted to replace the activity of manual packing of cakes with automated packing, for better hygienic condition, accordingly, M/s BIL had supplied packing machines with accessories to the appellants on bailment basis. Since the said machines were to be returned on the conclusion of the agreement, it was mutually agreed that all expenses carried out for maintenance and packing of machines and accessories, should be reimbursed to the appellant. The operation cost of running the machines, such as electricity charges and labour charges etc. were borne by the appellant as their cost of manufacturing; the cost of such machines have already been apportioned at the time of determining the cost of manufactured cakes, on which appropriate duty had been paid. Further, it is their submission that the cost of the said packing machines was only ₹ 10 lakhs, whereas the entire investment on plant machinery on their own, had been more than ₹ 2 Crores at the material time. Rebutting the allegation that there is no link between the sale Agreement dt.10.12.1999, and the Bailment agreement, they contended that in the Bailment letters, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises, filling of ponds, etc. and its implication on cost of production, the Appellant had written such letters from time to time to M/s BIL, and to use the same in future at the time of negotiation of price, such letters were addressed. It is their submission that on the basis of the said letters, additional expenditure incurred by them, were later reimbursed in the form of additional consideration by increasing the price of the goods, on which they have discharged central excise duty in the year 2003. It is further contended that these letters were written in the initial period of operation i.e between 2000 to 2002, hence, it is absurd to say that it has influenced the commercial relation between the appellants and M/s BIL from Jan 2000 to Dec. 2007. Besides, these letters were not replied by M/s BIL. 5.22 We find substance in the argument of the Ld Adv. for the Appellant. The Ld. Commissioner finding and conclusion reflects an ambivalent approach. He has concluded that the extra expenditures on account of various factors, incurred by the Appellant and reimbursed by M/s BIL, in addition to the price of the cakes realized from sale to M/s BIL, be considered as an additional co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the expression prescribed at Clause(iv) of sub-sec(3) of amended Sec.4 clause (c ) of sub-Sec.(4) of old Sec.4 of CEA,1944. Its scope and meaning has been lucidly laid down by the Hon ble Supreme Court in Atic Industries case already referred to as above. 5.25. The principle of law laid down by the Hon ble Supreme Court in Atic Industries case, has been followed in the subsequent cases, namely, (i) UOI Vs Playworld Electronics (P) Ltd. 1989 (41) ELT 368 (SC) (ii) Calcutta Chromotype Ltd. Vs. Collector of Central Excise, Calcutta 1998 (99) ELT 202 (SC), (iii) Alembic Glass Industries Ltd. Vs. Collector of Central Excise Cus. 2002 (143) ELT 244 (SC); (iv) Commissioner of Central Excise,Surat Vs Besta Cosmetic Ltd. 2005 (183) ELT 132 (SC); (v) Commissioner of Central Excise, Chandigarh Vs. Kwality Ice Cream Co.2010 (260) ELT 327(S.C.). 5.26. On careful reading of the observations of the Hon ble Supreme Court, it could easily be discerned that to come within the scope of the said Clause(iv) or Clause(c ), association between the assesse and the buyer be such that they have interest directly or indirectly in the business of each other. Their Lordships had categoric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause is said to be satisfied. Their Lordship at Para 19 20 of the said judgment observed as: 19. What is of importance is certain interdependence and reciprocity beyond the relationship of either a distributor or manufacturer so as to consider as to whether the parties are related persons. On the facts it is noticed, essentially the relationship between M/s. Kwality Ice Cream and BBLIL/HLL is one sided and the facts do not suggest that each one of them have interest direct or indirect, in the business of each other. 20.In Supreme Washers Pvt. Ltd. v. Commissioner of Central Excise, Pune -(2003) 1 SCC 142 = 2003 (151) E.L.T. 14 (S.C.) the Court had to consider and analyse the concept of mutual interest and it was found that there was common procurement of raw material, parties had common stock accounting and planning and interdependence in manufacturing operations. It was held that having common stock of raw material and semi-finished goods, having common use of machinery between the three units, having common marketing arrangements and free flow of finance between the three units cumulatively indicates interdependence of the three units with each other as also inter-relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll these above facts, the ingredients under sub-clause (iv) of sub-section (3) of Section 4 of Central Excise Act, 1944, of the definition of related person has been satisfied and in support he has placed reliance on the judgment in Pilky Footwears case(supra).The Ld. Spl.A.R. for the Department, had also placed reliance on the said judgement which was later upheld by the Hon ble apex court reported in 2000 (120) ELT 289 (SC). The principle of law laid down in the said judgement is not applicable to the facts of the present case, precisely, for two reasons. Firstly, the judgement of Hon ble Bombay High Court was passed in the year, 1979 pertaining to the valuation provisions, as was in existence prior to 1975, where there was no definition of related person, like in the present provisions; secondly, the facts of the said case were totally different from the facts of the present case. In the said case, the buyer has provided complete technical know-how, supervision of the manufacturer s unit and various other facilities from time to time, which are conspicuously absent in the instant case. Besides, the said decision was rendered prior to the decision of the Hon ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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