TMI Blog2018 (1) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent was correct in putting forth a proposition that the job workers/loan licensee are to held as manufacturer - In the absense of any contrary decision that suppliers of raw materials should be considered as manufacturers during the period in question, we find no merits in the appeal of revenue. Appeal dismissed - decided against Revenue. - E/709/2006 - Final Order No. A/30111/2018 - Dated:- 31-1-2018 - Shri M.V. Ravindran, Member (J) and Madhu Mohan Damodhar, Member (T) Shri Gun Ranjan, Superintendent (AR), Advocate, for the Appellant. Ms. Sunitha and Shri C.K. Krishnamurthy, for the Respondent. ORDER [Order per : M.V. Ravindran, Member (J)]. - This appeal is filed by revenue against Order-in-Original No. 8/2005-Commr., dated 30-5-2005. 2. Heard both sides and perused the records. 3. The relevant facts that arises consideration are the respondent herein during the period 1-4-2003 to 7-1-2005 engaged in the activity of manufacturing of pharmaceutical goods for M/s. Biological E Ltd. The said goods were manufactured out of the materials supplied by M/s. Biological E Ltd., and the Central Excise Duty was discharged on clearances of the said go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtakings in Section 2 of the act as (1) If one owns or controls the other (2) Where undertakings are owned by bodies of corporate (a) If one body corporate manages the other (b) If one is subsidiary of the other (c) If one exercises control over the other Explanation 1 to Section 2 above (a) Under same management if (1) If one body corporate exercises control over the other (2) If Managing Director or manager are the same Arguments : It is clear that BE and BMPL are interconnected undertakings and have interest in each others business. As MD Mr. G.V. Rao Finance Director is common They have mutual interest in each other business As Higher employees of DMTL are from BE and expenditure of BMPL is saved and it has a bearing of financial activities and profitability of BMPL. This shows mututal interest in business of each other. Case law (1) Lubricare - 2000 (125) E.L.T. 904 (Trib.) - financial implications have bearing on profitability of units. (2) Servo ELEC - 1996 (87) 599 SC - Onus is on the assesses to establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethod as a job worker under loan license scheme. Both the original directors resigned and the directors of BE, Sri Vijay Kumar Datla and Sri G.V. Rao took over us Directors. Sri Sreemam Raju one of the original directors who promoted BMPL, joined as Manager Commercial in BMPL after resigning as Director. BE at its cost took a comprehensive insurance policy to cover the raw material costs, packing materials, stock in process and finished goods against theft, fire riots etc. BMPL doesn t have any personal at the decision-making level. Employees of BE joined BMPL. Accounts manager reporting to DCM of BE. On perusal of vouchers/bills of BMPL indicate that the amounts relating to it were passed by BE. Overtime allowance and other payments which are prepared by BMPL are finally passed by after HR department of BE approval. The head of HR department of BEML report directly to Vice President of (HR) BE. As per the balance sheets an amount of ₹ 12 crores belonging to BMPL is shown in BE and is being used by BE. The conversion charges which need to be paid to BEML were not being paid regularly by BE. Payments were made after the investigation started by the department, that to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of raw materials has to be considered a manufacturer himself or loan licensee, a issue has been settled by the Apex Court in the Cosme Farma Laboratories -2015 (318) E.L.T. 545 (S.C.). 4. Heard both sides in detail and perused the records. 5. The issue that falls for consideration in this case is whether the respondent herein, 100% subsidiary, of holding company Biological E Ltd., during the period 1-4-2003 to 7-1-2005, as undervalued the goods manufactured on loan licensee basis by declaring the assessee value based upon cost construction method is correct and otherwise. The allegation department is that cost construction method will not be applicable in the case in hand as the respondent 100% subsidiary of the Biological E Ltd., the discharging of duty liability has to be done on the basis of the sale value of the said products as sold by Biological E Ltd. 6. We went through the records which are produced before us, on the perusal of records we find the adjudicating authority, in this case, has recorded factual findings after deliberating on all the allegations made in the Show Cause Notice and on the evidence produced by the respondent before him. We find that these fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i. N.A. Prasad of BE. It is false to state that all payments are being made through Shri Prasad. It is also false to state that all these bills are verified by Shri Prabhakar Reddy before granting approval. Shri Prabhakar Reddy only scrutinizes the labour bills to verify that the amounts charged for doing job work is authentically correct. The examination by Shri Prabhakar Reddy is part of normal accounting or for auditing purpose and not exercise of control. The facts referred to in para 21 of the notice will not lead to the conclusion of any lack of independence on the part of BMPL . I am inclined to accept the averments of BMPL in this regard. 121.3 These matters tike passing of vouchers/bills of BMPL by the management of BE do not by themselves militate against the ownership or control of BMPL over the assets of that company. When the statute viz. The Drugs and Cosmetics Act, 1940 recognizes the arrangement of getting goods manufactured under a system of loan licence, where in the loan licensee is under an obligation to ensure the quality of goods manufactured thus, the extra efforts made by BE in this regard to facilitate smooth and effective turn out of the work in the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BMPL. The very fact that the BMPL is a subsidiary of BE enables the later the benefit of manouvering the funds as a holding company so long as such financial transactions are reflected in their accounts and authorized by the statutory authority under the company Law. The fact of payment of ₹ 1.0 crore by BE to BMPL as first instalment in May, 2004 and payment of balance amount in eleven quarterly instalments of ₹ 1.0 crore each along with an interest @ 6% per annum as submitted by the assessees in para 34 of their reply to the show cause notice supports the case of the assessees and it cannot be construed as any sort of financial flow back from BMPL to BE. Similarly, the delayed payments of conversion charges by BE to BMPL and BMPL furnishing its assets worth ₹ 2.0 cr. as collateral security for the loan of ₹ 27.50 cr. taken by BE, which are normal commercial/financial transactions between any two legal entities in no way undermine the independent status of BMPL. It is further submitted by the assessees, that they have received payment for all outstanding conversion charges bills of 2003-2004 by July, 2004 and this shows it is a normal business transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween BE and BMPL has also been made one of the grounds by the Department in proposing to put the burden of central excise liability on BE. It is further contended in the show cause notice that all this clearly indicates the economic realities behind the legal facade called BMPL and the beneficiary of this creation is BE and benefits were mostly accrued by adopting colourable devices for avoiding taxes; this coupled with the share holding pattern and the mutuality of interest between both of them and the dominance of BE who was calling the shots in its relationship with BMPL necessitates lifting of corporate veil from BMPL to expose the actual beneficiary who is none other than BE . 131.2 On going through the show cause notice on these aspects of legal facade , lifting of corporate veil from BMPL , it is seen that apart from dwelling at length on the various commercial and working arrangements, the Department has not adduced any evidence in support of the contention that the setting up of BMPL was a legal facade and piercing of corporate veil was warranted. The evidence what is required is that for the purpose of constituting a subsidiary company under the relevant Act, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the brand owner (loan licensee) and the job worker are given licensee responsible for maintaining the quality and standards, at the same time lays does the obligations of the job worker. As per the Apex Court s judgement in the case of Ujagar Prints, the job worker is recognised as the manufacturer for the purpose of payment of central excise duty. Thus in the instant case BMPL being the job worker of BE is required to discharge the duty liability despite the fact that the former is a subsidiary of the latter. The same had been followed in a catena of judgments, irrespective of the different interpretations drawn by the Revenue to the job work arrangements, such as valuation under Rule 8 of Central Excise Valuation Rules, 2000, valuation at the price at which goods manufactured on own account, the basis of sale price of raw material supplier as both are related etc. A few case laws which are relevant to the present case are given below. 152. The assesses submitted that, there is no mutuality of interest between BE and BMPL; BMPL has no interest in the business of BE and therefore they cannot be called as a related persons; merely because BE is holding company of BMPL, that its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard. (i) In the case of K.R Balachandran v. CCE, Coimbatore (supra), the Hon ble Tribunal in Para 14 of the order held that Non-issue of Show Cause Notice to Rama Industries and also for the reasons that Department has taken different stand on the status of Rama Industries, therefore, the proceedings have become had in law, we are constrained to set aside the impugned order on this ground above . (ii) In the case of Dawn Fire Works Factory and others v. CCE, Madurai (supra), the Hon ble Tribunal in Para 5 of the order held that, In this case particularly, there is an existence of unit and the Department was required to have shown the financial flow back and sharing of profits and for that they ought to have issued Show Cause Notice to the other unit, which has not been done in the present case and in view of the judgment rendered by the Tribunal in the case of Ogesh Industries and in the case of Hindustan Foam Industry, the contention of the appellants that non-issue of show cause notice has vitiated the proceedings, is required to be upheld and on this ground alone, the appellants are entitled to succeed . (iii) In the case of Poly resins v. CCE, Chenn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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