TMI Blog2002 (2) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... ng agreements were to be executed. Toilet soaps were to be sold to P G at cost + 5% basis and detergents were to be sold at cost. Provisions were made for detailed contractual obligations in between the parties. The Management of GSL in their internal deliberations agreed to these proposals. In terms of the internal decisions taken on 21st November, 1992, GSL transferred and assigned several trade marks held by them to M/s. Godrej Boyce Ltd. Thereinafter called G B). The deed of assignment of 23-11-92 listed all the trade marks which included those trade marks of soaps which were to be marketed exclusively by the JVC proposed between GSL P G. G B paid GSL a compensation of Rs. 6 crores for such transfer on 31-12-92. These brands were permitted to be used by JVC named as Procter Gamble Godrej (Hereinafter called PGG) vide agreement dated 22-1-93. In compensation PGG paid Rs. 7 crores to G B. A non-compete agreement was also entered into on 16-12-92 whereby GSL undertook not to compete in the sale of toilet soaps with PGG and also with P G Far East Inc. (hereinafter PGFE). The relevant clause read as under :- "3. Covenant : GSL hereby agrees with PGFE and PGG that during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,26,400/-. 5.An agreement was entered into between GSL and G B on 20-5-96 whereby GSL were permitted to use the brand names earlier transferred by them to G B for the annual compensation of Rs. 10,000/-. This agreement covered toilet soaps also. 6.On l6th March, 1993 before the legal formation of the JVC, GSL informed the jurisdictional officers in charge of their 2 factories, one at Vikhroli and the other at Malanpur (M.P.) of the various agreements undertaken by them. It was informed that the agreements would result in reduction of the assessable value and therefore the assessments should be kept provisional. 7.On 23rd July, 1997 a show cause notice was issued by the Commissioner of Central Excise in charge of the Bombay factory demanding duty short paid amounting to Rs. 21,78,54,233/-. The various agreements referred to above entered into by GSL, G B, P G, etc. were referred to. It was claimed that the expenditure incurred in the marketing and distribution of the toilet soaps should have formed the assessable value. It was alleged that the entire exercise of transfer of the brand names and of transfer of the marketing and sales promotion machinery from the GSL to the PG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri A.B. Godrej, M.D. Rs. 20 lakhs. 5. Shri Sudhir, Sr. Vice President Rs. 2 lakhs. 6. Anil, G.M. Rs. 2 lakhs. 7. Vijay Kulkarni, DGM. Rs. 2 lakhs. 10.The 4 corporate persons and the 4 individuals named above filed appeals against this common order. These appeals are being disposed of by this common order. 11.The following Counsels represented the following appellants : S. No. Appeal No. Appellant Represented by 1 E/2844-V/99-Bom. M/s. Godrej Boyce Mfg. Co. Ltd. Mr. A. Hidayatullah, Sr. Advocate with Mr. A. Sheerazi, Advocate and Ms. Shailaja Kher 2. E/2906-V/99-Bom. Mr. V.S. Nankani, Advocate with Naresh Thacker, Advocate 3. E/2907-V/99-Bom. M/s. Procter Gamble Distribution Co. Ltd. 4. E/2912-V/99-Bom. M/s. Godrej Soaps Ltd. Mr. A. Setalvad, Sr. Advocate with D.B. Shroff, Advocate and Mr. Ravi Kulkarni 5. E/2913-V/99-Bom. 6. E/2914-V/99-Bom. Shri Adi B. Godrej 7. E/2915-V/99-Bom. Shri Sudhir Awasthi 8. E/2916-V/99- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods were bearing buyer's brand name and did not promote the cause of the manufacturer. On this ground their inclusion was struck down. In the cited case of Havmor Ice Cream Company [1997 (89) E.L.T. 65 (T)] the Tribunal held that the distributor advertising the product resulted in the increase of his business and hence the same could not be said to be for and on behalf of the manufacturer. In the last cited case [1999 (109) E.L.T. 237 (Tribunal) = 1998 (29) RLT 640], it was held that the sole buyer of the goods operating under a principal to principal basis incurring expenditure on advertisement could not give ground to incremental addition to the assessable value. 16.The above judgments are based on the common presumption and that is that the assessee seller and the distributor buyer had no interest in the business of each other and that the various agreements were on the principal to principal basis. (Relationship between the contracting parties resulting in denial of ratio of the judgments has to be brought out). 17.The includibility of advertising and marketing expenses in the assessable value was also considered in the judgment of Bombay Tyre International Ltd. [1983 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor." In terms of the definition it is not necessary that the relationship should be of the holding company and the subsidiary company because these are only illustrative and the definition does not limit itself to those situations only. 23.The advertisement expenses were borne by JVC viz. PGG, the Godrej designees holding 51% of the share of that company. The same designees owned a very substantial portion of GSL, the assessee in this case. In terms of the definition it has to be held that there was a mutuality of interest between GSL and PGG. 24.We think it expedient to cover the aspect of limitation at this stage. The show cause notice dated 23-12-97 raises demand for the period 92-93 to 96-97 (up to July 97). The show cause notice alleges suppression, mis-statement etc. to sustain the demand made for the enhanced period. The submissions of the appellants is that there was no suppression inasmuch as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 152/CEX/VAL/AC/96 issued under F. No. V(34)VAL/102/95/9020. 27.The show cause notice cites the statement of Shri V.R. Kulkarni dated 22-1-97 in which he refers to the submission of the price list and states that only the manufacturing agreement was submitted to the Departmental and copies of no other agreements were disclosed to the Deptt. In subsequent statement dated 19-2-97, he was unable to show the receipt even of the manufacturing agreement earlier claimed to have been submitted to the Department. He continued to standby this averment in the latest statement recorded on 6-11-97. 28.Statements of a number of other officers have been recorded and relied upon in the notice. None of them referred to the aspect of pricing for the purpose of payment of duty. That area was handled exclusively by Mr. Kulkarni and that it was he who had corresponded with the Department as regards the pricing of toilet soaps. 29.The receipt of the letter by Gwalior Asstt. Commissioner sets at rest the doubt raised by Shri Sethna. It has to be assumed that similar letter was received by the Jurisdictional AC in Bombay also as it is evident from the fact that the price charged was lower and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even today G B is the holding company of GSL. (67% of GSL's shares are still held by G B - Ref : Balance sheet of G B for 95-96). It may be noted that at the time of Assignment of Trade marks/brands by GSL to G B (i.e. in Dec., 1992), GSL was a subsidiary of G B. (iii) Though GSL and G B are subsidiary holding company respectively, GSL and G B do not have any business interest among them and do not deal in each others products. (iv) For the JVA, both GSL and Godrej Designee's were represented by Shri Adi B. Godrej Shri A.B. Godrej was also the M.D. of GSL and Director of G B. (v) Shri Adi B. Godrej is also the Director of M/s. Swadeshi Detergents Ltd., one of the Godrej Group Company. Shri Sudhir Awasthi, who was overall incharge of SDL, was reporting to Shri Ad. Godrej for SDL's operations. 34.In this perspective the transfer of the marketing and advertising network of GSL PGG would have to be examined. While the network was with GSL, the charges incurred undoubtedly formed a component of the assessable value. On the transfer of the network this component was removed and the assessable value was lowered. On the dissolution of JVC the network rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of marketing and advertising to PGG was that it would benefit from the name and experience of P G. In other words, the GSL were confident that the divesting of this concern was for their own benefit. Since physical staff was also taken away, GSL benefited from the reduced expenditure. In this situation, there is no apparent reason why a princely sum should have been paid by PGG to GSL. There was also no apparent reason why on termination a further sum of Rs. 11.264 crores and another of Rs. 1 crore should have been paid to GSL (para 2 of termination agreement dated 23-7-96). In para 4 onwards several monetary benefits already secured by GSL were allowed to be retained by them. Both the agreements of creation and dissolution favoured GSL unduly. 40.We thus find that the relationship between GSL and PGG was not definitely at arms' length and that there was mutuality of interest between them. GSL were aware that Advertising and marketing expenses did form part of the assessable value. GSL by transferring this network to PGG removed an important component from the computation of assessable value. The agreements referred to in the letter forwarding the fresh price lists were not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulation with conscious thought. It has been ruled that a mere mis-declaration cannot form basis of such demand but that it must be proved that the mis-declaration was with intent. It has been held that where the Deptt. itself was not very clear about a certain stand either on classification or on valuation, it was inappropriate to seek extended period against the assessee on that count. It has also been held that where an assessee had taken a view in the genuine belief that the view was correct, it was for the Deptt. to prove the view was not innocent. All these judgments have been cited by counsels appearing for all the concerned appellants. We find that the entire body of this case law was evolved in the area of Central Excise administration. The bulk of the assessees in this area fall in the medium and small industries sectors. Several of the units were run by technocrats and some were family holdings. In many cases it was held that an assessee placed in these situations would not possess knowledge of the Central Excise laws and were apt to commit innocent mistakes and unintentional errors. In these situations, the higher appellate bodies and the courts gave the rulings we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a wilful suppression or mis-statement of the value of the goods imported and, therefore, the respondents were entitled to invoke the provisions of the proviso to Section 28(1) of the Customs Act and issue show cause notice even if period of six months importation had expired but before the expiry of five years thereof in the case of all the appellants except in the cases of M/s. H R Rolling Mill Engineers Pvt. Ltd. (C.A. No. 1493 of 2000) and M/s. Videocon VCR Ltd. (C.A. No. 3632 of 2000)." 42.Duty of Rs. 11,25,82,433/- has been confirmed on this ground. As a last resort, the appellants have contested the computation of this sum. Mr. Setalvad claimed that this sum was calculated on a longer duration. The JVC was wound up earlier and therefore this should be apportioned on pro rata resulting in significant reduction. While upholding the levy we hold that this statement will have to be checked and verified by the competent authority. 43The next. portion of the demand is of Rs. 3,63,37,500/-. This duty is computed on the sum received by GSL from PGG, in terms of the non-competition agreement. We have seen the text of the agreement dated 16-12-92. The relevant portion has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the marketing and distribution network, substantial amounts were paid by PGG to GSL. A direct agreement could have been entered into by PGG with GSL for use of the latter's brand name by the former. But this was not done. After finalising the terms of the JVA by internal arrangements, GSL transferred and assigned these trade marks to G B for a sum of Rs. 6 crores. Later, G B charged PGG for use of their brand name a sum of Rs. 7 crores. When the JVC was disbanded, PGG waived repayment by the licensor for the unexpired period of use of the brand name. G B later entered into an agreement to permit GSL to use the same brand names for a paltry sum of Rs. 10,000/- per annum. 46These. transactions have been mentioned earlier in our analysis on the issue of limitation. The manner in which the brand names were rolled around inside the frame work is not merely suggestive but is confirmative of the extra ordinary relationship between not only GSL and G B, but also between these two and PGG. The unwarranted benefits given by one contracting party to another do not fit into normal business practice but unmistakably point to mutuality of interest. 47.Trade marks or brand names link a partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Indore Collectorate GSL alone have been asked to show cause why penalty should not be imposed upon them. Such proposals are not made to the other appellants in these batch of cases. This is in spite of the fact that in paragraph 12 of the Annexure to the show cause notice liability to penalty on S/Shri Awasthi, Rege and Kulkarni is brought out and is alleged. In the show cause notice dated 23-12-92 issued by the Bombay Collectorate allegations as to the levy of penalty were made on 8 of the appellants before us. 51.On the aspects of penalty, arguments were made on two grounds. The first was on the coverage of Rule 209A of the Central Excise Rules. In the show cause notice issued by the Bombay Collectorate, this rule has been invoked for levy of penalty on all the appellants except M/s. GSL. For easy reference, the said rule is reproduced below : "Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame period could be demanded only once. It appeared to him that the duplication was the result of the difficulty in apportioning the amount of additional consideration. It also appeared to him that the show cause notice issued by Collectorate at Indore was only to safeguard the revenue and therefore, probably the allegations as to penalty were not made therein. He proceeded to confirm the duty as above after giving certain reductions. In his order, he also imposed penalties on the noticees. The present appeals are directed against this order. 56Before the. Commissioner, the argument made was that the assessments in the case of Mumbai plant were provisional. The judgment of the Bombay High Court in the case of Godrej Boyce Mfg. Ltd. was cited before the Commissioner. It was claimed that in the face of the provisional assessments, no notice could be issued under Section 11A of the Act. The Commissioner preferred to rely upon the judgment of the Madras High Court in the case of Madura Coats Ltd. v. CCE [1996 (82) E.L.T. 512 and the judgment of the Delhi High Court in the case of M/s. Duncans Agro Industries Ltd. v. UOI [1989 (39) E.L.T. 511]. Considerable arguments were advanced b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in disposing of the SLP declined to interfere with the orders of the Bombay High Court but observed that the material which was available could be used for finalisation of the assessment. 59.In a number of cases thereafter decided by the High Courts as well as by the Tribunal, it was held that the notices invoking Section 11A could not be issued while the assessments were provisional. This was so held in the Ponds India Ltd. by the Madras High Court Dn. Bench [1994 (73) E.L.T. 272]. This is reflected in the Calcutta High Court (Single Judge) judgment in the case of Nayek Paper Industries Ltd. v. UOI [1991 (56) E.L.T. 31 (Cal.)], as also the later judgment of the same High Court in the case of Suttons Sons (India) Pvt. Ltd. [1995 (75) E.L.T. 229]. The Madras High Court Single Judge decision in the case of Madura Coats Limited v. CCE [1995 (79) E.LT. 567] upheld the legality of invocation of proviso to Section 11A even where the assessments were provisional. 60.The Tribunal also in a number of orders followed the law laid down by the Courts. In Modi Rubber Ltd. [1999 (108) E.L.T. 90], the Tribunal followed the Ponds India Ltd. Judgment. The judgment in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section 3(ii) to mean in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof. 18. After final assessment, a copy of the order on the return filed by the assessee has to be sent to him. Duty has to be paid by the assessee on the basis of the final assessment within ten days' time from the receipt of the return. No question of giving any notice under Section 11A arises in such a case. It is only when even after final assessment and payment of duties, it is found that there has been a short-levy or non-levy of duty, the Excise Officer is empowered to take proceedings under Section 11A within the period of limitation after issuing a show cause notice. In such a case, limitation period will run from the date of the final assessment. The scope of Section 11A and Rule 173-I are quite different. In this case, the provisional assessment earlier made by the proper officer has been quashed and pursuant to the direction of the High Court, the proper officer has made the final assessment. No question of failure of issuance of show cause notice under Section 11A arises in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of duty thereafter. This was pronounced after noticing the judgment in the case of Duncans Agro Industries Ltd. We find that the Delhi High Court had taken note of the submissions that the relevant date was the keystone of the demand made under the said section in paragraph 9. But in the discussion thereafter, the history of the creation of the Section has been traced and the ruling given without discussion of the relevancy of the relevant date. 67.On perusal of the Paharpur Cooling Towers Pvt. Ltd. judgment of the Tribunal, we are unable to find as to the grounds on which the other judgment of the High Court were distinguished. 68.There may be difficulties in certain cases where the specifications of the relevant date in the said Section do not cover a particular situation. The issue for decision before the Larger Bench of the Tribunal in the case of CCE, Chandigarh v. Kashmir Conductors [1997 (96) E.L.T. 257] was the determination of the relevant date where the assessees were availing of the Notification granting exemptions based on total value or quantity of clearances during a particular Financial Year. The question raised was whether the relevant date would be that of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sub-section (b) necessarily involve contact with physical goods. Rule 209A of the Central Excise Rules, 1944 is a carbon copy of part (b) of Section 112 and suffers from the same shortcomings. 72.In view of the analysis, the allegation could not be made against M/s. G B as well as M/s. P G. 73.The position as regards M/s. PGG is different inasmuch as the company as such was concerned in handling the goods which were undervalued. The liability of the Managing Director and the other officers of M/s. GSL is co-existent with the liability of penalty on M/s. GSL. The Tribunal in the case of DCW Ltd. v. CCE, Madurai [1997 (89) E.L.T. 212 (Tri.)] observed that once the company has been penalised, there is little cause for separate penalty to be imposed on its Vice President. Unfortunately, the judgment is silent as to the provision under which the penalty was alleged. These officers are individually charged with withholding information. This particular aspect is held to be not to invite penalty in terms of the judgment of the Tribunal in the case of Northern Plastics Ltd. v. CCE [1997 (89) E.L.T. 744]. However, in view of the clear finding that the show cause notice alleging lia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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