Customs, Excise and Gold Tribunal - Bangalore
Ttk Healthcare Limited (Ttkhl) And Ors. vs The Commissioner Of Central Excise on 22 August, 2006
Equivalent citations: 2006(113)ECC343, 2006ECR343(TRI.-BANGALORE), 2007(207)ELT453(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. All these appeals have been filed against Order-in-original No. CEX - 13/2005 (Comm'r) dated 31.12.2005 passed by the Commissioner of Customs and Central Excise, Guntur.
2. The facts of the case are as follows:
M/s. Siris Laboratories Pvt. Ltd. and M/s. Siri Pvt. Ltd. both in Vijayawada are engaged in the manufacture of P or P Medicine, an excisable commodity. Both the units manufacture Woodwards's Gripe Water for M/s. TTK Healthcare Ltd. (TTKHL), Chennai. On 3.7.2000, TTKHL entered into an agreement with Siri Lab for manufacture of Woodward's Gripe Water as loan licencee at the factory premises of Siri Labs for the period from September 2000 to December 2000. Central excise duty was paid on the value at which TTKHL was selling their goods to their customers from their depots. However, with effect from 17.11.2000 TTKHL entered into a new agreement with Siri Labs. In terms of this agreement, Siri Labs themselves would manufacture the Gripe Water under the brand name Woodward's owned by TTKHL and sell the entire quantity to TTKHL at a mutually agreed price of Rs. 5.53 paise per bottle of 130 ml. As the earlier agreement, duty was paid on the value of Rs. 16.44 paise per bottle of 130 ml. In view of the huge difference between the values at which the goods were cleared during the period of first agreement and that of the latter, Revenue examined the issue in detail. There were actually three agreements between TTKHL and Siri Labs. One related to job work, the second one is manufacturing agreement and the third one is trade mark agreement. After going through the agreements, Revenue prima facie came to the conclusion that the manufacturing agreement between Siri Labs and TTKHL is not on principal-to-principal basis and consequently the transfer price agreed to by them is tainted by the relationship between them. Therefore, Show Cause Notices were issued to the following parties.
(i) Siri Laboratories Pvt. Ltd.
(ii) M/s. TTKHL
(iii) Siri Pvt. Ltd.
(iv) K. Hariharasubramanian, Vice President of TTKHL
(v) P.G. Shan Bhag, Director of Siri Lab.
(vi) Shri T. Suryanarayana, General Manager (Materials) of Siri Labs The details of the Show Cause Notices are given below.
______________________________________________________________________________ Sl. No. Date of Show Noticees Period Amount Cause Notice ______________________________________________________________________________
1. December 2004 1. M/s. Siri Pvt. Ltd. 07.02.2002 Rs. 2,34,65,420/-
to
2. M/s. TTKHL 30.06.2004
3. Shri P.G. Shaan Bhag, Director of M/s. Siri Pvt. Ltd.
4. Shri T. Suryanarayana, GM (Materials), Siri Pvt. Ltd.
5. Shri K. Harihara Subramanian, Vice-
President, TTKHL
2. 3.2.2005 1. Siri Laboratories Pvt. 30.12.2000 Rs. 65,51,946/-
Ltd. to
2. M/s. TTKHL 06.02.2002
3. Siri Pvt. Ltd.
4. K. Hariharasubramanian,
Vice President of
TTKHL
5. P. G. Shan Bhag,
Director of Siri Lab.
6. Shri T. Suryanarayana,
General Manager
(Materials) of Siri Labs
3. 22.9.2005 1. M/s. Siri Pvt. Ltd. 01.07.2004 Rs. 83,77,012/-
to
30.4.2005
2. M/s. TTKHL
3. Shri T. Suryanarayana,
GM (Materials), Siri
Pvt. Ltd.
4. Shri K. Hariharasub-
ramanian, Vice President
of TTKHL
______________________________________________________________________________ The Commissioner held that the agreement between Siri Labs/Siri and TTKHL is not on principal to principal basis and further that Siri Labs/Siri are liable to discharge duty on the basis of sale price of TTKHL. Consequently, the amounts proposed in the above mentioned Show Cause Notices were confirmed. Penalties under Section 11AC, Rule 25 of Central Excise Rules 2001 and Rule 209A of Central Excise Rules 1944 were imposed on the noticees. The appellants are highly aggrieved over the impugned order, hence, they have come before this Tribunal for relief.
3. Shri S. Venkataraman, Sr. Advocate along with Shri S. Muthuvenkataraman, learned advocate appeared for the appellants and Shri R.K. Singla, learned JCDR appeared for the Revenue.
4. The learned advocates urged the following points.
(i) The Adjudicating Authority has come to the conclusion that there is mutuality of interest between the appellants and that the transaction between them is not at arm's length. Though as many as 31 decisions were cited by the appellants, the Commissioner has not examined them properly.
(ii) During the period from September 2000 to December 2000, duty was paid on the value at which the goods were sold by TTKHL but this cannot be the basis to upset a genuine transaction value.
(iii) The Commissioner erred in holding that unilateral relationship is sufficient to upset the transaction value. The reasoning has no basis in law and further factually incorrect. The relationship is only on principal-to-principal basis.
(iv) The reason that branded goods have been produced for M/s. TTKHL and therefore, the transactions are not at arms length runs counter to the decisions rendered by the Apex Court. Manufacture of branded goods and sale of branded goods exclusively to the brand owner will not make the transactions a tainted transaction.
(v) The Commissioner has referred to the decision of Bombay High Court in the case of Pilky Footwear Co. Pvt. Ltd. . The above decision is inapplicable to the present case, as the appellants have not been provided with working capital, interest free advance for operation of the plant and other working expenses. The transactions are on a principal-to-principal basis and on the basis of outright sale. The inference that TTKHL has control over the manufacturing process is factually wrong and even the Show Cause Notice does not allege this. None of the employees of TTKHL work in the plant of the appellants nor does the management take any control over the affairs of the company. Appellant is an independent manufacture and has own production and also third party production to various customers. Appellant is not a captive producer of M/s. TTKHL.
(vi) The order demanding duty under the extended period is unsustainable in law. Appellants have a registration and the issue is not one of clandestine removal.
(vii) In the Show Cause Notice at para 9 (ii), it was alleged that the appellants had no say in fixing profit element and they get only raw material cost and conversion cost and accordingly TTKHL had complete and absolute control over the appellants. Without prejudice to the other grounds taken, it was submitted that this allegation taken in the Show Cause Notice would only confirm that between the appellants and TTKHL there was no mutuality of interest.
(viii) Extended period cannot be invoked because the nature of the transaction is known to the department. Reliance on the decision in the case of M.K. Kotecha 2005 (179) ELT261 (SC) is misplaced.
(ix) When prices have been agreed between the contracting parties and in the absence of any flow-back there is no basis to dispute the transaction value.
(x) It is settled law that agreements between franchiser and franchisee cannot lead to a conclusion that the transactions are between related persons.
(xi) The usage of trademark and sale of branded goods exclusively to the brand owner cannot vitiate the transaction.
(xii) The fact that goods are produced according to specification and permitting right of ingress and egress cannot vitiate the transaction value, which is one perfect commercial terms.
(xiii) None of the decisions relied on by the appellants for dropping the proceedings under the extended period of limitations has been referred to by the Adjudicating Authority.
(xiv) No reasons have been furnished to sustain the various penalties imposed and therefore, the order is liable to be set aside.
(xv) The demand of interest is also not sustainable in law.
(xvi) The issue stands covered by a large number of decisions of the Supreme Court and various Tribunals. The Adjudicating Authority has not discussed or distinguished the following case laws relied on by the appellants.
1. Vikas Metal Works and Ors. v. CCE, Mumbai 2005 (70) RLT 181 (CESTAT-Mum.)
2. CCE, Jallandhar v. Bee Dee Steel Rolling Mills
3. Kirti Kumar Muljibhai Parikh v. CCE, Vododara
4. Gurmeet Singh Bhatia v. CCE, Delhi 2002 (148) ELT 437 (Tri.-Del.)
5. Kamra Bottling Company v. CCE, Bikanet and Anr.
6. Steel City Beverages Pvt. Ltd. v. UOI
7. Kwality Ice Cream Co. v. CCE, Chandigarh
8. Joint Secretary to Govt. of India v. Food Specialties Ltd. .
10. UOI and Ors. v. Atic Industries Ltd.
11. Burman Laboratories Ltd. v. CCE, Indore
12. Ranbaxy Laboratories P. Ltd. v. CCE, Chandigarh
14. Alpha Toyo Ltd. v. CCE, New Delhi
15. CCE, Madurai v. Naga Detergent Products Ltd. - 1995 (77) ELT 100 (Tri.)
16. Dismissal of Civil Appeal Nos. 2197-98 of 1996 against the CEGAT Order No. 153-154/95-A and CCE, Madurai v. Naga Detergent Products Ltd.
17. Ashok Leyland Ltd. v. Govt. of India and Ors.
18. Ashok Leyland Ltd. v. Govt. of India and Ors. 1990 (30) ELT 281 (Mad.)
19. New India Industries Ltd. v. UOI 1998 (37) ELT 547.
20. CCE, Surat v. Besta Cosmetics Ltd.
21. A.K. Roy and Anr. v. Voltas Ltd. 1977 ELT (J 177).
22. Whitco Ltd. v. UOI 1995 (75) ELT 62 (Guj.)
23. CCE, New Delhi v. M.G. Shahani & Co.
24. Tungabhadra Industries Ltd. v. CCE, Hyderabad
25. The New Great Eastern Spg. & Wvg. Co. Ltd. v. CCE, Bombay 1998 (33) ELT 706 (Tri.)
26. Kanchan Industries v. CC, Mumbai
27. Pearls of Beauty v. CCE, New Delhi
28. Circular No. 249/83/96-CX, dated 11.10.1996 Govt. of India, Ministry of Finance (Dept. of Revenue), New Delhi.
29. Anand Nishikawa Co. Ltd. v. CCE, Bombay
30. Pushpam Pharmaceuticals Co. v. CCE, Bombay .
31. Sipani Automobiles Ltd. v. CCE, Bangalore (xvii) During the period from September 2000 to December 2000, the appellants did not have the drug licence to manufacture Woodward's gripe water, however, they had the capacity and also the Central Excise licence. In these circumstances, M/s. TTKHL obtained a loan licence dated 15.7.2000 with an endorsement clearly that Woodward's gripe water would be manufactured by the appellants. During that period, it would have been correct in law to have discharged the duty liability on the cost of production plus margin of profits on the basis of Apex Court's decision in the case of Ujagar Prints. It was actually a mistake to have discharged duty liability on the selling price of TTKHL. This mistake was realized in view of the Tribunal's decision in the case of Smithkline Beecham Asia Ltd. v. CCE, Vishakapatnam 2004 (168) ELT40 (Tri.-Bang.). For the period subsequent to December 2000, the arrangement was entirely different as the appellants obtained the drug licence necessary to manufacture Woodward's gripe water. The loan licencee arrangement was no longer necessary. Unlike a job work arrangement where the raw materials were supplied by TTKHL the contract was for the manufacture and sale of Woodward's gripe water of TTKHL. All the raw materials were procured only by the appellants and used in the manufacture of the impugned goods. With effect from 1.7.2000 Excise Duty needs to be paid on the transaction value and the transaction value would mean the price at which the good are sold or offered for sale. The goods were sold during the disputed period, only at Rs. 5.53 per bottle and this fact is not in dispute. Once the sale price is not contested, the same becomes transaction value for the purpose of payment of Central Excise duty.
5. The learned JCDR reiterated the points in Order-in-Original.
6. We have gone through the records of the case carefully. The Commissioner in the impugned order had devoted 36 paragraphs for narrating the facts of the case details of Show Cause Notices issued and the replies of the appellants. He has given his findings from para 37 to 49. The following points have been taken for decision by the Commissioner.
(a) Whether the agreement between the Siri Labs/Siri and TTKHL is on principal to principal basis.
(b) Whether Siri labs/Siri are liable to discharge the duty on the basis of sale price of TTKHL.
(c) Whether penalties are liable to be imposed on the noticees.
In para 38 of the impugned order the Commissioner has only stated the contentions of the appellants to the effect that during the period prior to December 2000 they were the job workers of TTKHL and after December 2000, their relation with TTKHL is on principal to principal basis and they are liable to pay duty only on the transaction value.
In para 39 the Commissioner has observed "the contention of SIRI Labs that their sale price for the period prior to December 2000 cannot be the basis for assessment of Central Excise Duty is not a subject issue raised in the show cause notice. However, the fact remains that the subject product containing same inputs, same manufacturing formulae cannot become cheaper to manufacture unless there is some strong reason like reduction in price of raw materials, etc. However, such is not the case for reduction of price in the instant case (s), but only an agreement in the month of November 2000, which led to the reduction of price. In that context, it is relevant to examine the agreements prior to and after November 2000 for comparing the basis of the agreements."
By the above observations, the Commissioner suspects a strong reason for reduction of price after December 2000.
In para 40, the Commissioner has stated that the appellants contended that based on franchisee agreement relationship cannot be alleged. Further, he has stated that he had carefully examined the following case laws cited by the assessee and found them not applicable to the facts of the present case.
(a) Poona Bottling Co. 1982 ELT 8
(b) Kaamra Bottling Co. Ltd. 1987 (27) ELT 240
(c) Steel City Beverages Pvt. Ltd. 1987 (23) ELT147.
He has observed that the above decisions relate to manufacture by himself or on behalf of another person. Since the present issue is not related to the nature of manufacture but only that of relation between the buyer and the manufacture, the above decisions have no application to the facts of the present case.
In para 41 of the order, the Commissioner reproduces the definition of "related person" as per Section 4 of the Central Excise Act effective from 1.7.2000. He comes to the conclusion that if any one of the four conditions mentioned in the definition of expression 'related person' is satisfied, the companies can be treated as related. Therefore, he observes that the contention of the noticee that the two-way flow back is essential to be a related person has no significance.
After examining the manufacturing agreement and trademark agreement, the Commissioner gives his findings in para 42. His observations are briefly given below.
(i) The product "Woodward Celebrated Gripe Water" is not a product which is otherwise manufactured by Siri Labs/Siri. The word 'woodward' indicates that the same belongs to TTKHL.
(ii) In order to manufacture such a product, firstly the technical know-how should be disseminated by TTKHL and they should permit manufacture of such product.
(iii) Accordingly, it is in the interest of Siri Labs/Siri that they can use their spare capacities and produce the goods for TTKHL.
(iv) It is in the interest of TTKHL that they can get the product at a lesser price by suppressing the cost of technical know-how, marketing and advertising etc., for the purpose of discharging duty.
(v) The decision relied on by Siri Labs/Siri in the case of Ranbaxy Laboratories Pvt. Ltd. 2004 (173) ELT 474 to the effect that the limited companies carrying manufacture in terms of an agreement which is purely commercial in character cannot be treated as related persons is not relevant to the facts of the present issue. As the product being manufactured is patently formulated drug not being manufactured by any other person and as the terms of the agreement are not merely commercial.
(vi) The decision contending that individual aspects taken up separately do not constitute mutuality of interest were cited. However, all the aspects should be taken together while interpreting the mutuality of interest and in the instant case as held by me that since the agreement starts for manufacture of product the ownership of whose formulation and technical know how solely vests with TTKHL. I hold that case laws cited by Siri Labs/Siri that too dealing with individual aspects of the agreement cannot rescue their stand that they are not related to TTKHL in any manner and that their agreement is solely commercial.
(vii) The Bombay High Court in the case of Pilky Footwear Co. Pvt. Ltd. (supra) while examining the concept of related person held that "in order to determine whether an agreement is at arms length or not, the cumulative effect of various circumstances arising from the agreement are required to be taken into consideration for arriving at the conclusion. Thus, if the agreement provides for not only an advice, assistance and technical know-how and the supervision to the petitioner's unit but also provides for necessary working capital by way of interest free advances for operation of plant and other working expenses with the stipulation to sell the whole stock with brand name of the company clearly establishes that the petitioners were not an independent unit but was an agency of the company and the agreement entered into between them was not at arms length." The said decision has been affirmed by Hon'ble Apex Court in 2000 (120) ELT 289. Applying the ratio to the instant case, it is not merely the question of supply of technical know-how but the total supervisory control of the manufacturing process including purchase of raw materials and quality of final product, stamping of brand name, every thing is controlled solely by TTKHL and as such the agreement cannot be concluded as on principal to principal basis. Accordingly, I hold that there is mutuality of interest between Siri Labs/Siri and TTKHL in the business of each other and the transaction price as adopted by Sins to discharge duty in terms of Section 4(1) (a) is liable to be rejected.
(viii) After holding that the transaction price is to be rejected, the Commissioner held that Siri Labs/Siri are liable to pay duty on the value of the goods sold by the related person TTKHL to unrelated buyers in terms of Rule 9 of Central Excise (Valuation) Rules 2000. Accordingly, he confirmed the demand of duty proposed in the show cause notices (para 43 of the impugned order).
(xi) In para 44 of the impugned order, the Commissioner justifies the invokation of extended period on the ground that the appellants had suppressed the facts that the price charged is not a fully commercial price tainted by mutuality of interest. He has relied on Apex Court's decision in the case of MK Kotecha v. CCE, Aurangabad 2005 (179) ELT 261 (SC).
(x) From para 45 to 48 the Commissioner has held that the noticees are liable for penalties as proposed in the Show Cause Notices.
We have examined the manufacturing agreement between TTKHL and Siri Pvt. Ltd. entered on 17.11.2000. Prior to this period, TTKHL were holding loan licence and since Siris had capacity to manufacture the impugned goods, they undertook job work on receipt of raw materials from Siris. It is the contention of the appellants that they could have paid duty only on the cost of raw materials plus job charges and margin of profit based on Apex Court's decision in the case of Ujagar Prints. However, they chose to pay duty on the basis of the selling price of Siris. On this basis, it should not be held that even after December 2000 they should adopt the same basis which has erroneously adopted by them earlier. In our view, the appellant's contention is acceptable. In any case it is the appellants contention that as per the agreement dated 17.11.2000 they are the manufacturers of the impugned goods and according to the agreement, they manufacture and sell the goods to TTKHL after affixing the brand name owned by TTKHL namely "Woodward's Gripe Water". As per law duty should be paid on the basis of transaction value. According to para 6 of the manufacturing agreement dt. 17.11.2000, "the manufacturer shall sell to the company and the company shall purchase from the manufacturer the said products and samples thereof in the manner set out in Clauses 7 to 9 hereof, at prices to be mutually agreed upon in good faith from time to time".
From the above it is clear that the appellants who are the manufactures would sell the impugned products at mutually agreed prices. It is also seen that there is a separate agreement for use of trade mark of TTKHL. That agreement in Para 9 has clearly spelt out that no remuneration whether by way of royalty or otherwise shall be payable by the manufacturer to the company in respect of use of the said trade marks. Therefore, Revenue's contention that the value of technical know-how, secrecy of formula should form part of the price has no basis. The appellants who have excess capacity to manufacture the impugned goods had entered into an agreement with another company owning the particular brand name. It is true that by entering into an agreement, the appellants unutilized capacity to manufacture is put to use. Similarly, M/s. TTKHL also stand to benefit. This will be true of any commercial transaction. On this ground, the Commissioner comes to the conclusion that the appellant and TTKHL are related persons within the same meaning in Central Excise Act. This conclusion, to say the least, is preposterous. According to Section 4(3)(b): persons shall be deemed to be "related" if-
(i) they are inter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or
(iv) they are so associated that they have interest, directly or indirectly, in the business of each other.
Explanation - In this clause -
(i)"inter-connected undertakings" shall have the meaning assigned to it in Clause (g) of Section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and
(ii) "relative" shall have the meaning assigned to it in Clause (41) of Section 2 of the Companies Act, 1956 (1 of 1956).
While coming to the conclusion that Siris and TTKHL are related, the Commissioner has picked up Clause 3(b)(iv) of Section 4 of the Central Excise Act. He holds the view that out of the four conditions enumerated in Section 4(3)(b), even if one is satisfied, it is sufficient to hold that the units are related. Clause (iv) of 4 (3) (b) reads as "they are so associated that they have interest, directly or indirectly, in the business of each other". Since the appellants unutilized capacity is used because of their agreement with TTKHL, the appellants Siris is interested in TTKHL, who purchases the goods manufactured by the appellant. As TTKHL gets the goods manufactured at a lower rate from the appellants and Excise Duty is discharged only on this value, TTKHL stands to benefit and therefore, they are interested in the appellants Siris. According to the Commissioner, this is sufficient to hold that the parties have interest in the business of each other. If one is allowed to draw such a conclusion, then one can establish that any two parties are related if they entered into a commercial transaction. This will lead to absurd results. Mutuality interest in the context of Section 4 of the Central Excise Act, 1944 means mutual interest in the business of each other. In other words, it would mean managerial and financial interest. The Commissioner feels that it is not necessary to establish two-way flow back of finance. Revenue has not shown that profit of either TTKHL or Siris flows to the other unit. They have also not established that TTKHL has managerial control over Siris. The Commissioner has not at all examined the case laws cited by the appellants. The Apex Court in the case of Sidhosons v. UOI had occasion to examine the similar issue. In that case the petitioner company manufactured electrical goods under a contract with another company viz., Bajaj Electricals. The agreement between the parties provides for the buyers having the right to reject the goods if the goods are not in accordance with the buyers specifications or do not come up to the stipulated standard of quality. After the manufactured goods are tested, approved and accepted by the buyers, the manufacturers apply the label of the brand name of the buyers (in this case Bajaj). Revenue authorities contended that for excise duty purpose the price at which Bajaj Electricals sells the goods should be taken but the Petitioner contended that excise duty must be levied at the price at which the goods are agreed to be sold under the agreement between the manufacturer (petitioners) and the buyers. The Apex Court held that the goods cannot be assessed on the basis of the market value obtained by the buyers merely because the goods have been manufactured under contract by the third party with buyers brand name. The ratio of this case is squarely applicable to the present case. The High Court of Gujarat dealt with a similar situation in the case of Whitco Ltd. v. UOI . In this case the assessee was manufacturing goods for himself and for other customers. The goods manufactured for one of the customers could be sold to that customer only. The said customer has right to reject below par goods. It was alleged that the relationship between the assessee and the customer is of principal and agent but the High Court held that the relationship is that of principal to principal basis, advance payment of price at commencement of each quarter notwithstanding. The High Court observed that merely because the buyer had a right to inspect quality of the raw material and to check records maintained by the seller in that behalf, it cannot be said that the petitioner company was manufacturing FAB detergent cakes on behalf of the buyer. In the case of Ador Multiproducts Ltd. v. CCE, Bangalore 2004 (176) ELT 612 (Tri.-Mad.), it was held that when the entire production was sold by the assessee to buyer and the goods were manufactured by the assessee using own plant, machinery and raw materials as per quality specification of the buyer. The transaction was on principal-to-principal basis. Assessable value was to be determined based on the price at which the assessee sold the goods to the buyer. This decision was upheld by the Supreme Court in 2005(183) ELT A121 (SC).
In the case of Burman Laboratories Ltd. v. CCE, Indore , the assessee manufacture hair oil and lal dant manjan and sold it exclusively to Dabur India Ltd. who were affixing to these goods brand name owned by them. According to the agreement, the assessee shall manufacture the goods strictly in accordance with the specification/standard laid down by the buyer. The assessee will permit the buyer to visit their premises. The assessee shall not independently manufacture and sell the branded goods to strangers. It was held that these are normal commercial terms and they do not constitute mutuality of interest between the parties. None of the conditions makes the brand owner the manufacture of goods. The Adjudicating Authority has not at all examined all the case laws cited by the appellant. However, he has quoted from the decision of Bombay High Court in the case of Pilky Footwear (supra) and applied the ratio of the above decision to the instant case. The learned advocate pointed out that in the above case relied on by the Commissioner, it was observed by the court that "if the agreement provides for not only advice, assistance and technical know-how and the supervision to the petitioner unit but also provides for necessary working capital by way of interest free advances for the operation of the plan and other working expenses. With these stipulations to sell the whole stock with brand name of the company, then that would establish that the petitioners were not an independent unit but was a agency of the company and the agreement entered into between them was not at arms length. He said that this decision has been applied by the Adjudicating Authority wrongly to the present case, as there is no allegation that TTKHL have provided working capital by way of interest free advance. In any case, it has not been established that the appellants is merely an agent of TTKHL. It should be borne in mind that the appellant manufactures other drugs on his own and is not manufacturing only Gripe water meant for TTKHL.
Further, we notice that in the agreement between the appellant and TTKHL, there is a provision for termination of the agreement by one of the parties after giving notice to the other. A careful reading of both the manufacturing agreement and trade mark agreement would reveal that they have been entered purely based on commercial considerations. The price at which the goods would be sold by the appellant to TTKHL would be mutually agreed price and not dictated by the buyer. In such circumstances, the price at which the goods are sold to TTKHL would be the transaction value and as per Section 4(1)(a) the transaction value should be taken up for payment of Central Excise duty. There is no allegation that apart from the mutually agreed price, some extra amount has flown from TTKHL to Sin's. In the light of the above observations, the finding that the agreement between the parties is not on principal to principal basis and that they are related erroneous and not based on the facts on records. We do not find any reason to hold that M/s. Siris and TTKHL are related person as per Section 4 of the Central Excise Act. Hence, we cannot sustain the finding of the Commissioner. The appellants are not liable to pay the differential duty demanded. Moreover, the Commissioner has not given enough justification for invoking the longer period, as there is no suppression of facts. It is not the case of the department that the appellants have not produced the agreements entered between them. Since the duty demand is not sustainable, no penalties can be imposed. Hence, we set aside the impugned order and allow the appeals.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)