Customs, Excise and Gold Tribunal - Delhi
Pepsi Foods (P) Ltd. vs Collector Of Central Excise on 23 October, 1992
Equivalent citations: 1993(64)ELT426(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. The dispute relates to whether the assessable value of the goods sold by the appellants to M/s. Voltas under a marketing agreement should be on the basis of the price at which M/s. Voltas sell to their dealers.
2. The facts in brief are that the appellants M/s. Pepsi Foods (P) Ltd. are engaged in the manufacture of Potato chips and cheetes corn savoury food products. They sell their goods through their main distributor namely M/s. Voltas under a distributorship agreement. M/s. Voltas have 24% of the shares in the appellants' company. The appellants do not have any share in M/s. Voltas. They have filed price lists under Part I. A show cause notice was issued proposing to approve the price list under Part IV on the ground that M/s. Voltas are the related persons of the appellants. On receipt of the reply, the authorities below confirmed the proposal made in the show cause notice and rejected the plea of the appellants that M/s. Voltas are not the related persons. Hence, the appeal before us.
3. The Collector held that, "The sale of the Pepsi products is based on the distribution system of Voltas, if this is an inefficient one, then it definitely adversely affects Pepsi and the same holds true conversely. Therefore, to argue that interest can be gauged on merely percentage of share holdings of each other firm would be too restrictive a view on the term of related person".
He also held that the appellants manufacture goods as dicated by M/s. Voltas Ltd. in terms of quality, specifications, brand names, valuation and complete marketing. Therefore, there is thus a mutuality of interest between the appellants and M/s. Voltas Ltd.
4. The main contention of Shri Laxmikumaran is that the dispute is covered by the judgment of the Supreme Court in Atic Industries case [1984 (17) E.L.T. 323 (S.C.)]. Secondly, the agreement between the appellants and M/s. Voltas is a simple distributorship agreement and the sale is on principal to principal basis. He has referred to various clauses of the agreement and submitted that M/s. Voltas are free to establish its own resale prices to its stockists and they are even entitled to resell the goods at a price lower than the resale prices, though the maximum retail prices for the products to the end-consumer is to be established after consultation with Voltas. The fact that under clause 8.1 of the agreement, M/s. Voltas have undertaken the marketing responsibility of the product does not in any way detract the agreement from being on principal to principal basis, in view of the judgment of the Supreme Court in Voltas and the judgment of the Bombay High Court in Mahindra & Mahindra case [1984 (16) E.L.T. 76 (Bom.)] which was confirmed by the Division Bench of the same High Court. Merely because under the agreement, certain services are to be rendered by the distributor to the consumer, the sale, if it is a commercial price does not cease to be a sale in the wholesale trade. If as a result of increasing the business of wholesale, the demand for the product of manufacture also increases, the advertising by the wholeseller cannot be said to be far and on behalf of the manufacturer. In support of this contention, he relied on a judgment of the Madras High Court in Standard Electric Appliances v. Superintendent 1986 (23) E.L.T. 302. He next contended that the fact that the entire production was marketed through M/s. Voltas is not relevant in determining whether M/s. Voltas are related persons. In Support of the said agrument, he relied on an order in the case of Escorts Tractors ltd. v. Collector [1993 (64) E.L.T. 18 (Del.)]. The appellant as well as M/s. Voltas are limited companies. Therefore, the fact that M/s. Voltas have 24% shares in the appellants' company, it cannot be said that the appellant has an interest in the business carried on by Voltas. C.C.E. v. T.I. Millers -1988 (35) E.L.T. 8 (S.C.).
5. Shri Prabhat Kumar appearing for the department contended referring to caluse 3.2 that the appellants are to sell the entire production of M/s. Voltas during currency of the agreement. Referring to clause 3.3, he submitted that it prohibits Voltas from manufacturing any product similar to the product of the appellants and under clause 3.32 M/s. Voltas are prohibited from marketing products similar to the appellants' product manufactured by any third party. Clause 10 provides for payment of compensation in case of direct sales by the appellants to the customer. The above clauses of the agreement indicate that the appellants have an indirect interest in the promotion of sales of M/s. Voltas and therefore, the agreement is not from principal to principal basis. The restrictive clauses created an interest in M/s. Voltas. The agreement is tainted with additional consideration in the form of restrictive convenants. In support of his contention, he relied upon the order of this Tribunal in Prabhat Zarda factory Ltd. v. Collector [1.988 (34) E.L.T. 239], Ashok Leyland v. Govt. of India [1987 (30) E.L.T. 281], Television Factory, Solan v. C.C.E. [1986 (26) E.L.T. 317], Pilky Footwear Co., Ltd. v. U.O.I. [1980 (6) E.L:T. 338], Nagpal Petro-Chemicals [1979 (4) E.L.T. J 117], Ahnedabad Manufacturers v. Collector [1982 (10) E.L.T. 821].
6. He also referred to clause 8.1 of the agreement under which M/s. Voltas have to undertake the marketing obligations and submitted that in view of which the appellants should be treated as a related persons of M/s. Voltas.
7. The question therefore is whether the appellants are related person of M/s. Voltas.
8. The expression related person' has been defined under Section 4(4) (c) and it reads as follows :
Section 4(4)(c) " "related person" 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."
9. Part I of the definition is relevant as the other parts of the definition are not attracted to the facts of the case. According to Part I, a person should be associated with the assessee that they have interest directly or indirectly in the business of each other.
10. The Supreme Court in U.O.I. v. Atic Industries (supra) had an occasion to consider the scope of the first part of the definition of 'related person' i.e. mutuality of interest under exactly similar circumstances. We may briefly refer to the facts of the said case.
11. The share capital of the assessee i.e. M/s. Atic Industries is held by two limited companies - Atul Products Ltd. having 50% while the remaining 50% of the share capital is held by Imperial Chemical Industries Ltd., London. The assessee sold large bulk dyes manufactured by it in wholesale to Atul Products and Imperial Chemical Industries Ltd. at uniform prices and these wholesale buyers in turn sold to dealers and consumers. As a result of the policy of the Govt. of India, there was a reorganisation of the Imperial Chemical Industries Ltd., London and the Shares were acquired by the Indian Company of the name of Crescent Dyes. The share capital held by Indian Company continued to be the same. The appellants continued to sell their goods through the Indian Company.
12. The Department issued a show cause notice proposing to treat M/s. Atul Products and Crescent Dyes as 'related persons' of the assessee. The matter went upto the Supreme Court. The Supreme Court held that:
"There are two points of view from which the relationship between the assessee and Atul Products Ltd. may be considered. First, it may be noted that Atul Products Ltd. is a shareholder of the assessee to the extent of 50 per cent of the share capital. But we fail to see how it can be said that a limited company has any interest, direct or indirect, in the business carried on by one of its shareholders, even though the shareholding of such shareholder may be 50% ."
13. The facts of the present case are exactly on all fours with the judgment of the Supreme Court in Atic Industries. The fact that M/s. Voltas have 24% of the shares in the assessee company indicates that M/s. Voltas has undoubtedly an interest in the business of the assessee but the converse is not true. In the words of Supreme Court, the fact that M/s. Voltas has 24% shares held in the assessee, does not automatically follow that assessee has an interest in the business carried on by one of its shareholders. Therefore, we agree with Sh. Laxmikumaran that the facts of the present case are covered by the judgment of the Supreme Court in Atic Industries case.
14. We now consider the arguments advanced by Sh. Prabhat Kumar.
15. The argument of Sh. Prabhat Kumar is that the clauses of the agreement impose a restriction on its shareholders from dealing in similar goods of any other manufacturer and that the entire production is sold to its shareholders and that M/s. Voltas deal with entire advertisement activities of the appellants' product which indirectly creates an interest in the business carried on by the shareholder.
16. Let us examine the clauses of the agreement in the light of the decided cases. Before we refer to clauses relied upon by Sh. Prabhat Kumar imposing restrictive convenants on M/s. Voltas, we may refer to the clauses of the agreement in general.
17. M/s. Voltas are appointed as exclusive marketer for a period of 10 years. Under the agreement, M/s. Voltas are free to appoint their own stockists, dealers who are responsible to M/s. Voltas and not to the appellants. The trade mark is the exclusive property of the appellants under which the goods are to be sold. The get up in the appearance of the product is settled in collaboration with Voltas by the appellants, keeping in view the market strategy. The maximum retail price is to be fixed after consultation with M/s. Voltas by the appellants. M/s. Voltas have to provide information relating to the prices quoted by the competitors for similar products. The appellant may revise such maximum retail price by adequate notice in writing to M/s. Voltas. The prices at which products are sold by the appellant to M/s. Voltas are to be established by mutual agreement. The appellant may offer special reduced prices where such a step is necessary to maximise turnover. Clause 7.3 provides that Voltas will be free to establish its own resale prices to its stockists or others in the distribution channel and shall be at liberty to sell the products at prices lower than the resell prices so established. Clause 8 of the agreement imposes the responsibility of marketing on M/s. Voltas. M/s. Voltas have to aggressively pursue, on a continuing basis, the promotion, sale, distribution and availability of the products throughout the territory. In the case of direct sales by the appellants, M/s. Voltas are entitled for payment of compensation for such sales by the appellants to the consumers.
18. The most important clause of the agreement is clause 7.3 under which Voltas are free to sell the goods at a price lower than the prices established by mutual agreement under clause 7.1. In other words, Voltas are at liberty to sell the goods at prices lower than the retail price fixed by the appellants, in consultation with them, which indicates that M/s. Voltas are owners of the goods sold to them and they may deal with the goods in their discretion and it is none of the concern of the appellants at what prices the goods are sold. The fixation of resell price in consultation with Voltas is only to protect the interest of the manufacturer as he may not suffer any set back in the market on account of retail price being very high.
19. Let us now take up the argument of Sh. Prabhat Kumar. Similar argument was considered by the Supreme Court in Atic Industries v. H. Dave 11978 (2) E.L.T. 444]. We may briefly refer to the facts of the case. The appellants sold the entire products of dye stocks to wholesale dealers, namely I.C.I. (India) Ltd. and Atul under respective agreements entered into by them. 70% of the dye stocks manufactured by them were sold to I.C.I, while the remaining 30% to Atul. The High Court held that, "since no independent buyer could purchase the dye stock in wholesale market at or near the place of manufacture, so as to attract the applicability of the first part of Section 4(a), they are favoured buyers". The Supreme Court while setting aside the judgment of the High Court, upheld the price at which Atic sold to I.C.I, and Atul, as the normal price, observed;
"It did not make any difference that the wholesale dealings of the appellants were confined exclusively to 1CI and Atul and apart from these two, no independent buyer could purchase the dye stocks in wholesale from the appellants."
20. We may also refer to a judgment of the Bombay High Court in Mahindra & Mahindra Ltd. (supra) where the international tractor company appointed M/s. Voltas as their sole distributors and the High Court held that price at which the tractors were sold by the International Tractor Company to Voltas as the normal price under Section 4(1 )(a). While holding so, it was observed, "merely executing an agreement for distributorship, between the petitioners and the Voltas, Petitioner cannot be treated as 'related person'. Whether a distributor falls within the definition of a 'related person' or not depends on the real substance of the transaction between the manufacturer and the distributor. If the distributor buys the goods and the price was the sole consideration for the sale and the transaction was at arm's length, he cannot be categorised as a "related person".
21. The argument of the department that since M/s. Voltas have undertaken the activity of advertisement on behalf of the manufacturer, he should be treated as a related person was rejected and observed that the conditions requiring Voltas to set up sales organisation and to provide after-sale-service are the usual conditions provided in the agreement with the wholesale buyer.
22. The above judgment was confirmed by a Division Bench of the same High Court.
23. In Escorts Tractors v. U.O.I. [30 ECR 26], M/s. Escorts Tractors Ltd. entered into an agreement with Escorts Ltd. under which entire production was marketed through Escorts Ltd. A price list was filed for the determination of the assessable value based on ex-works price of Rs. 26,544.30 per unit as fixed by the Ministry of Food & Agriculture...less uniform trade discount on all tractors Rs. 1750 per Unit. Out of the said discount a sum of Rs. 1000 was paid by Escorts Ltd. to dealers and a sum of Rs 750 per Unit was retained by it solely to meet the expense for sale, distribution, advertising and servicing the tractors. The department proposed to add Rs. 750 to the assessable value of the tractors. The High Court while holding that the appellants are entitled to the deduction of Rs 750 observed that even it be the case of the respondent that the entire production of the petitioner is marketed through M/s. Escorts Ltd. even then the department cannot include the sum of Rs. 750/- retained by the distributor to the value of the goods sold through them. We may also point out that under the agreement Escorts Ltd. were to undertake sale promotion, distribution, and servicing of the tractors manufactured by the Escorts Tractors Ltd.
24. The Supreme Court in T.I. Millers case (supra) were considering a case of common distributor to subsidiary as well as holding company. Under the agreement, the distributor was prohibited to deal with competitors' goods and they were to get mark up for covering their expenses for advertisement and also to maintain showrooms of sub-dealers. The Supreme Court held that they cannot be treated as "related persons" even if a major portion of the sales has been effected by the manufacturer through the distributor.
25. The Madras High Court in Standard Electric Appliances v. Superintendent (supra) held that the appellants were not "related person" of M/s. Philips (India) to whom they were selling 90% of the goods at a lower price than the price at which they were selling to retailers and where Philips were undertaking advertisement and commissioning of the manufactured goods. From the above, it follows that the fact that the manufacturer sells the entire production to the marketing distributor is not a relevant criteria for determining whether the manufacturer is a "related person" of distributor, provided the sale is at arm's length and the price is not influenced by extra-commercial considerations, as it does not establish mutuality of interest between the manufacturer and the distributor. Similarly, the fact that the distributor is prevented from undertaking the marketing of competitor's goods is also not the criteria for establishing mutuality of interest between the manufacturer and the distributor. The fact that the marketing assessment is the responsibility of the organization is not relevant in determining whether there is a mutuality of interest between the manufacturer and the distributor.
26. The argument of Shri Prabhat Kumar is that by virtue of restrictive clauses, an interest is created in M/s. Voltas. It is not clear how the restrictive covenants created under the agreement an interest in M/s. Voltas. These are normal commercial covenants to safeguard the interests of the manufacturer in the goods and these clauses cannot be said to create an interest in the distributor.
27. Let us now examine the authorities relied upon by Shri Prabhat Kumar in support of his contention that the restrictive clauses create an interest in the business carried on by the shareholder distributor.
28. In the case of Ashak Leyland (supra), the agreement is between the manufacturer and the dealer and the dealer is restricted to sell the goods in a particular territory. The Court held that restrictive territory would make it a distributorship agreement. We do not know how it supports the argument of Revenue. On the other hand, prohibition imposed on the dealer to deal with competitors' goods is held to be in the interest of the manufacturer. Similarly, the right to advertise given to the dealer is in the interest of the dealer.
29. In Pilky Footwear Co. (P) Ltd. v. U.O.I. [1980 (6) E.L.T. 338], the Bombay High Court on facts of the case held that the assessee is an agent of Bata Shoe Company. In our view, this judgment is irrelevant to the facts of the present case.
30. We may now refer to the order of this Tribunal in Televison Factory v. Collector (supra). The facts relevant are : M/s. ECIL entered into an agreement with Television Factory. It provides for transfer of technology and know-how and shows a very close collaboration with ECIL paying a major role to ensure proper standards in the activities of M/s. Television Factory. This Tribunal held that the manufacture of television is on behalf of ECIL. No reasons were given as to which part of Section 4(4)(c) is attracted. They have not categorically stated that it is an agency agreement. On the other hand, they said since the property continues to vest in ECIL, there is no sale between the Television Factory and ECIL. If that is so, then it should be a case of an agreement of agency and is not covered by Section 4(4)(c).
31. Having regard to the facts and circumstances of that case, it was held that the relationship between the ECIL and Television Factory is one of principal and agent. The order referred to above is not relevant as it is nobody's case that the appellant is an agent of M/s. Voltas or vice versa.
32. The next order relied upon by Shri Prabhat Kumar is Prabhat Zarda Factory v. Collector (supra). The relevant facts are : The appellants prior to incorporation were a partnership firm manufacturing branded chewing tobacco. M/s. Ratna Zarda Supply Company another partnership concern was their sole selling agent. Seven out of eleven partners of Ratna were related to one or the other of eight out of nine partners of Prabhat Zarda. The case of the department is that Ratna was a related person of Prabhat Zarda because of mutuality of interest between the two. This Tribunal held that, "as many as 7 partners of Ratna out of the total of 11 were related to 8 out of total of 9 partners of Prabhat. 'The partners having 80% interest together in Ratna were related to partners of Prabhat having together 84/85% interest in Prabhat. With such predominant inter-relationship among the two partners of the two firms, the conclusion is obvious that Ratna, the distributor firm, was a relative of Prabhat, the manufacturing firm. In other words, the Ratna was both a relative and a distributor within the second part of the definition of Section 4(4)(c)". From the above, it is clear that the said case is irrelevant to the facts of the present case. Prabhat Zarda is a relative and distributor falling within the third part of the definition of 'related persons' under Section 4(4)(c) whereas in the present case, the appellant and the distributor are two limited companies. Therefore, the question of relative and distributor does not arise. The only question for consideration is whether the agreement creates any mutuality of interest between the appellant and M/s. Voltas. Therefore, we are of the view that Prabhat Zarda Factory is irrelevant in the facts of the present case.
33. In Nagpal Petro-Chemical Ltd. v. AC. [1979 (4) E.L.T. 170 ] it was held that, "a person cannot be treated as a related person merely because bulk of slaes are made to him. The true test for determining a person as 'related person' is whether the sales effected to that person by the manufacturer are favourable or on advantageous terms on account of extra-commercial considerations."
34. It is not the case of the department that the fact that the Voltas have undertaken the responsibility of marketing the entire product, the price at which the goods are sold to them by the assessee is depressed. On the other hand, the clauses in the agreement indicate that M/s. Voltas has to provide the information relating to the competitors' product and on the basis of which the price is fixed by mutual agreement.
35. Therefore, on a reading of the agreement, no inference can be drawn that it creates a mutuality of interest between the appellant and M/s. Voltas.
36. We, therefore, allow the appeal and set aside the impugned order of the Collector.
P.C. Jain, Member (T)
37. I regret to disagree with the order proposed by my learned sister. My order is as follows :-
38.0 Question is whether the appellants herein and M/s. Voltas Ltd. to whom the goods are sold by the appellants are 'related persons' in terms of Section 4(4)(c) of the Central Excises and Salt Act, 1944.
38.1 Voltas Ltd. having a share-holding to the extent of 24% in the appellant company has an interest in the business of the latter, as a shareholder. Learned advocate for the appellants urges that the appellants do not have any interest in the business of Voltas Ltd. Thus, for lack of mutuality of interest in the business of each other, the two companies appellants and Voltas Ltd. - cannot be treated as "related persons" within the scope of definition of that expression under Section 4(4)(c) supra. A good number of citations, well discussed by my learned sister in her order have been cited in support of the above proposition.
38.2 One odd fact which is peculiar to this case, and either not present in any of the cases cited by the learned advocate or not noticed by the judgments - which change the complexion of the case in my view.
38.3 That fact, which is admitted on record (Clause 4 of the agreement) as well as during the course of hearing, is that appellants sell the goods of their own 'brand name'or 'trade mark' to Voltas Ltd. who are exclusive marketers of the goods. Interest in the business of Voltas in the excisable goods sold by the appellants becomes vital to the latter. Better the business of the Voltas, greater is the goodwill in the trade mark of the appellant company's goods in question. I am, therefore, of the view that the appellants also have an interest in the business of Voltas. It is in the above context that 'efficiency' in distribution system of Voltas, referred to by the lower appellate authority in the impugned order, is an important finding on the aspect of interest of the appellants in the business of the Voltas Ltd. I would, therefore, hold that the two companies are related. I may make it clear that it is the cumulative effect of the two factors i.e. (1) sale of the goods by the appellant company having its own brand name/Trade Mark and (2) exclusive marketing of such goods through an exclusive marketer -Voltas Ltd. which has led me to the above conclusion.
39. Appeal is, therefore, disallowed.
Sd/-
(P.C. Jain) Member (T)
40. In view of the difference of opinion the papers are placed before the President for making reference to a third Member.
"Whether on the facts and circumstances of the case, the assessee is a related person of M/s. Voltas within the meaning of Section 4(4)(c) of the Central Excises & Salt Act, 1944."
Sd/- Sd/-
(S.V. Maruthi) (P.C. Jain)
Member (J) Member (T)
K.S. Venkataramani, Member (T)
41. The Ld. Counsel, Sh. V. Sridharan, addressed the following arguments on the point of difference between the two Hon'ble Members of the referring Bench. It was submitted that the admitted position is that M/s. Pepsi Foods (P) Ltd. have a shareholding interest in M/s. Voltas, but there is no shareholding by M/s. Voltas in the former firm. The goods are manufactured by M/s. Pepsi Foods under their own brand name and they are the sole owners of the goods. It is an outright sale of the goods by them to M/s. Voltas. The Ld. Counsel, in this connection, referred to the Agreement between the parties. It was urged that in clause 12 of the Agreement, it has been specifically provided that the transaction between Pepsi Foods and Voltas, in pursuance of the Agreement, shall be on a principal to principal basis and that nothing in the Agreement shall constitute either party as the agent of the other. On the outright sale of the goods to M/s. Voltas, the property vests with M/s. Voltas. The Ld. Counsel urged that all the clauses in the Agreement were standard commercial clauses and there was nothing unusual in them. The Ld. Counsel referred to the reasoning in the Hon'ble (Technical) Member's order and submitted that it cannot be said that M/s. Pepsi Foods are related person to M/s. Voltas on the basis of Pepsi Foods, being beneficiaries of increased sales by M/s. Voltas. This in fact, the Ld. Counsel urged, would only mean that Pepsi Foods are interested in their own business or that they can be said to be interested in Voltas for the sake of their own business. The Ld. Counsel cited and relied upon the case of Collector of Central Excise v. T.I. Millers Ltd., Madras and Anr. -1988 (35) E.L.T. 8 (S.C.) in this context. The Departmental argument that the manufacturer of the goods, M/s. Pepsi Foods, is interested in the buyer, has been dealt with and repelled by the Delhi High Court in the case of Jay Engineering Works Ltd. and Anr. v. Union of India and Ors. -1981 (8) E.L.T. 284 (Del.) wherein the Court held that the manufacturer cannot be said to have interest in the business of the buyer. In the present case also, the Ld. Counsel pointed out that if Voltas were to incur losses, it will have no impact on M/s. Pepsi Foods and another feature is that the Agreement is liable to be terminated as has been brought out in clause 18 thereof for any non-performance as per the terms of the Agreement. The Ld. Counsel, further, referred to the case law reported in 1982 (10) E.L.T. 463 (Del.) in the case of Sylvania & Laxman Lid. and Anr. v. Union of India and Ors. to say that mere fulfilment of commercial transaction between the two parties cannot be said to be an instance of related person. He also referred to and relied upon similar other decisions of the Delhi High Court in the case of Straw Products Ltd. and Anr. v. Union of India and Ors. -1987 (30) E.L.T. 275 (Delhi) and in the same Volume at page 281 in the case of Ashok Leyland Limited v. Government of India and Ors. as well as the Delhi High Court decision in the case of Escorts Tractors Ltd. v. Union of India and Ors. reported in 1993 (64) E.L.T. 18 (Del.) wherein the same argument, based on actual and marketing arrangement, had been taken up by the department considering the parties as related persons, but is not found accepted by the High Court.
42. Shri Ram Parkash, Ld. S.D.R., contended that the nature of the Agreement in this case would show that it is essentially an agency Agreement. The totality of the Agreement and the features, as a whole, has to be looked into for the true nature of the Agreement and not mere reference to a particular clause therein. The conduct of the parties and the purport of their dealing is of relevance, according to the Ld. SDR. On this basis, a perusal of the Agreement would show that it is only an agency Agreement vesting M/s. Voltas as the sole selling agents of Pepsi Foods. He cited and relied upon a Supreme Court decision in the case of Snow White Industrial Corporation v. Collector of Central Excise reported in 1989 (41) E.L.T. 360 (S.C.). The Ld. SDR drew attention to clause 10 of the Agreement, which is in relation to direct sales and says that if Pepsi Foods make a direct sale under unusual circumstances, Voltas shall be entitled to be paid compensation for such sale. The Ld. SDR urged that this would clearly show mutual interest between the two parties. Similarly, the warranty clause in the Agreement, according to the Ld. SDR, also indicates mutual interest. Hence, there is reasonable ground to say that the transaction between these two parties is not at arm's length and in such a situation, valuation has to be on the basis of the related persons concept. The Ld. SDR cited and relied upon the case law reported in 1989 (39) E.L.T. 147 (Tribunal) in the case of Eddy Current Controls (India) Ltd. v. Collector of Central Excise, Cochin. In reply, the Ld. Counsel urged that the Supreme Court decision in the case of Snow White Industrial Corporation (supra) is not comparable on facts and submitted that the test of an agency to sell is that the principal manufacturer continues to be the owner of the goods whereas in the present case, by caluse 13 of the Agreement on delivery to Voltas of the goods, the property in the product shall vest with Voltas and clause 12 specifically says that it is not an agency Agreement. It was, further urged that the warranty clause was the normal standard warranty clause for goods found with manufacturing defects and it would not amount to a facility for returning unsold stock.
43. The submissions made by the Ld. counsel and the Ld. SDR, have been carefully considered. It is seen that the Ld. Member (T), in his order, has noted one odd fact, which is peculiar to this case and not present in the cases cited before the Bench or are not noticed by the judgments which changes the complexion of the case. This is the fact that the appellants sell the goods of their own brand name to M/s. Voltas, who are the exclusive marketeers of the goods. Better the business of M/s. Voltas greater is the goodwill in the trade market of the appellant company goods. Hence, the Ld. Member (Technical) is of the view that the appellants also have an interest in the business of Voltas. The Ld. Member (judicial), however, after analysing the submissions, has expressed the opinion that the facts of the present case are exactly, on all fours, with the judgment of the Supreme Court in Atic Industries (supra) and that Voltas cannot be held to be related persons. In this context, it is seen that there have been certain judicial pronouncements in cases which are similar wherein like situations under Section 4(4)(c) sought to be brought in by the Department. In the case of Sylvania & Eaxrnan Ltd. (supra), the Hon'ble Delhi High Court considered the issue. In that case the petitioners, Sylvania & Laxman, manufactured electric tube lights for Philips India under a contract with the Philips brand name and the Department sought to treat Philips as related person under Section 4(4)(c). The Delhi High Court held that "The only question is whether there is inter se between the first petitioner and M/s. Philips India Ltd. any 'interest, directly or indirectly, in the business of each other' proved on the record. There is none. The mere purchase of goods by M/s. Philips India Ltd. from the first petitioner or manufacture of goods by the first petitioner for M/s. Philips India Ltd. does not create inter se interest between the two companies, directly or indirectly in the business of each other. The only interest that M/s. Philips India Ltd. has is to ensure that it gets the goods it has ordered in time and of the specifications required. The only interest in the transaction which the first petitioner has is to get the price of the goods it manufactures for M/s. Philips India Ltd. It is a pure transaction of sale. The interest in the business of each other contemplated by the section is something more than the fulfilment of one single commercial transaction entered into between the parties. M/s. Philips India Ltd. are not concerned whether the first petitioner makes a profit or loss in the transaction covered by the contract between the two. Likewise, the first petitioner is not interested as to whether M/s. Philips India Ltd. sells or does not sell or sells at a profit or loss the goods purchased by it from the first petitioner. Indeed, the two companies are competitors in the trade of manufacturing and selling electric bulbs and electric tube-lights. They cannot have any interest in the business of each other, their interest being confined only to successful fulfilment of one contract in question."
44. Again the Delhi High Court considered the issue in its decision in the case of Jay Engg. Works Ltd. and Anr. v. Union of India and Ors. reported in 1981 (8) E.L.T. 284 (Del.) which was cited with the approval by the High Court in the above decision also. It was held that it is very difficult to say that a mere purchaser or even a sole-selling agent would be a related person within the meaning of the definition. Para 7 of this decision is reproduced below :
"So far as the first question is concerned it appears to us that the answer is obviously and patently in the negative. There is no material on record to indicate that Usha and the Petitioner are so associated with each other that they can be said to have an interest directly or indirectly in the business of each other. We shall refer later on to the terms of the arrangement between the petitioner and Usha while discussing the second aspect referred to above. It will be seen therefrom that primarily the arrangement between the parties is that Usha should purchase a substantial part of the petitioner's production and sell the goods at a price not higher than the maximum price stipulated by the petitioner. Assuming that the term of the agreement create an interest in Usha vis-a-vis the business of the petitioner there is nothing to indicate and no material to justify the conclusion that the petitioner has any interest in the business of Usha. As will be seen later, the petitioner sells its goods to Usha and receives the price therefor within 90 days. It has no doubt certain responsibilities for servicing the goods sold by Usha but there is no manner of interest direct or indirect in the business of Usha so far as the petitioner is concerned. The terms of the above definition contemplate two persons who are so associated that they are mutually interested in the business of each other. Examples of the kind may be two companies or persons associated as the company and its managing agent or the company and its Secretaries and Treasurers, firms having related partners, companies having common shareholders in the majority and the like. It is very difficult to say that a mere purchase or even a sole selling agent (if Usha could be said to be one) would be a related person within the meaning of the first part of the definition. We are, therefore, unable to accept the contention of learned counsel for the respondents that Usha will be a related person under the above portion of the definition clause. Certain judicial decisions to which we shall be referring later also touch upon this aspect of the matter and reinforce our conclusion."
45. This decision was again followed by the Delhi High Court in its subsequent judgment in Straw Products Ltd. (supra) and the Court observed that mere commercial contract between two independent parties for the purchase and sale of the goods manufactured by one party cannot ipso facto lead to the conclusion that the two of them are so associated as to have interest in the business of each other. This association, the Court observed, has to be of financial or managerial interest in the business of each other and not mere business connection between two persons. In the present case, the perusal of the clauses in the Agreement, shows that the transaction is one of outright sale of the goods by the appellants to M/s. Voltas and on such sale, the ownership of the goods vests with Voltas who are free, according to the Agreement, to fix their own sale price and clause 12 of the Agreement, specifically, lays down that the transaction is on a principal to principal basis and the Agreement also has a provision for termination of the contract for any failure to discharge obligations. These features of the Agreement make the facts of this case more akin to those dealt with by the Delhi High Court cited supra and dissimilar to the facts of the case dealt with by the Supreme Court in the case of Snow White Industrial (supra) relied upon by the Ld. SDR. The ratio of the High Court judgments (supra) also would support the view that the exclusive marketeering of goods through M/s. Voltas by the appellants with their brand name, may not be sufficient circumstances having regard to the factual background of the case and the features of the Agreement between the two parties to come to the conclusion that the appellants and M/s. Voltas can be held to be related persons in terms of the definition under Section 4(4)(c) of the Central Excises and Salt Act, 1944. In this view of the matter, the order proposed by the Ld. Member (J) is concurred with and the papers are returned to the Hon'ble 'A' Bench for passing final orders.
Sd/-
K.S. Venkataramani (Technical Member) FINAL ORDER
46. In view of the majority opinion, the appeal is allowed with consequential relief to the appellants.