TMI Blog2003 (5) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... rations, that it manufactured, that was listed in Annexure 1 to the agreement and these goods would be marketed by Lakme Lever Ltd. The appellant reduced from that day onwards the prices of the goods that it sold. 2.The department responded with issue of two show cause notices dated 3-4-1997. The notices alleged that the appellant and Lakme Lever Ltd. were related for the reasons that the entire production of the cosmetics of the appellant was purchased by Lakme Lever Ltd. and that the appellant held 50% of the shares of Lakme Lever Ltd. By applying the provisions of clause (3) of the proviso under clause (a) of sub-section (1) of Section 4 of the Act, the notices proposed to take as the assessable value the price at which Lakme Lever Ltd. sold the goods to its dealers. Penalty was also proposed under Rule 173Q. The assessee contended in reply that it was not related to Lakme Lever Ltd. because the requirements contained in the Explanation below Section 4 of the Act that for two persons to be related to each other, each must had a direct or indirect interest in the business of the other was not satisfied. While Lakme Lever Ltd. could be said to have an interest in the affairs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brands Ltd. name in turn authorised Lakme Lever Ltd. to use the brand name on payment of royalty at 5% on annual sales and 8% on exports. Lakme Brands Ltd. had received Rs. 5.76 crores as royalty in this manner and paid a dividend of Rs. 1.78 crore to Lakme Ltd. He therefore, confirmed the demand for duty and imposed the penalty. On appeal from this order, the Commissioner (Appeals) confirmed the Assistant Commissioner's order on essentially the same grounds as those advanced by him. Hence this appeal. 4.The contention of the Counsel for the appellant is essentially that the two companies are not related. For the two to be related as provided in the Act, each must have an interest direct or indirect in the business of the other. In a case involving an identical issue, in Atic Industries - 1984 (17) E.L.T. 323 and later reiterated in Alembic Glass Industries Ltd. v. CCE - 2002 (143) E.L.T. 244, the Supreme Court had held that two companies could not be stated to be related only because one had 50% of the shares of the latter; it said that a limited company cannot be said to have any interest in the business carried on by one of its shareholders. In the latter matter, it refused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UOI Others v. Atic Industries Ltd. - 1984 (17) E.L.T. 323. The question before the court was the value for the assessment of the dyes manufactured by Atic Industries Ltd. the entire production of which was sold to Atul Products Ltd. and Crescent Dyes and Chemicals Ltd., each of whom held 50% of its share capital. The court refused to accept the contention that the appellant was related to Atul Products Ltd. because of the 50% shareholding in it of the latter. It said that, while Atul Products Ltd. could be said to have an interest in the business of Atic Industries Ltd., since it held 50% of its share capital, and therefore had interest of a shareholding, it failed to see how it can be said that a limited company has any interest direct or indirect in the business carried on by its shareholders even though the holding of that shareholder may be 50%. Secondly, since Atul Products Ltd. was a wholesale buyer on principal to principal basis and sold the goods in the market, Atic Industries Ltd. was not concerned with whether Atul Products Ltd. sold or did not sell the dyes purchased by it at a profit or loss. The court has reiterated the same view in its more recent judgment in Alem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided that this consideration would be paid by Lakme Lever Ltd. in cash on or before 31st March, 1996. It is not contended that this part of the agreement was not genuine or that consideration has not been paid. The fact that Mrs. Tata, who was the chairperson of the appellant was the chairperson of Lakme Lever and Mr. Chopra, who was an employee of the appellant, became managing director of the appellant will be of no consequences in the light of the Supreme Court's judgment in Alembic Glass Industries. That judgment also answers the contention of the learned Counsel for the department as to the applicability to that court's judgment in Calcutta Chromotype Ltd. v. CCE - 1998 (99) E.L.T. 202. 10.The Counsel for the department relies upon an unreported decision of this Tribunal in Godrej Boyce Mfg. Co. Ltd. others v. CCE (Appeal 2906/96 and others). The Tribunal, in these matters, was deciding appeals filed against orders of the Commissioner of Central Excise, Indore and Commissioner of Central Excise, Mumbai-II. The notices that were adjudicated by these officers alleged that the expenses incurred by Procter Gamble Godrej Ltd. towards advertising and marketing the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods should be based on the price at which the buyer sells the goods. Doubtless, the Counsel for the Commissioner had emphasised during his argument, this aspect of the matter that the assessee deliberately embarked upon creation of a new company in order to reduce the duty burden that would otherwise fall upon it. The courts have held that there is nothing to prohibit that a person in so arranging its affairs as to reduce the burden of tax that falls upon him. It is also equally true that the courts have held that there are limits to the devices that a person may resort in order to avoid or reduce payment of tax. The Supreme Court in its judgment in McDowell Co. Ltd. v. Commercial Tax Officer - AIR 1986 S.C. 649, has quoted with approval, the observations of Lord Wilberforce in W.T. Ramsay Ltd. v. Inland Revenue Commissioner - 1981 AC 300 "While the techniques of tax avoidance progress and are technically improved the Courts are not obliged to stand still. Such immobility must result either in loss of tax, to the prejudice of other tax-payers, or to Parliamentary congestion or (most likely) to both. To force the Courts to adopt relation to closely integrated situations, a step ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buyers. It is not as if what was inherent in the notice a proposal, or even a suggestion that it dealt with the object of the arrangement between the parties, evade duty on the advertising charges by transferring them to the company who is not a manufacturer and the Commissioner merely develops this charge or suggestion more fully to this order. This is what the Counsel for the Commissioner says. We are not able to accept for the reason that, even by reading of the notice with the widest latitude, this position does not emerge. 13.This question not having been dealt with in the order of the Commissioner before us, we are not required to go into the question as to whether the transfer of the advertisement marketing expenses to Lakme was or was not a colourable device or was or was not permitted by law. We are only required to answer the question as to the relationship of the two. In our view, the judgment of the Supreme Court and the decisions of the Tribunal have settled this issue. We have therefore not considered the arguments relating to limitation and hold on merits that the two were not related. The assessable value therefore cannot be the price at which Lakme Ltd. sold the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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