Customs, Excise and Gold Tribunal - Delhi
P And B Pharmaceuticals Pvt. Ltd. vs Collector Of C. Ex. on 17 October, 1994
Equivalent citations: 1995(76)ELT616(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. This appeal is directed against the order dated 26-9-1991 issued on 21-10-1991 passed by the Collector of Central Excise, Ahmedabad. The appellants herein manufacturer of Patent or Proprietary medicines falling under Tariff Item 14E prior to 1-3-1986 and thereafter under sub-heading 3003.10 of the Central Excise Tariff Act, 1985. They filed classification and price lists claiming exemption under Notification No. 175/86 as a Small Scale Industries Unit. The Department found that they were affixing a brand name and logo (P/B) which is also the brand name used by one M/s. P & B Laboratories of Bombay who are themselves not eligible for benefit under Notification No. 175/86 as amended by Notification No. 223/87. Another point according to the Department is that the appellants were selling their product Patent or Proprietary medicines to M/s. Pharma Chem Distributors of Bombay with a large price difference as between the assessable value declared by the appellants and the selling price of same goods by M/s. Pharma Chem Distributors of Bombay. As a follow up the Departmental Officer visited the premises of the appellants on 4-1-1990. One Shri K.P. Patel, Director of the Appellant Firm and that of M/s. P & B Laboratories was present. It was found that the M/s. P & B Laboratories are not having the exemption under Notification No. 175/86 since March, 1986 as their clearance value had exceeded 1.5 crores. The brand name P & B is owned by P & B Laboratories of Bombay who marketed their product with the same brand name and logo. The sales of both the units is being done through M/s. Pharma Chem Distributors situated in the same compound and having inter-linking door. The Directors and partners of the three units concerned were found to be related as under :-
_______________________________________________________________________________ S. M/s. P & B Pharm P & B Lab. Pvt. Ltd. M/s. Pharma Chem Dis-
No. Pvt. Ltd. Cambay Bombay, 11 Chakravarty tributors, 11 Chakravarty
(Regd. office 11, Ashok Road, Kandivali Ashok Road,
Chakravarty (East) Bombay Kandivali (East), Bombay
Ashok Road,
Kandivali (East)
Director Director Partner
_______________________________________________________________________________
1. Shri H.P. Patel Mrs. S.H. Patel (w/o Shri H.P. Patel Shri H.P. Patel)
2. Shri K.R Patel Shri K.P. Patel Shri D.K. Patel (s/o Shri K.P. Patel)
3. Shri G.P. Patel Mrs. U.C. Patel (w/o Shri G.P. Patel Shri G.P. Patel) _______________________________________________________________________________ All the Directors of P & B Pharmaceutical Pvt. Ltd. are real brothers. Both the Companies have 10 shareholders common out of 12 only therein, the other two shareholders are related to the Directors in the above Companies as such all the Directors and shareholders in both the companies and partners in the firm were relatives. Shri K.P. Patel on being asked gave a statement under Section 14 of the Central Excises and Salt Act, 1944 that the logo was originally owned by P & B Laboratories but had been transferred to the appellants in 1983, He further stated regarding difference between assessable value declared by the appellants and the sale price of their goods by M/s. Pharma Chem Distributors, that the latter firm was undertaking sales promotions, marketing etc. on behalf of the appellants. In a further follow up, a search was made on 5/6-1-1990 in the premises of the appellants and Pharma Chem Distributors, both at Bombay and certain documents were withdrawn and Patent or Proprietary medicines affixed with the logo P/B manufactured and cleared by the appellants at concessional rate of duty lying in the premises of Pharma Chem Distributors were seized which were later on provisionally released. From the scrutiny of the relevant records and documents, it was found that the logo P/B was being used both by the appellants and by P & B Laboratories. It was further found that P & B Laboratories have made an investment by way of insecured loan to the appellants as indicated in their Balance Sheet for the years 1986-87 and 1985-86 and further loans were given at interest rate below the normal prevailing rates to the appellants in the year ended 31-12-1987. The Department found that both the units, the appellants and the P & B Laboratories are managed by the same management which is evident from the Balance Sheets of the unit for P & B Laboratories for the year ended 31-12-1987 and in Schedule 7 thereof it was stated as under or the sundry amount of Rs. 5,80,783/- "Sundry debits includes amount due from the P & B Pharmaceuticals Pvt. Ltd., Cambay, a company under same management". Similarly in the Balance-sheet of the appellants ended on 30-9-1987 at Schedule 6 thereof, the entry was "Purchased 10 equity shares of Rs. 100/- each of M/s. P & B Pharmaceuticals Pvt. Ltd., Bombay Rs. 1,000/- (a company under same management)". The Department also obtained a statement dated 5-1-1990 of Shri G.M. Govekar, Works Manager in the P & B Laboratories saying that he was having general supervision over production and Central Excise work of P & B Laboratories and that they were not availing of exemption under Notification No. 175/86. He also said that certain medicines were originally manufactured by P & B Laboratories but they were subsequently produced by the appellants as the appellants were a family concern of P & B Laboratories who also continue to use the same logo of their product manufactured and marketed.
In regard to the other units M/s. Pharma Chem Distributors, it was found that they have invested or given fixed deposits to the appellants in connection with their business which has been categorised as unsecured loans in the Balance Sheet of the appellants. There was also evidence in the Balance Sheet of the appellants of the financial interest in them of Pharma Chem Distributors who were also undertaken other activities on behalf of the appellants like advertisement and sale promotion, appointing approximate 100 medical representatives and 4 Area Managers to supervise the work of the representatives in their respective jurisdiction. The Department also gathered the figures spent on sales promotions by Pharma Chem Distributors on behalf of the appellants. They further found that the appellants were despatching the goods to Pharma Chem Distributors in non-marketable condition and these are despatched in consignments of different sizes. At Bombay, in the premises of Pharma Chem Distributors, the goods are being verified, sealed, strapped and made available for marketing in trade packaging. All the expenses for sealing, strapping, packing in cartons or wooden boxes and packing material are borne by Pharma Chem Distributors which the Department feel would have normally being on the manufacturer-appellants. The Department found that the sale is not at arms length because of the large differential in the sale price by Pharma Chem Distributors who are a family concern of the appellants. The Department concluded that in view of the above fact, Pharma Chem Distributors was a favoured buyer of the goods manufactured by the appellants and the appellants sold the goods to them at concessional price of extra commercial consideration, therefore, the sale price of Pharma Chem Distributors should be the price at which excise duty is to be assessed according to the Department. The Department also found that the appellants herein were not eligible for exemp-tion for Small Scale Industries under Notification No. 175/86 as they were using the same logo brand name which is also used by P & B Laboratories who are themselves not eligible for the exemption under notification. Para 7 of Notification No. 175/86 as amended lays down that the exemption contained in the notification will not apply to the specified goods where a manufacturer affixes the specified goods with a brand name or trade name (Registered or not) of another person who is not eligible for the grant of exemption under Notification No. 175/86. Brand name or trade name according to the Explanation VIII to the notification shall mean, a brand name or trade name whether Registered or not that is to say a name or a mark such as monogram label or writing which is used in relation to such specified goods for the purposes indicating connection between the goods and the persons using the brand name or trade name. After issuing of show cause notice and considering the reply thereto and hearing the appellants during which certain persons were also cross-examined, the Collector passed the impugned order holding the appellants ineligible for exemption under Notification No. 175/86 and also that the assessable value of the goods should be fixed at the selling price of the related persons. He confirmed the demand for Rs. 79,67,267.05 under Section 11A of Central Excises and Salt Act, 1944 and held the goods seized to be liable to confiscation and accordingly appropriated the security amount in lieu of confiscation in terms of the bond executed at the time provisional release of the goods. The Collector also imposed personal penalty of Rs. 20 lakhs on the appellants under Rule 173Q of Central Excise Rules, 1944 and [Salt Act, 1944].
2. Shri Paresh M. Dave, the learned Counsel appearing for the appel- lants herein submitted that the demand in this case for the period 1-5-1985 to 31-12-1989 for which the show cause notice has been issued on 12-6-1990, the longer period cannot be invoked. The learned Counsel contended for the reason that even earlier Department had taken up the issue of the relationship between appellants and the Pharma Chem Distributors which had resulted in decision in favour of the appellants. The learned Counsel referred to the order-in-Original No. 1/85 dated 10-5-1985 passed by the Jurisdictional Assistant Collector, wherein the Assistant Collector had approved the price list of the appellants in Part-I holding that Pharma Chem Distributors was not a related person under Section 4 of the Central Excises and Salt Act, 1944. Again another show cause notice was issued on 27-11-1988 for the period 1-7-1986 to 31-12-1987 by the Assistant Collector on the ground that the M/s. Pharma Chem Distributors was favoured buyers and related person. Show cause notice was again issued on 26-7-1988 by the Assistant Collector for the period 1-1-1988 to 30-6-1988 for the same reason. In the subsequent adjudication orders passed on 26-9-1988 and 12-9-1989 on these two show cause notices, the Assistant Collector dropped the charges against the appellants holding that they and Pharma Chem Distributors were not related persons or favoured buyers. The learned Counsel referred to the show cause notice by the Assistant Collector on 27-1-1988 wherein the same grounds that 98-99% of the sales are to Pharma Chem Distributors was noted as well as the price differential in the hands of Pharma Chem Distributors. The show cause notice by the Assistant Collector had also noted the Balance Sheet entries as on 31-3-1985 showing fixed deposits by Pharma Chem Distributors that the appellants as an evidence of extra commercial consideration and of interest in each other's business. The learned Counsel also submitted at one stage the Assistant Collector had referred the matter to his Headquarters and the reply to the reference is also in the appellant's favour. The present show cause notice by the Collector also covers the same ground and the same period during which the Assistant Collector had more than once raised the demand and for the same reason but had dropped them. The learned Counsel submitted that it cannot be said that the Collector's order is based on the fresh evidence which was not before the Assistant Collector. The learned Counsel stated that the Collector's findings that there was no co-relation in respect of each bill is unsound because it is the usal practice of accounts adjustment in trade and in such condition, there may not be Bill to Bill co-relation. The other fresh point said to be taken up by the Collector, is regarding element of cost which can be grouped as marketing expenses. However, the learned Counsel pointed out that the appellants have furnished the details of buyers which was also checked by the Department in 1985-1988 showing incurring of expenses of marketing, the learned Counsel argued when the fundamental issue of whether the appellants and Pharma Chem Distributors were related persons or not has been decided finally by the Assistant Collector and when no appeal is filed against these orders, in such a context, the Department cannot be permitted to take the same plea again and again. The learned Counsel referred to the Civil Code Procedure, 1908 Explanation IV and argued that the bar of res judicata will apply even if the earlier decisions are of an authority subordinate to the Collector. The learned Counsel also submitted that during the period subsequent to the adjudication by the Assistant Collector also, there were various queries by the Department which were answered, audit parties had also gone into the aspect of relationship and Explanation of this question had been given by the appellants. Therefore, there was no deliberate holding back of information by the appellants and in such a situation, the longer period for demanding duty cannot be invoked as has been well-settled by the Supreme Court in the case of Collector of Central Excise v. Chemphar Drugs & Liniments - 1989 (40) E.L.T. 276 . In regard to the charge that the appellants and Pharma Chem Distributors are related persons, the learned Counsel submitted as follows :
In this case, it was submitted certain percentage of factory gate sale is available which is a fact recorded by the Collector in his order while referring to the reply to show cause notice. There is no finding by the Collector that such sales to others, were not genuine sales. The learned Counsel submitted that the goods have been sold to all at the same price and such sales were to the extent of 2% out of their total sale. Therefore, there was no need to determine the question whether the appellants and Pharma Chem Distributors were related persons. It was further contended that the quantum of factory gate sales to others is not material and cited the case law 1977 (1) E.L.T. (J 177) in the case of A.K. Roy and Anr. v. Voltas Limited, 1988 (36) E.L.T. 723 (S.C.) in the case of Indian Oxygen Ltd. v. Collector of Central Excise and 1991 (52) E.L.T. 460 (Tri.) in the case of Fenner (I) Ltd. v. Collector of Central Excise. Further, the learned Counsel submitted that in this case the manufacturing firm is a Private Limited Company and the buyer is the partnership firm and the two are not interested in the business of each other. It is not the case of the Department that the buyer is a dummy of the manufacturer. They cannot be relative because one being a Private Limited Company and the others is a partnership firm. Referring to the Supreme Court decision in the Bombay Tyre International Ltd. etc., [1983 (14) E.L.T. 1896 (S.C)] the learned Counsel pointed out that only that distributors who is a relative, would come under the purview of the related persons. Therefore, the proviso of Section 4(l)(a) of Central Excises and Salt Act, 1944 is not attracted. The case law considered in the Collector's order relating to certain aspects like common Directors etc. for all, is relevant only in a case of clubbing of clearance and they do not have any application in a case under Section 4(l)(a) for the purposes of this Section what has to be established is mutuality of interest. The learned Counsel cited and relied upon the Union of India and Ors. v. Atic Industries Ltd., reported in 1984 (17) E.L.T. 323 (S.C.) and 1988 (35) E.L.T. 8 (S.C.) in the case of Collector of Central Excise, Madras v. T.I. Millers Ltd., Madras and Anr.. In respect of the grounds for denial of exemption under Notification No. 175/86 on account of common trade mark, the learned Counsel contended that P & B Laboratories is a large scale manufacturer and the appellants are a Small Scale Unit. As regards the brand name in 1983, the registration of the brand name and logo was assigned by P & B Laboratories to the appellants. There is a deed in this regard dated 1-7-1984 and application for registration of the trade mark was made on 21-9-1990 and registration order obtained on 24-1-1992. The Collector has not considered the deed of asigning trade mark, pleaded the Counsel. It was further argued that registration is not material for eligibility to the exemption because from the time of the assignment of the trade mark, it become their unregistered brand name which is also covered by the Explanation to the Notification No. 175/86. Registration in that sense, the learned Counsel urged, is a mere formality. He cited the case in the Court of Session in Scotland in the case of Blighty Industries Association Ltd. v. The Scottish Home Industries Association, Ltd. to say that assignment being only the completion of title to a right substantially vested. It was further argued, there cannot be any suppression of facts regarding use of the brand name since classification list was filed alongwith samples of the labels.
3. Shri A.K. Singhal, the learned Departmental Representative submitted that res judicata is not applicable to tax matters and relied upon AIR 1964 S.C. 318; 1981 E.L.T. 328 (Delhi) and 1988 (34) E.L.T. 571 (S.C). Res judicata is not applicable when new facts come to light and proceedings are initiated thereon. Relying upon 1994 (71) E.L.T. 106 (Tri.) in the case of Collector of Customs & Central Excise, Madras v. General Marketing & Mfg. Co. Ltd., the learned Departmental Representative argued that proceedings can be reopened which stands concluded previously in the event of fresh material giving a new dimension to the case come to light. In the present case the Collector has referred to the set of sufficient facts which have come up before him for justifying the present adjudication irrespective of the previous orders of the Assistant Collector. On the question of eligibility to the Notification No. 175/86, the learned Departmental Representative pointed out that the original owner of the logo is not SSI Unit eligible for the exemption. The appellants herein are using the same trade mark as the ineligible manufacturer and are clearly hit by the condition in Para 7 of Notification No. 175/86. As regards the deed of assignment of the trade mark, the learned Departmental Representative submitted that it lacked authenticity, the stamp paper on which it is typed does not bear any date of purchase of the stamp paper and the vendor thereof. Even if it were to be accepted, the learned Departmental Representative argued, the trade marks were still being used by P & B Laboratories even after the transfer. This is further supported by the evidence of the statement of Shri G.M. Govekar about the use of the logo by both the units. The certificate regarding the trade mark also shows renewal thereof after expiry in 1987 which raises the question as to who was the owner of the trade mark meanwhile. On the question of the appellants and the distributor firm are the related persons, the learned Departmental Representative referred to the details evidence in this regard as set out in the Collector's order and chart giving the relationship of each of the partner. The medicines manufactured by the appellants are marked by the common distributors using the same logo by both the manufacturers, there are other features like loans and fix deposit interest free and rate of interest far below the market rates. The two companies are infact one, being managed by the same family and controlled by them. Sales, promotions and other expenses incurred by Pharma Chem Distributors, the learned Departmental Representative pointed out is an additional consideration which has to be borne by the manufacturers. There is the evidence of statement of Shri K.P. Patel saying that the marketing expenses were met from the large discount. This clearly forms an extra consideration for the price. The criterion of mutuality of interest is established and the learned Departmental Representative relied upon the case law 1988 (34) E.L.T. 239 (Tri.) in the case of Prabhat Zarda Factory Limited, Muzaffarpur v. Collector of Central Excise, Patna wherein distributors and manufacturing firms were held to be related. The learned Departmental Representative further stated the case reported in 1987 (29) E.L.T. 523 (Tri.) in the case of Pilco Pharma, Kanpur v. Collector of Central Excise, Kanpur and submitted that on facts that the case is closely comparable of the present case wherein it was held that the goods were to be assessed at the selling price of the distributors which is the related person.
Further case law cited was 1994 (71) E.L.T. 1053 (Tri.) in the case of Peico Electronics and Electricals Ltd. v. Collector of Central Excise, Pune and 1987 (31) E.L.T. 756 (Tri.) in the case of Rakesh Bulb Industries and Ors. to say that two partnership firms with common partner can be held to be related persons and that distributor is a related person. On the aspect of interest free deposit and for the distributor bearing the advertisement expenses, case law reported in 1991 (52) E.L.T. 59 (Tri.) in the case of Collector of Central Excise v. VST Industries and 1988 (35) E.L.T. 354 (Tri.) in the case of Hindustan Photo Films Mfg. Co. Ltd. v. Collector of Central Excise, Coimbatore were cited. Further, the learned Departmental Representative contended, the factory gate sale is at a depressed price and there is no evidence that the other buyers were genuine. The Department also relies upon the statement of Shri G.M. Govekar of this aspect which support the case of the Department that the units are inter connected undertaking. The longer period of demand can be invoked in this case according to the learned Departmental Representative for which he referred to the reasoning in the adjudication order and the point that there was clearly non-disclosure of relevant information regarding their marketing pattern. The seizer of the goods some of which in transit is also against the appellants contention and yet another feature which should be noted according to the learned Departmental Representative is that the manufactured goods were packed for marketing purposes only at the premises of the Pharma Chem Distributors after being removed from the appellants premises.
4. The submissions made by both the sides have been carefully considered. The main charges against the parties are that (1) M/s. P & B Pharmaceuticals Pvt. Ltd., at Cambay; (2) M/s. P & B Laboratories Pvt. Ltd. at Bombay; and (3) M/s. Pharma Chem Distributors are belonging to the different members of one family and thereby the excisable goods, viz., P or P medicines manufactured and removed from the factory of M/s. P & B Pharmaceuticals Pvt. Ltd., Cambay with the Logo "P/B" owned by M/s. P & B Laboratories Pvt. Ltd. of Bombay (not entitled to exemption under Notification No. 175/86-C.E., as amended), were not entitled to concessional rate under the said Notification No. 175/86-C.E., as amended by Notification No. 223/87-C.E.; and that M/s. Pharma Chem Distributors, as stated above, were the "favoured buyers" and "related persons" and therefore the duty of excise was required to be paid on the price at which such "favoured and related buyers" had sold the said excisable goods, subject to deduction of the duty element, local taxes and freight admissible.
The duty of excise evaded on the first ground for the period from 1-10-1987 to 31-12-1989 works out to Rs. 16,00,333.13 P while the same on the second grounds (including the duty on first ground) for the period from 1-5-1985 to 31-12-1989 works out to Rs. 79,47,034.87P.
The evidences brought on record revealed as under :
The directors/partners in the three companies/firms are common or having blood relation with each other as under :
_______________________________________________________________________________ Sr. Directors of M/s. Directors of M/s. P & B Partners of M/s. Pharma No. P&B Pharmaceuti- Laboratories Pvt. Ltd., Chem Distributors,11 cals Pvt. Ltd., Cam- 11, Chakravorty Ashok Chakravorty Ashok bay (Regd. off., 11, Rd., Kandivalli (East), Road, Kandivalli (East), Chakravorty Bombay. Bombay.
Ashok Rd., Kan-
divalli (East), Bombay.
_______________________________________________________________________________
1. Shri H.P. Patel Mrs. S.H. Patel Shri H.P. Patel (w/o Shri H.P. Patel)
2. Shri K.P. Patel Shri K.P. Patel Shri D.K. Patel (s/o Shri K.P. Patel)
3. Shri G.P. Patel Mrs. U.C Patel Shri G.P. Patel (w/o Shri G.P. Patel) _______________________________________________________________________________ (1) S/Shri H.P. Patel, K.P. Patel and G.P. Patel are brothers, while S/Shri H.P. Patel and K.P. Patel are the acting and main persons in dealing with the affairs of all the three companies/firms.
(2) Regarding the use of Logo "P/B" it has been clarified by Shri K.P. Patel, common Director in both the manufacturing companies and Shri H.P. Patel, common Director and partner in company at Cambay and Pharm Chem Distributors, that the same had been transferred to Cambay unit in 1983 but no written documents were made to that effect or available.
(3) The cartons/packing materials with Logo "P/B" were also being used by the Bombay company even t(4) The more common among the common medicines using Logo "P/B" by both the companies were (i) Furrecin Liquid; (ii) Sorbizyme liquid; (iii) San-ga-ree liquid; and (iv) Benicort Oral Drops.
(5) The medicines of both the companies were marketed by M/s. Pharm Chem Distributors, Bombay.
(6) (i) The Bombay Company has made investment by way of unsecured loan to the company at Cambay to the tune of Rs. 2,43,443.00 (Balance-Sheet 1986-87 ended on 30-9-1987); Rs. 7,26,146.00 (Balance-sheet 1985-86 ended on 30-9-1986) at the interest of 12%/15% PA. i.e. below the normal prevailing rate of 18%.
(ii) The Director of Company at Cambay made investment in Bombay company by deposit to the tune of Rs. 3,94,714.00 (in 1986 ended on 31-12-1986) and Rs. 4,49,011/- (in 1987 ended on 31-12-1987).
(iii) M/s. Pharm Chem Distributors (where two partners out of three, are Directors of Bombay and Cambay companies) has deposited with Cambay company an amount of Rs. 10 lakh from March, 1985 to March, 1986 interest free and Rs. 15 lakh from April, 1986 to June, 1987 and then continued the same at 12% interest; i.e. lower rate than the prevailing in the market on unsecured loans. Likewise, the said firm has made investment by interest free deposit of Rs. 10 lakh for the year ending 31-12-1986 and 31-12-1987 and continued thereafter.
(iv) The Bombay Company and Cambay Company are commonly managed by the common Director, Shri K.P. Patel.
(v) M/s. Pharm Chem Distributors, Bombay have undertaken following activities on behalf of Cambay company :
(A) Advertisement and sales promotion of products for which (a) they have appointed approximately 100 representatives and Area Managers, who are paid employees and being paid commission also; (b) they have advertised the products in Newspapers, News Bulletins, through literature, brochures, Magazines, Medical Journals, Calenders, etc.; (c) they have appointed over 150 stockists all over the country, who are given the discount at the rate of 9% of retailers' price; (d) they have also introduced free goods scheme for stockists, for which the payment is made to the company at Cam-bay but the goods are supplied only on recovery of excise duty paid thereon. Likewise the free gift articles are also offered on behalf of the company at Cambay; (e) they are providing free transport from their premises to the stockists premises; (f) they have also incurred expenses on printing of stationery, viz. visiting cards for Representatives, Area Managers and Sales-Executives, letter-heads covers, inland letters, literature for medicines, files, greeting cards, daily reports on behalf of company at Cambay; (g) the goods received in open/unmarketable condition are packed by them (M/s Pharma Chem) and strapped with the tapes generally bearing the name of M/s. Pharm Chem.
It has been contended by the appellants that the question of whether the appellants, herein, and Pharm Chem Distributors are favoured buyers and related persons, has been gone into thrice by the jurisdictional Assistant Collector and have resulted in findings in favour of the appellants. In such circumstances, the department having not challenged those orders, cannot seek to disturb the position through adjudication order by the Collector now. The principle of res judicata would operate. The arguments against invoking the longer period for demanding the duty under Section 11A of the Central Excises and Salt Act, 1944 are also on same lines. However, the Revenue has contended that the present adjudication order invoking the longer period for demand is valid because fresh facts have come to light which were not there before the Assistant Collectors when they passed the orders. Examining these contentions, it is found that the first order of the Assistant Collector, which is relied upon Order-in-Original No. 01/85 dated 10-5-1985. A perusal of the order shows that it arose out of a price list 56/84-85 submitted by the appellants. The department issued a show cause notice seeking to adopt the sale price of M/s. Pharm Chem Distributors as the assessable value treating Pharm Chem Distributors as related persons. The main contentions, in reply, were that there are sales to independent buyers other than M/s. Pharm Chem Distributors. All the sales, including Pharm Chem Distributors, are at factory gate at the same price and that there was no mutuality of interest in each others business. The Assistant Collector took the view that since the appellants are a private limited company and M/s. Pharm Chem Distributors are a partnership firm, they cannot be held to be a related person. He, further, observed that "Further the notice alleges that the assessee and M/s. Pharm Chem of Bombay have substantial mutual interest in each other's business but I find that no evidence has been led to bring home the said allegation either in the form of document or in any other manner. In absence of such an evidence, I find enough force in the submission of the assessee that the allegation is merely a presumption and that no evidence has been disclosed in support of the said presumption in the notice which was squarely a burden cast on the Department." The Assistant Collector also observed that there is nothing on record to conclude that both the parties are so associated in business as to have interest in the business of each other. He also, further, observed that there does not appear to exist any financial or managerial association and interest in the business among the parties. Accordingly, the Assistant Collector held that M/s. Pharm Chem Distributors cannot be treated as related person of the appellants. The subsequent orders of the Assistant Collectors dated 26-9-1988 and 12-9-1989 have, accordingly, followed the order No. 1/85 to hold that the appellants M/s. Pharm Chem Distributors cannot be treated as related persons. But in these orders there is no discussion on the evidence set out in the show cause notice. The evidence mentioned in the show cause notice is that 98% to 99% of the products manufactured by the appellants are sold to M/s. Pharm Chem Distributors. There is 100% margin between the prices charged to duty of excise and the retail price for the consumers, and the price at which the goods are sold by the appellants to M/s. Pharm Chem Distributors are extremely low. The show cause notice also referred to the fact that the Directors of the appellants and partners of M/s. Pharm Chem Distributors were close relations. It was also alleged that as per the Balance-Sheet as on 31-3-1985 of M/s Pharm Chem Distributors there were assets of fixed deposits for previous year and for the current year with the appellants indicative of the interest in the business of each other. A perusal of the records, as above, would show that while Order No. 1/85 of the Assistant Collector noted absence of documentary evidence to establish mutuality of interest, the subsequent orders of the Assistant Collectors merely followed that order without, in any way, discussing the evidence of such mutuality of interest set out in the show cause notice. In this background, the present show cause notice issued by the Collector will have to be seen to find out whether the present show cause notice also traverses the same ground or whether it is based on fresh evidence not before the Assistant Collector.
In this context, the show cause notice dated 12-6-1990 issued by the Collector would show that the Departmental Officers had visited the premises of P&B Laboratories on enquiry about wrong availing of the exemption under Notification 175/86 by appellants and also regarding their assessable value being low. It is for the first time in the proceedings before the Collector that the wrong availing of the exemption by the appellants by use of a common trade mark of P&B Laboratories who were themselves ineligible for the exemption came to light and alongwith these investigations further fresh evidence regarding assessable value, which was not all before the Assistant Collectors, were also discovered. These were in the nature of financial tie-up between the appellants and M/s. Pharm Chem Distributors and the latter undertaking marketing costs of the appellants' products as well as the fact that the goods were cleared from the appellants' factory and latter repacked for marketing by the Pharm Chem Distributors at Bombay. In this context, there is also the other evidence of the interception and seizure of a truck on 9-2-1990 by the Department while on its way to Bombay from the appellants' premises. The truck contained medicines manufactured by the appellants in cartons, but these cartons did not have any marking or writing and were not sealed or strapped. This goes to support the allegation of Department that the further sealing and strapping of the goods for marketing is done by M/s. Pharm Chem Distributors. There were also evidence of the statements of the Directors/Partners of the appellants and M/s. Pharm Chem Distributors as well as their employees stating that the price differential was being used to finance the marketing and sales promotion of the appellants' product. It is, in the above setting that the plea of the appellants that the present proceedings by Collector is hit by res judicata, has to be seen and considering the fresh evidence that has come for consideration before the Collector in the present proceedings and the circumstances in which the proceedings originated, the plea in this regard by the appellants does not have much force. So also on the question of limitation, the evidence relating to use of common Logo with P&B Laboratories have been revealed only on investigation and not expressly declared by the appellants so also in the case of marketing and sales promotion activities M/s. Pharm Chem Distributors and the mode of financing it. As has been observed by the Supreme Court in the case of Elson Machines Pvt. Ltd. v. Collector of Central Excise - 1988 (38) E.L.T. 571 (S.C.) that "Plainly there can be no estoppel against the law. The claim raised before us is a claim based on the legal effect of a provision of law and, therefore, this contention must be rejected." In such a view of the matter, when it is seen that the expenses regarding advertisement, marketing & sales promotion had not at all been considered in the previous proceedings, these can be rightly considered as fresh facts before the Collector for adjudication. On the question of whether the appellants and M/s. Pharm Chem Distributors were related persons or that they were favoured buyers, the factual setting has been given by the Collector in appeal in his order. The three Directors of the appellants are brothers and two out of the three are also partners in M/s. Pharm Chem Distributors and the 3rd in that firm is only the son of the Director, Sh. K.P. Patel of the appellants. The fact that there were financial flow back between the two firms is also brought out in the evidence. Besides, the distributing firm has undertaken the marketing and sales promotion for the products of the appellants, 99% of which are sold to them which means that the appellants have said so arranged that they generally sell their goods only through M/s. Pharm Chem Distributors, which satisfied proviso under Section 4(l)(a) of the Central Excises & Salt Act, 1944.
Further, Shri K.P. Patel, who is a common Director of both the appellants and P&B Laboratories and whose son is the 3rd partner in the distributing firm, in a statement of 4-1-1990 said whatever expenses M/s. Pharm Chem Distributors had undertaken in terms of sales promotion activity were being met from the quantity of discount given to M/s. Pharm Chem Distributors by the appellants for selling their products. This has been, further, confirmed by the statement of Shri Govekar, who is the Works Manager in P&B Laboratories and there is an evidence of the Balance-Sheet of these two firms to say that P&B Laboratories and the appellants are under a common management as has been brought out in the Collector's order. In such circumstances, the financial transactions between the appellants and the distributing firm have also to be viewed. M/s. Pharm Chem Distributors had invested or given fixed deposit to the appellants in connection with their business which has been categorised as unsecured loan in the Balance-Sheet of the appellants. In 1985-86 and 1986-87, amounts to the extent of Rs. 10 lakh in each year have been invested as such fixed deposit interest-free for no obvious reasons. In 1987-88 and 1988-89, a sum of Rs. 15 lakh in each year had been deposited as fixed deposit either interest free or at rates of interest much below the prevailing rate of about 18% whereas the rate of interest charged was also 12%. In such a set up of facts, the reliance placed by the 1d. D.R. on the decision of the Tribunal in the case of Pilco Pharma v. Collector of Central Excise - 1987 (29) E.L.T. 523 (Tribunal) is well-founded. There the Tribunal had held that in similar circumstances, that the distributing firm undertaking advertisement and publicity activity is a related person, and observed that advertisement and publicity are activities which rightly belong to the manufacturers as they make the goods marketable and promote their sales. The Tribunal, further, observed that on that ground the Supreme Court had held that advertisement expenses are includible in the assessable value in the Bombay Tyre International case. In coming to these decisions, the Tribunal drew strength from the Supreme Court decision in the case of Mohanlal Manganlal Bhavsar v. Union of India - 1986 (23) E.L.T. 3 (S.C.). In that case there were two separate partnership firms - the manufacturing firm and the chief distributing firm, the three partners of the manufacturing firms along-with a son of each of them were also the partners of chief distributing firm. From this fact, the Supreme Court observed that there was "identity of interest" between the two firms. In such circumstances, the Supreme Court concluded that the two firms could not be said to be at arm's length or independent parties and the price at which the goods were sold by the manufacturing firm to the distributing firm could not be taken to be the real value of the goods. The ratio of the above decision of the Tribunal, which follows Supreme Court decision, as cited above, are fully applicable to the present case. Therefore, the Collector is right in holding that the price at which the appellants sell their goods to M/s. Pharm Chem Distributors cannot be treated as assessable value and that it should be determined on the basis of the price at which the goods are sold by the distributors. However, the appellants, herein, at one stage before the Tribunal, had submitted that the department has demanded duty not only on the difference of price between price at Cambay and Bombay, but has by an error arrived at the assessable value by deducting only the amount of duty paid at Cambay. According to the appellants there is a need for correct calculation of duty by arriving at the correct assessable value at the hands of M/s. Pharm Chem Distributors at Bombay. They have also referred to the detailed working on the basis of actual figures of assessable value in an affidavit dated 31-1-1992 before the Tribunal. This is, however, a matter of detail which can reasonably be looked into by the Collector. The assessable value should be determined on the basis of the sale price at the hands of M/s. Pharm Chem Distributors, but in arriving at such assessable value permissible deductions as per law, have to be made. If there is any error, the appellants may be given an opportunity to put-forth their point before the Collector who may examine whether there is a case for such re-determination or not.
In respect of the eligibility of the appellants for the Notification 175/86, the evidence on record clearly shows that Logo and trade name was being used in respect of four medicines produced by the appellants and M/s. P&B Laboratories even at the time or seizure in this case which took place in 1990 although the appellants' claim is that from February, 1984 they have been using the trade mark and Logo. They have also produced certain documents such as registration from the trade mark authorities assigning the trade mark to them but the fact remains that there were material evidence by way of seizure of goods manufactured by M/s. P&B Laboratories bearing the same Logo much after the alleged transfer of trade mark to the appellants. The connected fact that the appellants and P&B Laboratories are under a common management as reflected in the Balance-Sheet of the appellants would also go to support the case of the Department that the appellants were using the trade mark of P&B Laboratories who are themselves not eligible for exemption under Notification No. 175/86.There is the evidence by way of statement of Sh. Govekar, who is an employee of P&B Laboratories who had said in his statement dated 5-1-1990 that both the units were using the same logo, being the family concern and he also produced a batch production sheet to show such use of common Logo by both the units. In this context the terms of para 7 of Notification No. 175/86, as amended by Notification No. 223/87 dated 22-9-1987 have to be considered. This para lays down that exemption contained in Notification shall not apply to the goods where the manufacturer affixed the goods with brand name or trade name (registered or not) of another person who is not eligible for the exemption under the notification. Explanation VIII to the Notification has defined brand name or trade name to mean brand name trade name whether registered or not that is to say the name or a mark such as symbol, monogram, label etc., which is used in relation to such goods for the purpose of indicating a connection in the course of trade between the goods and some person using such name or mark with or without any indication of the identity of that person. The above definition has wide scope covering any Logo or symbol or monogram which is used by another person and in this wide sense, the use of the same Logo P/B by the appellants when it was also being used by the P&B Laboratories who are ineligible for the exemption can, therefore, be a valid ground for denying the exemption to the appellants in terms of para 7 of Notification 175/86. The Collector's order in this regard is, therefore, up-held. However, having regard to the circumstances of the case and the duty involved, some relief in the matter of personal penalty can reasonably be given which is, accordingly, reduced to Rs. 15 lakh. The appeal is disposed of in the above terms. The Misc. applications also stand disposed of.