Custom, Excise & Service Tax Tribunal
Philips Electronics India Ltd vs Commissioner Of Customs ,Central ... on 21 October, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE MISC ORDER No.22861-22863 / 2014 Application(s) Involved: E/Stay/27190/2013, E/Stay/27306/2013, E/Stay/27307/2013 in E/26858/2013-DB, E/26985/2013-DB, E/26986/2013-DB Philips Electronics India Ltd 7, Justice Chandra Madhab Road, KOLKATA - 700020 WB Appellant(s) Quad Electronic Solutions India Pvt Ltd 12-50/4a, Adj To Industrial Estate, Medchal RANGA REDDY DIST - AP Appellant(s) Raminder Singh Soin, Managing Director Quad Electronic Solutions India Pvt. Ltd. 12-50/4a, Adj To Industrial Estate, Medchal RANGA REDDY DIST - AP Appellant(s) Versus Commissioner of Customs ,Central Excise and Service Tax HYDERABAD-IV POSNETT BHAWAN, TILAK ROAD, RAMKOTI, HYDERABAD, - 500001 ANDHRA PRADESH Respondent(s)
Appearance:
Mr. K. PRAKASH BABU, Advocate LEVEL 2 'AKASAM' 10-1-17/1/1,MASAB TANK, HYDERABAD - 500004 AP For the Appellant PDS LEGAL 14, MITTAL CHAMBERS, 1ST FLOOR, NARIMAN POINT, MUMBAI-400 021 For the Appellant Mr. Mohd. Yusuf, Addl. Commissioner (AR) For the Respondent CORAM:
HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 21/10/2014 Date of Decision: 21/10/2014 Order Per : B.S.V.MURTHY M/s. Quad Electronic Solutions (India) Pvt. Ltd. (QSP) is engaged in the manufacture of electronic chokes, ballasts (luminous). They manufacture various goods/products to the requirement of communication, networking, instrumentation needed for medical and defence along with the requirement of consumer sector. For the manufactured products in relation to consumer sector, one of their customers is Philips Electronics India Ltd. (Philips). Appellants manufacture various types of ballasts as per Philips technical specifications and drawings and affix their brand name. It is the claim of the appellant that the transaction is on principal to principal basis. After taking up investigation, verification of documents and completion of proceedings, as a result of two show-cause notices issued to the appellants, impugned order has been passed. In the impugned order, differential duty of Rs.11,31,07,522/- has been demanded in respect of the first show-cause notice and Rs.2,18,43,377/- has been demanded in respect of second show-cause notice. Period covered by both the show-cause notices and the impugned order is from February 2007 to February 2012. Besides demanding differential duty from QSP with interest, penalties have been imposed on QSP under Section 11AC of Central Excise Act, 1944 and Rule 26 of Central Excise Rules 2002. Penalties have been imposed on Philips and Mr. Raminder Singh Soin, Managing Director.
2. Heard both the sides. Learned advocate for the appellants submitted that the central excise duty demand has arisen on the ground that Philips and QSP are related persons and this conclusion has been reached on the basis of agreement and also on the basis of the conclusion that the QSP had not been paying any hiring charges for the machinery worth more than Rs.1.06 crores provided to QSP by Philips.
3. We went through the agreement in question, observations of the Commissioner and conclusion reached by him and heard both the sides. We are only considering the stay applications and therefore are only highlighting the important aspects of the issue involved.
3.1 Before we proceed further, it would be appropriate to highlight briefly and explain the salient features of the agreement between the two parties.
(i) Based on the specifications agreed upon and from purchase orders indicating specific quantity and value of the goods manufactured, QSP would manufacture the goods for Philips.
(ii) The finished goods manufactured by QSP will be purchased by Philips on principal to principal basis at mutually agreed prices.
(iii) Philips will be responsible for rendering after sales services.
(iv) Philips or its authorized representatives can undertake control and supervision of the manufacture so that the goods manufactured conform to the design, specifications and quality standards specified by Philips. Process rejections will be deemed rejection on account of QSP and when such rejection / return of the goods is made, QSP has to either replace or rectify the goods free of cost. Intellectual Property Rights relating to the goods shall remain property of Philips and QSP will maintain confidentiality. Know-how, trademarks and technical information also will be the property of Philips.
(v) The price agreed upon will be inclusive of excise duty, sales tax, octroi (if any) and other government and municipality levies.
(vi) The agreement also provides that the value of any tooling, moulds, components and raw materials supplied by Philips shall be taken into account by QSP while arriving at assessable value or transaction value.
(vii) The declaration of assessable value for the purpose of excise duty or for any other levy shall the sole responsibility of QSP.
4. After considering the above salient features of the agreement, the Commissioner has reached the conclusion that the price at which QSP has cleared the goods is not normal price since there is abnormal variation between the price adopted by the QSP and the price at which the goods are sold by Philips in open market and therefore value should be determined under Rule 9 of Valuation Rules, 2000. The first observation against the appellant is that Philips had provided machines on hire basis but the agreement does not provide any quantum of amount to be paid to Philips by QSP and they have not produced any evidence to the effect that they have actually paid the hire charges to Philips. Therefore he has concluded that machinery of more than Rs.1.06 crores have been provided free of cost by Philips. The appellants have countered this by providing sample debit entries for three months made by them in their account in favour of Philips to show that hire charges have actually been paid by them. It is their submission that there is no cash payment since the amounts to be paid towards hire charges have been deducted in the amount payable by Philips. The Commissioner has reached the conclusion that there is mutuality of interest of business between the appellants on this ground in paragraph 23.5 and we find these observations to be not based on facts, we find that appellants has made a prima facie case about relationship and mutuality of interest between the two to determine the value taking a view that both are related parties.
4.1 The second conclusion based on the observation in paragraph 23.6 of the impugned order shows that Commissioner has come to the conclusion that Philips exercises effective control of operation of QSP especially in respect of the goods manufactured and supplied to Philips. Therefore he takes the view that the agreement is not merely for sale and purchase. We are not able to agree with this view. Any manufacturing or a marketing company when they entrust the work of manufacture to another manufacturer using their own design, engineering, drawings, technical know-how, etc., have to necessarily exercise control and supervision over the manufacture undertaken by the manufacturer for them. Just because there is supervision, in our opinion, it cannot be said that the persons are to be considered as related persons. Other points considered by the learned Commissioner also, in our opinion, do not exactly facilitate the conclusion that they are related persons. These are the clause relating to Purchase of Goods which provide that QSP will provide to the suppliers such as spares, components and subassemblies to facilitate Philips providing after sales service; the observation of the Commissioner that Philips have provided ballasts free of cost is not supported by any evidence nor is there any discussion about the same; he has simply relied upon the clause 8 of the agreement which provides that In the event of Philips makes supplies of any components: the event has to take place and there has to be evidence that the event has taken place. On both these issues, there is no supporting evidence cited by the Commissioner in the impugned order; the Commissioner has taken a view that prices are mutually agreed upon also contributes to his observations.
5. After considering all these observations and having looked into the relationship between QSP and Philips, we are not able to sustain the view on a prima facie basis taken by the Commissioner. In view of the above, we consider that the appellants have made out a prima facie case in their favour for complete waiver of pre-deposit. Accordingly, the requirement of pre-deposit is waived and stay against recovery is granted.
(Operative portion of the order has been pronounced in open court) S.K. MOHANTY JUDICIAL MEMBER B.S.V.MURTHY TECHNICAL MEMBER rv 4