TMI Blog2005 (10) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct to PEL, Parle International Ltd. (PIL) and franchises of M/s. PEL. 3.M/s. PEL is a Ltd. Company. It uses the products sold by M/s. LFFL to manufacture Non alcoholic Beverages Base (NABB). S/Shri R. Chauhan, P. Chauhan, R.N. Mungale, R.B. Verma and Mrs. Zainab Chauhan (Wife of Shri R.J. Chauhan) are its Directors. In addition NABB it manufactures flavours as LFFL does. Duirng the same period mentioned above it enjoyed the benefit of Notification No. 175/86 and 1/93 for the year 92-93 and 93-94. (Oct. 93) 4.M/s. PIL is a limited company, a subsidiary of LFFL Its Directors are S/Shri R. Chauhan, R.N. Mungale, S.B. Shah and K. Shankar. It also manufactures NABB and flavours. It does not avail of SSI exemption. 5.The flavours named above are researched and developed by PEL, but were allowed to be manufactured by LFFL with the code names given by PEL. The users of these flavours (PEL, PIL and Franchise holders) know them their code names. They are used in the manufacture of gold spot, Limca, Rimzim etc. 6.As could be seen there are common directors in all the three Companies. Shri R. Chauhan is the over all control of all the three companies. Shri R.B. Verma, the Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere at one point of time were manufactured by M/s. PEL and admittedly owned by them. These flavours were known by their code names. Such code names were given by PEL. Each Code name is used for making a particular type of NABB which is further used for the manufacture of a particular type of soft drinks. PEL assigned these code names for the purpose of secrecy. The fact that these products were owned by PEL is evident from the know-how agreement entered into PEL with M/s. the Coco-Cola Company by a deed dated 11-11-93 agreeing to transfer assign date and convey irrevocably to TCCC the know how of the beverage base used in the manufacture of beverage bearing the trade mark, Thumps up, Gold Spot, Limca, Kismet, Bixi Rim Zim for a consideration of 7.5 million dollars. Before this transfer of LFFL were selling the flavours only under the code names to the franchise holders, PEL etc. as evidenced from the invoices and the purchase orders. During the same time M/s. LFFL also sold the brand 'CITRA' along with the flavour needed for making this soft drink to M/s. Coco Cola for a consideration. The allegation that M/s. LFFL was manufacturing products with a brand name belonging to another p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue adopted. 13.As regards to PEL the allegations are summarised (i) An amount of Rs. 8,62,500/- is recoverable denying the benefit of SSI exemption for the year 92-93 on account of clubbing of their clearances with those of LFFL during the previous year. 14.As regards to PIL no duty is demand, as they did not claim SSI exemption during the period 89-93 Oct. 15.The Commissioner while adjudicating the case dropped the proceedings initiated on the above lines on the following grounds. (a) The clearances of the three units in question are not to be clubbed, as they are independent manufacturers. He held that the Department failed to establish that there is a financial flow back and profit sharing among these three units. (b) A bare reading or visual inspection of the code names does not convey anything. The sale or transfer of the flavours with the codenames/markings would not attract the mischief of para 7 read with the Explanation VIII of the SSI exemption Notification No. 175/86 and 1/93. He followed the ratio of Madras High Court's decision in the case of BHEL v. CCE [1990 (49) E.L.T. 33 (Mad)]. The Hon'ble High Court dealing with a case where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 92-93 in which PEL claimed the benefit of SSI exemption. 16.The Commissioner thus dropped the demand of Rs. 3,13,08,896.86 on LFFL and Rs. 8,62,500/- against M/s. PEL and consequent penal action proposed in the notice and discharged the show cause notice. 17.Revenue is in appeal before us against this order. 18.Heard both sides. 19.The issue for considerations are enumerated hereunder : (a) Whether in terms of Notification No. 175/86 and 1/93 PEL, PIL, and LFFL can be treated as one manufacturer and their clearances be clubbed together to determine their eligibility to the said notifications during the years 89-90 to 93-94 (Oct. 93); (b) Whether the code names for various flavours used by LFFL represented the brand names of the products belonging to another person who is not entitled to the benefit of SSI exemption ; (c) Whether the value of flavours manufactured by LFFL on which duty was paid represented the correct value of the said goods. (d) Whether M/s. PEL is entitled for the benefit of Notification No. 175/86 for the year 92-93 as claimed by them. 20.We now proceed to examine each of the above issues in their order. 21.Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 3 of the said notification. Commissioner's finding that the clearances of the three companies cannot be clubbed is rejected in so far as the period 1-4-93 to Oct. 93 is covered. 23.The next question we address ourselves to is whether or not the code names of the flavours manufactured by LFFL are brand names belonging to another person. There is no gainsaying the fact that these flavours are developed, researched and concocted by M/s. PEL in their research labs. It is equally true that M/s. PEL have given the brand names to the flavours and allowed them to be manufactured by LFFL, their holding company. The trade, i.e. M/s. PEL, PIL and the franchise holders know these flavours by their brand name. In November 93 when the rights in the flavours were sold away to M/s. The Coca Cola Company it is PIL who transferred the right of all the codes except the code name of 'CITRA' to M/s. Coco Cola Company. These facts clearly demonstrate that M/s. PEL owned these products (except Citra flavour). 24.Explanation VIII of Notification No. 175/86 as well as Notification No. 1/93 reads as follows : "Explanation VIII—"Brand name" or "trade name" shall mean a brand name or trade name, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.During the years under dispute M/s. LFFL also manufactured a flavours with a code name L-22L with which a soft drink known as LIMCA is made. There is a considerable confusion as to whether this code name/brand name, is owned by M/s. PEL or M/s. LFFL. Investigation brings out that this flavour was developed by M/s. PEL but was given away to M/s. LFFL making them the owner of the product. This is also evident from the fact that ultimately when the right to use this flavour was transferred to M/s. Coco Cola Company in November 1993, the beneficiary was M/s. LFFL and not M/s. PEL. This indicates that L-22L belonged to M/s. LFFL only. The clearances of this flavours (L-22L) during the disputed period are not hit by para 7 of Notification No. 175/86 and 1/93. The value of clearances of this flavours therefore needs to be considered as eligible for the benefit of these notifications. 27.We now consider the allegation that M/s. PEL was not eligible for SSI exemption in the year 92-93. This is based on the charge that when the value of clearances of all the three units are clubbed, the value of clearances of PEL in the previous year i.e. 91-92 cross Rs. 200 lakhs and consequently they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth sides carefully. We agree with the Commissioners findings. The Department's attempt to compare the margin of profit earned by the other two (PEL PIL) with that of LFFL is misplaced. Further, the Department cannot determine the extent to which a business concern should earn his profit. The Commissioner has rightly pointed out that there is no requirement to add the Modvat credit taken on the inputs to the value of the final product. We agree with his finding that the investigation did not reveal the extent to which the manpower belonging to another company was working for LFFL. Above all, we observe that the price at which the flavours were sold by LFFL was not sought to be revised in any accepted and recognized principles of costing. The whole exercise smacks of arbitrariness. For this and the reasons given by the Commissioner we hold that the Department failed to prove under valuation of the products. This charge thus fails. 31.The following position emerges then : (1) The value of clearances of LFFL, PEL and PIL cannot be clubbed together for determining the eligibility to SSI exemption during the years 89-90 to 92-93. Each one of them is a manufacturer in his ow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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