Custom, Excise & Service Tax Tribunal
Philips Electronics Ny. The ... vs Cce-Chandigarh on 8 January, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
R.K. PURAM, WEST BLOCK NO. 2, NEW DELHI-110066
COURT NO. III
Date of hearing: 08.01.2015
Date of decision: 17/6/2015
Appeal No. E/2442 and 2467/2006-EX[DB]
[Both the appeals arising out of order-in-original no. 14-16/CE/CHD/06 dated 24/4/2006 passed by Commissioner of Central Excise Chandigarh]
1.
Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordships wish to see the fair copy of the order?
4.
Whether order is to be circulated to the Department Authorities?
M/s. Philips Electronic India Ltd. and
Philips Electronics NY. The Netherlands Appellant
Vs.
CCE-Chandigarh Respondent
Appearance: Shri Prakash D. Shah, Advocate for the appellant.
Shri Pramod Kumar, JCDR for the respondent.
Coram: Honble Shri Rakesh Kumar, Member (Technical) Honble Shri S.K. Mohanty, Member (Judicial) Final Order No. 51932-51933/2015 Per: Rakesh Kumar The facts leading to filing of these appeals are, in brief, as under:
1.1 The main appellant-M/s. Philips Electronics India Limited [hereinafter referred to as PEIL and earlier named Philips India Ltd. (PIL)] is a company incorporated under Indian Companies Act having its factory at Phase-IX, SAS Nagar, Mohali, District Ropar. This factory was earlier owned by M/s. Punjab Anand Lamp Industries Limited (referred to as PALI) against whom the order-in-original dated 24/4/2006 had been passed confirming the duty demand and imposing penalty on them. PALI was taken over by and merged with PEIL w.e.f. 26.4.2003, consequent upon the order of amalgamation OF PALI with PEIL by Honble Punjab and Haryana High Court. The other appellant-M/s. Philips Electronics NV Netherlands (hereinafter referred to as Philips Netherlands) is the holding company of PEIL. As mentioned above, PEIL was previously known as Philips India Limited (PIL) and is a subsidiary of Philips Netherlands.
1.2 PEIL, a subsidiary of Philips Netherland, manufactures lamps, tube lights, Electronics Products and domestic appliances, etc and also do the trading in these items. PEIL in addition to manufacturing the lamps, tube lights, electronic products and electrical appliances, were also purchasing lamps from various other parties for sale under the brand name - Philips. In the year, 1983, PALI was incorporated as a Joint-Venture between Punjab State Industrial Development Corporation (PSIDC), a fully owned Punjab Government undertaking, M/s. Punjab Anand Batteries Limited (PABL) and Philips, Netherlands. An agreement dated 19/12/1983 was signed between PABL and Philips Netherlands and the agreement provided that the joint-venture PALI would sell its products only to PEICO Electronics and Electricals Limited (presently the PEIL) and PABL in the ratio of 90:10. The agreement also provided for a formula for calculating the sale price at which PALI would sell the electric lamps to PEICO electronics and electrical limited and the said price was worked back from the price of M/s. PEICO electronics to its wholesale buyers and provided some profit margin to PALI. Subsequently, on 17/4/1991, the agreement dated 19/12/1983 was superseded by another agreement between Philips Netherlands and M/s. PEICO electronics (now PEIL), PABL and PSIDC and this agreement provided for sale of shares in PALI by PSIDC and PABL to PEICO electronics. Accordingly, PEICO electronics and electricals held about 24.82 per cent shares in PALI besides the share holding of Philips Netherland in PALI.
1.3 The dispute in the present case pertains to the period from 1/3/1994 to 31/5/1998. During this period, bulk of the production of electric bulbs and tubes of PALI (about 97 to 98 per cent) was being sold to Philips India Limited (now PEIL) and about 2 to 3 per cent of the production was being sold to M/s. Bajaj Electricals Limited. Here, it may once again be clarified that M/s. PEICO Electronics and Electricals Limited was subsequently re-named as Philips India Limited (PIL) and Philips India Limited (PIL) was subsequently re-named as Philips Electronics India Limited (PEIL). The departments allegation is that PEICO electronics and Electricals Limited (now PEIL) and PALI are related persons, as PEICO Electronics and Electricals Limited and Philips, Netherland had combined share holding of more than 50 per cent in PALI and besides this, in terms of their agreement with PALI, Philips, Netherland had powers to appoint the majority of the Directors in PALI. The department was, therefore, of the view the in respect of the sales of PALI to PEICO Electronics and Electricals Limited, the assessable value for charging duty should be determined on the basis of the sale price of PEICO Electronics and in this regard, the department alleges that the meagre sales to M/s. Bajaj Electricals Limited have been made only to circumvent the provisions of section 4 of the Central Excise Act, 1944 in respect of the sales of PALI to or through related persons. It is on this basis that after issue of show cause notice to PALI, Philips India Limited (PIL) and Philips, Netherland, the Commissioner vide order-in-original no. 14-16/CE/CHD/06 dated 17/4/2006 confirmed the duty demand of Rs. 5,13,78,778/- against PALI under proviso to section 11A (1) of Central Excise Act, 1944 along with interest on it under section 11AB and besides this, while imposed penalty of equal amount on PALI under Rule 173Q (1) AND Rule 9 (2) of Central Excise Rules, 1944 read with section 11AC of Central Excise Act, 1944, penalty under Rule 209A of Central Excise Act, 1944 of Rs. 2.5 crore was imposed on Philips India Limited and penalty of same amount was imposed on M/s. Philips, Netherlands. Besides this, the land, building, plant, machinery, etc of PALI used in the manufacture production and storage of excisable goods was ordered to be confiscated under Rule 173 Q(2) of Central Excise Rules, 1944 with an option to be redeemed on payment of redemption fine in lieu of confiscation of one crore.
1.4 Since even before passing of this order and confirmation of duty demand against PALI, PALI stands merged with Philips India Limited w.e.f. 26/4/2003 and the name of Philips India Limited was subsequently changed to Philips Electronics India Limited (PEIL), it is PEIL which has filed the appeal along with Philips, Netherland. Against the above mentioned order passed by the Commissioner, PEIL and Philips, Neitherlands have filed their appeals.
2. Heard both the sides.
3. Shri Prakash Shah, Advocate, ld. Counsel for the appellant, made oral submissions at the time of hearing and also subsequently submitted written submissions in which the following points were emphasized:
(1). The departments allegation is that during the period of dispute, PALI (which stand merged with Philips India Limited w.e.f. 26/4/2003) and Philips India Limited (earlier known as PEICO Electronics and Electricals limited) are related persons within the meaning of this term as defined under section 4 (4) (c) read with third proviso to section 4 (1) (a) of the Central Excise Act, 1944, as the same stood during the period of dispute, in as much as PALI was a subsidiary of Philips India Limited. It is on this basis that in respect of the sales of PALI to Philips India Limited, the department seeks to determine the assessable value on the basis of the sales price of the Philips India Limited and not on the basis of the sales price of PALI to Philips India Limited. The 3rd proviso to section 4 (1) (a) read with section 4 (4) (c) can be invoked and applied only when the entire sales of assessee are to or through a related person. In this case, even if it is assumed that PALI and Philips India Limited were related persons, the provisions of 3rd proviso to section 4 (1) (a) read with section 4 (4) (c) cannot be invoked, as during the period of dispute, PALI were also selling similar goods to independent buyers-M/s. Bajaj Electricals Limited at or around the same price at which the goods were being sold to Philips India Limited. The sales to Bajaj Electricals Limited were about 2% to 3% of the total sales and it is not the allegation of the department that these sales to Bajaj Electricals Limited were bogus transactions. Since, the sales to Bajaj Electricals Limited are the sales to unrelated buyers, the sale price to Bajaj Electrical Limited represents the normal price and that price was more or less, the same as the price at which the same goods were being sold to Philips India Limited. In view of this, even if it is assumed that PALI and Philips India Limited are related persons, the provisions of 3rd proviso to section 4 (1) (a) read with section 4 (4) (c) cannot be invoked and the assessable value cannot be determined on the basis of the sale price of Philips India Limited. In this regard, reliance is placed on the Tribunals judgment in the case of Pepsico Holding India Private Limited reported in 2004 (163) ELT 478 and also on the judgment of Honble Bombay High Court in the case of Cosmos India Rubber Works Private Limited and Ors. Vs. Unions of India reported in 1988 (36) ELT 102 BOM.
(2). In the present case, admittedly, goods are sold by PALI to Philips India Limited as well as Bajaj Electricals Limited and Bajaj Electricals Limited is admittedly an unrelated buyer. No dispute has been raised with regard to the price at which the goods were sold to Bajaj Electricals Limited. The goods were being sold to M/s. Bajaj Electrical Limited on regular basis during the period of dispute. In view of this, the sale price of the goods to Bajaj Electricals Limited has to be treated as the normal price which would be applicable in respect of the sales to Philips India Limited also. In para 27 (IV) of the impugned order, the Commissioner has recorded the submissions of the appellant that the similar goods were sold during the period of dispute to M/s. Bajaj Electricals Limited at more or less the same price as the price at which the goods were being sold to Philips India Limited. The Commissioner, however, while not disputing that the similar goods were being sold to Bajaj Electricals Limited at more or less, the same price, has in para 55 of the impugned order dismissed the sales to M/s. Bajaj Electricals Limited as sales made by the appellant in meager quantity with intent to circumvent the situation of facing any Central Excise obligations and that it is Philips India Limited who were purchasing nearly the whole of the production of the appellant. This finding of the Commissioner is totally wrong, as even if 2% to 3% of the production was being sold to Bajaj Electrical Limited and these sales are treated as sales to unrelated buyers, the sale price to Bajaj Electricals Limited would have to be treated as normal price which would be applicable in respect of the sales to Philips India Limited even if Philips India Limited are treated as related person of the appellant.
(3). During the period of dispute, the appellant cannot be treated as wholly owned subsidiary of Philips India Limited as the holding of Philips India Limited in the appellant company was only about 25 per cent. Moreover, the PALI had no shareholding in Philips India Limited and hence, the mutuality of interest did not exist. The Tribunal in the case of Beacon Nevyrpic Limited reported in 2001 (133) ELT 590 has held that the price cannot be rejected even if 100 per cent of the production is sold to the holding company in absence of mutuality of interest of the assessee being proved in the business of the holding company. This judgment of the Tribunal has been upheld by the Apex Court vide judgment reported in 2006 (193) ELT 16 SC.
(4). The Tribunal in the case of Ralli Wolf Limited reported in 1992 (59) ELT 220 (para 31 of the judgment) has held that reading the section 4 as a whole, it is clear that merely because the company is subsidiary of the holding company, ipso facto, it cannot attracted section 4 (4) (c). It must be further established that each has business interest in business of each other. It must be further established that transaction, in question, is not based on principal to principal basis and extra commercial considerations have lowered the normal price, it is only then the 3rd proviso to section 4 (1) (a) would be attracted. This judgment of the Tribunal has been relied upon by the Honble Madras High Court in the case of Ragger Die Cutting Vs. CCE-Chennai-II reported in 2010 (255) ELT 3 MAD. In the present case, if the appellant company is treated as subsidiary company of Philips India Limited, applying the above judgment of the Tribunal which has been relied upon by the Honble Madras High Court also, even if the entire production of the appellant company is treated as having been sold to Philips India Limited, 3rd proviso to section 4 (1) (a) cannot be invoked in absence of any evidence produced by the Revenue to show that the goods were sold at the lower price than the price to independent buyers. In the present case, the appellant has provided evidence to show that during the same period, Philips India Limited were also buying similar bulbs and tube lights from other manufacturers at about the same price at which the appellant were supplying the same goods to Philips India Limited.
(5). In any event, the appellant company and PALI cannot be treated as subsidiary of Philips India Limited, as the shareholding of Philips India Limited in the appellant company was about 25 per cent. Just because the Philips, Netherlands had shareholding in the appellant company and combined shareholding of the appellant company and Philips Netherlands was in excess of 50 per cent of the total shareholding of PALI, and Philips Netherlands and Philips India Limited controlled the nomination of five out of seven Directors of PALI, the appellant and Philips India Limited cannot be treated as related persons, as in terms of Companies Act, 1956, combined shareholding of Philips India Limited and Philips Netherlands in the appellant company cannot be considered to conclude that the appellant company is a subsidiary of Philips India Limited. Honble Allahabad High Court in the case of Unit Lamps Limited reported in 1977 (1) ELT J1 (ALL) in para 33 of the judgment has held that the contention of the Chief Standing Counsel that the meaning of the expression holding company in section 4 of the companies Act, would permit treating several companies as together constituting a holding company in relation to the another company is not acceptable. Moreover, Philips India Limited cannot be said to be controlling the majority of the Director in PALI as this power was with Philips Netherlands and Philips India Limited could not nominate Directors in the PALI without concurrence and Philips Netherlands. In view of this, PALI cannot be treated as holding company of Philips India Limited.
(6). Assuming without admitting that Philips India Limited by virtue of its shareholding in PALI had interest in its business, the converse is not true as the appellant company PALI cannot be said to have any interest in the business of Philips India Limited, as it neither holds any share in Philips India Limited nor has any other interest. It is, thus, clear that the PALI and Philips India Limited do not have interest in the business of other and In absence of mutuality of interest in the business of each other the two cannot be treated as related persons.
(7). It has been alleged that transactions of sale of lamps by the PALI to Philips India Limited during the period of dispute could not be accepted as on principal to principal basis, as on the basis of a secret note dated 9/9/1985, Shri C.L. Anand, one of the promoters of PALI was to be paid Rs. 1.5 crore as additional consideration for PALI project by Philips India Limited and the amount was to be written off by Philips India Limited after ten years and Shri Anand in return had agreed to honor the margin of 15 per cent of the lamps sold by PALI to Philips India Limited. The payment of Rs. 1.5 crore by Philips India Limited to Shri C,L. Anand was on the basis of understanding between Philips Netherland and Mr. Anand and Rs. 1.5 crore did not relate to the sale of lamps by PALI to Philips India Limited. In any case, the said document is ten years prior to period of dispute and did not relate to the period involved in the present proceedings from 1/3/1994 to 31/5/1998.
(8). In any case, the extended limitation period of five years is not invokable for recovery of allegedly short paid duty and for some reason no penalty is imposable on the PALI as there was no fraud, wilful mis-statement, suppression of facts under section 11AC on their part. For some reason no penalty is imposable on PEIL (earlier Philips India Limited) and Philips, Netherlands.
4. Shri Pramod Kumar, ld. JCDR, defended the impugned order by reiterating the findings of the Commissioner in it and emphasized that during the period of dispute, since the shareholding of Philips India Limited along with Philips, Netherland in PALI was more than 50 per cent, PALI has to be treated as a subsidiary of Philips India. It was pleaded that in terms of agreement between PALI and Philips India Limited, the sale price of the lamps being manufactured by the PALI and supplied to Philips India Limited was to be determined by a formula on the basis of sale price of Philips India Limited to their dealers show as to ensure 15% profit margin to PALI and thus, the transactions between PALI and Philips India Limited cannot be said to be on principal to principal basis. Shri Pramod Kumar, also pointed out to secret understanding dated 9/9/1985 between PEICO and PALI recovered during the search of Philips India Limited at their corporate office according to which Shri C.L. Anand, promoter of PALI, would receive as the interest free advance of Rs. 1.5 crore from PEICO which will be written off after ten years and this amount was made available to PABL on 10/10/1984. As per this secret understanding in lieu of the interest free advance of Rs. 1.5 crore from PEICO to Shri C.L. Anand which will be written off after 10 years, PEICO had right to buy the entire production of PALI. Shri Pramod Kumar, pleaded that the amount of Rs. 1.5 crore received by PABL was reflected in the balance sheet of PABL for 1984-85 as advance against supplies to be made. The secret understanding indicated that Shri C.L. Ananad, one of the promoters of PALI, had diluted his powers over the business and management of PALI. He pleaded that this is a clear evidence that there was mutuality of business interest between PIL and PALI and hence, PALI and PIL have to be treated as related person and accordingly in respect of the sales of lamps by PALI to PIL it is the price at which the same goods are sold by PIEL to independent buyers which would be the assessable value of the goods.
5. We have considered the submissions from both the sides and perused the records.
6. The undisputed fact is that during period of dispute, about 97 to 98 per cent of the production of PALI was being sold to Philips India Limited and balance 2 to 3 per cent of the sale was to M/s. Bajaj Electricals Limited. The departments allegations is that PALI and Philips India Limited are related persons within the meaning of this term as defined in the section 4 (4) (c) of section 4, and therefore, in terms of 3rd proviso to section 4 (1) (a) the price at which Philips India Limited sold, the goods to independent buyers which would be the assessable value of the goods. Since neither there is allegation of the department that M/s. Bajaj Electricals Limited were also related person of PALI within the meaning of this term as defined in section 4 (4) (c) nor there is any evidence on record that PIL and Bajaj Electrics Ltd are related persons, the sales of PALI to Bajaj Electricals Limited have to be considered as sales to independent buyers. The department also does not refute the claim of PALI that the sale price of similar goods to Bajaj Electricals Limited was more or less same as the sale price of the same goods to Philips India Limited. It is also not the allegation of the Department that sales of similar goods to Bajaj Electricals Ltd. were not genuine transactions. Therefore, the sale price of the similar goods to Bajaj Electricals Ltd. has to be treated as the normal price. The Commissioner, however, in para 55 of the impugned order observing that the practically PEIL was lifting nearly the whole of the PALIs production and allowing the meager quantity to Bajaj Electrical Limited with intent to circumvent situation of facing any Central Excise obligation has held that the sales of the lamps by PALI to Philips India would be hit by 3rd proviso to section 4 (1) (a) and in respect of these sales, it is the price at which Philips India Limited sold the goods to independent buyers which would be the assessable value.
7 Section 4 (1) (a) as the same stood during the period of dispute is reproduced below:
SECTION 4. Valuation of Excisable goods for purposes of charging of duty of excise.- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be
(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:
Provided that-
(i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers;
(ia) where the price at which such goods are ordinarily sold by the assessee is different for different places of removal, each such price shall, subject to the existence of other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such place of removal;
(ii) Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof;
(iii) Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the asseessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail;
7.1. The definition of related person as given in the sub-section (4) (c) of section 4 is also reproduced below:
(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.
From the perusal of section 4 (1) (a), it is clear that 3rd proviso to section 4 (1) (a) becomes applicable only when the assessee so arranges that the goods, generally, are not sold by him in course of wholesale trade except to or through related person, as defined in section 4 (4) (c) and only in such a situation the normal price of the goods for the purpose of calculation of duty shall be deemed to be price at which the goods are ordinarily sold by the related person in course of whole sale trade at the time and place of removal to independent buyers. When, the assessee, in addition to sale of the goods produced by him to related person on regular basis, also sells the same goods on regular basis to independent buyers, the third proviso to section 4 (1) (a) would not apply and in that case the normal price at which the assessee was selling the goods to independent buyers which would be the assessable value even in respect of the sales to related persons. The reason for this is that in terms of provisions of section 4 (1) (a), as the same stood during the period of dispute, when the goods manufactured by an assessee attracted duty at an ad-valorem rate, the value of the goods for the assessment of duty was deemed to be the normal price which was defined as the price at which such goods are ordinarily sold by the assessee to the buyer in course of the wholesale trade for delivery at the time of place of removal, where the buyer is not related person and price is the sole consideration for sale. When such a price was available, it is that price which would be the assessment value and only in a situation where the entire sales are generally to or through related person, there was need to invoke third proviso to section 4 (1) (a). In this regard, the word generally in 3rd proviso to section 4 (1) (1) means that except for some stray cases, the sales of the assessee are to or through related person. But when an assessee has sales on regular basis to independent buyers it cannot be said that the assessee has so arranged that the goods manufactured by him are generally sold by him to or through a related person and in this regard, the quantum of sales to independent buyers is not relevant. The Tribunal in the case of Pepsico Holding India Limited (supra), in para 10 of the judgment has held that 3rd proviso to section 4 (1) (a) can be invoked only in the cases where the goods are sold exclusively through related persons and 3rd proviso would not be applicable when 2 to 3 per cent sales are to independent buyers even though 97 to 98 per cent sales were to related persons. The same view has been taken by Honble Bombay High Court in the case of Cosmos India Rubber Works Private Limited Vs. Union of India (Supra). Applying the ratio of these judgments of the Tribunal of Bombay High Court to the present case, even if in this case, it is assumed that PALI and Philips India Limited were related persons within the meaning of this term as defined in the section 4 (4) (c), the assessable value of the goods sold by PALI to Philips India Limited would be the price at which the similar goods were being sold by PALI to Bajaj Electricals Limited and in this regard, the department has not refuted the plea of PALI that the sale price of the goods manufactured by them to PIL was more or less same as the sale price of similar goods to Bajaj Electricals Limited. In view of this, it cannot be said that the PALI, in respect of their sales to Philips India Limited have not paid duty on the normal price. When undisputedly 2 to 3 per cent of the sales of PALI were to Bajaj Electricals Limited and neither the genuineness of these transactions is disputed by the department nor the department has alleged that PALI and Bajaj Electricals Limited were related person within the meaning of this term as defined in section 4 (4) (c), the department cannot invoke 3rd proviso to section 4 (1) (a) and charge duty in respect of the sales of PALI to Philips India Limited at the sale price of Philips India Limited to its dealers.
8. Therefore, irrespective of whether PALI and Philips India Limited were related persons or not, the impugned duty demand against PALI and imposition of penalty on them and Philips India Limited and Philips, Netherlands is not sustainable.
9. In view of the above discussion, the impugned order is not sustainable. The same is set aside. The appeals are allowed.
(Order pronounced on 17/6/15) (Rakesh Kumar) Member (Technical) (S.K. Mohanty) Member (Judicial) Ritu 18