TMI Blog2023 (3) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... ient to establish the relationship between the Assessee and the buyers. That only shows one way traffic whereas requirement is that of two way traffic. The other Member, in our opinion, aptly held that this cannot be the factor which would show the mutuality of interest. In the present case, undoubtedly AgrEvo SA/ Aventis CropScience SA holds the entire shareholding in Aventis CropScience (India) Ltd. (the buyer). It also is a shareholder in BIL. All of the latter s products are sold to Aventis CropScience (India) Ltd. However, this does not show that BIL has any business interest or interest in the affairs of Aventis CropScience (India) Ltd., nor, conversely, that Aventis CropScience (India) Ltd has any such interest, direct or indirectly in BIL. The revenue s concern in examining whether the parties were related might be justified; however, it could not have concluded that such relationship, as is contemplated by Section 4(4)(c) could have been inferred, without applying the proper test. Additionally, the revenue had the materials before it, in the form of documents which indicated the mark up towards profit margin, and other objective evidence to compare, if indeed, the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement (JVA) on 03.07.1999. This was for the purpose of researching, developing and manufacturing agrochemicals and environmental health products. MIL agreed to first transfer its entire non-pyrothroid business to another company, namely, Mitsu Pesticides Ltd. 4. On the date of closing of the JVA, MIL s name was changed to M/s Bilag Industries Ltd. ( BIL ). At the time of formation of the joint venture, AgrEvo SA held 51% of the share capital in BIL and the balance share capital in BIL was held by the Bilakhias family. Further to the JVA, a Technology and Know-How Licence Agreement (dated 13.07.1999) was entered into by AgrEvo SA and MIL. In terms of this licence agreement, the necessary process and know-how to manufacture Esbiothrin and Esbiol as per the specifications provided by AgrEvo SA was transferred to BIL. In terms of this agreement, AgrEvo SA had agreed to licence BIL to manufacture the allethrin molecules (i.e., Esbiothrin and Esbiol products) conforming to AgrEvo SA s specifications. Thus, as a JV partner, AgrEvo SA invested a certain amount as capital in BIL and also brought the technical know-how for the Joint Venture Company (BIL) to manufacture Esbiothrin and Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same to end customers. For this period, the revenue proposed to treat the price at which Aventis Crop Science (India) Ltd. sold the product to the end customers as the assessable value ignoring the transaction cost. The duty demand was ₹1,68,81,685/- for that period. An amount of ₹2,39,54,913/- was demanded on the ground that AgrEvo SA/ Aventis CropScience SA had recovered a sum of ₹14,97,18,205/- through its 100% owned subsidiary Aventis CropScience (India) Ltd. towards expenses incurred for advertising, publicity, marketing and selling expenses, storage, outward handling, servicing, warranty, etc., in terms of the agreement entered into with Sumitomo on the ground that since AgrEvo SA/ Aventis CropScience SA was the holding company of BIL, the amount paid by Sumitomo to AgrEvo SA/ Aventis CropScience SA should be treated as additional consideration and added to the value of the goods manufactured and cleared to BIL. An amount of ₹5,95,97,434/- was demanded as differential duty on Esbiuothrin during the period 09.06.2001 to 25.03.2004, on the ground that the price at which the goods were sold to end customers by Sumitomo should be the basis for determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Atic Industries Ltd. [1984] 3 SCR 930 , Union Of India Ors v. Hind Lamp Ltd. [1989] 2 SCR 1023 , Commissioner of Central Excise, Hyderabad v. Detergents India Ltd. [2015] 6 SCR 886 , and Commissioner of Central Excise, Chandigarh v. M/s Kwality Ice Cream Co. [2010] 14 SCR 409 . It was argued that the synergies in production, achieved by the creation of the JVA, optimised the development and resources of the JV partners; the sale by BIL (the assessee), to Aventis CropScience (India) Ltd. (the buyer), another subsidiary of AgrEvo SA/Aventis CropScience SA did not result in BIL being deemed to have an interest in its business or affairs; likewise, Aventis Crop Science (India) Ltd. did not have any interest in BIL s business. 9. Mr. Arijit Prasad, learned senior counsel appearing for the revenue, pointed out that business relationships, and interest of one entity in the affairs or business of another cannot be placed in a straitjacket. The formation of the JVA and BIL, in which the foreign company AgrEvo SA/Aventis CropScience SA is a major shareholder, was for the purpose of ensuring that the products manufactured reached its overseas markets, through the medium of its su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes a holding company a subsidiary company, a relative and a distributor of the assessee and any sub-distributor of the assessee, and any sub-distributor of such distributor. 11. In Atic Industries (supra), this court examined the expression related person : 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 the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct, or indirect in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the assessee and the person alleged to be a related person must have interest, direct indirect, in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The equality and degree of interest which each has in the business of the other may be different; the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Ltd. (supra), the same principle was echoed: It is not enough that the assessee has an interest, or indirect in the business of person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect in the business of the assessee. To attract the applicability of the first part of the definition, the assessee and the person alleged to be a related person must have interest direct or indirect in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The quality and degree of interest which each must have in the business of the other may be different; the interest of one in the business of the other may be direct while the interest of the latter in the business of the former may be indirect. After analysing the facts, this Court came to the conclusion that there was no relationship. 13. In Detergents India Ltd. (supra), this court examined both parts of the definition in Section 4(4)(c) and observed as follows: Section 4(4)(c) is in two parts. The first part requires the department to apply a de facto test, whereas the second part requires the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores to the Assessee company, was treated as sufficient to establish the relationship between the Assessee and the buyers. That only shows one way traffic whereas requirement is that of two way traffic. The other Member, in our opinion, aptly held that this cannot be the factor which would show the mutuality of interest 15. In Kwality Ice Cream (supra) again, the court underlined the interdependence and mutuality of business interests of the two entities, viz. the assessee and the buyer: On analysis of the decisions referred to herein above, it appears what is important is that each of the parties involved should have an interest, whether direct or indirect in the business of each other. The following are the relevant clauses of the agreement between M/s. Kwality Ice Cream and BBLIL/HLL based on which and applying the principles referred to herein above, a view is required to be taken as to whether they are 'related persons'. ************* ************* 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X
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