Custom, Excise & Service Tax Tribunal
Cce, Hyderabad vs M/S. Themis Medicare Ltd on 8 March, 2011
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing: 08/03/2011
Date of decision:08/03/2011
Appeal No.E/180/06
(Arising out of Order-in-original C.Ex. No.20/2004 dt. 29/11/2004 passed by CC&CE, Hyderabad)
For approval and signature:
Honble Mr. M.V.Ravindran, Member(Judicial)
Honble Mr. P.Karthikeyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
CCE, Hyderabad
..Appellant(s)
Vs.
M/s. Themis Medicare Ltd.
(formerly known as Themis Chemicals Ltd.)
..Respondent(s)
Appearance Ms. Sudha Koka, SDR for the Revenue.
Mr. R.C. Saxena and Mr. Saurabh Dixit, Advocates for the respondent.
Coram:
Honble Mr. M.V.Ravindran, Member(Judicial) Honble Mr. P.Karthikeyan, Member(Technical) FINAL ORDER No._______________________2011 Per P.Karthikeyan This is a Revenue appeal. The respondent is a manufacturer of bulk drugs and has sold its production during the material period through its distributors. The assessee M/s. Themis Medicare Ltd. (Themis for short) is a limited company; the distributors are private limited companies. The ground for the proposed demand was that the assessee and the distributors were related persons. The period of dispute is from 1995 to September 2000. The amounts in dispute: Rs.2,30,16,649/- for July 95 to March 2000 and Rs. 9,16,600/- for April 2000 to September 2000. The Commissioner did not find the respondents and the distributors to be related as proposed. Vide the impugned order, the Commissioner dropped proposals in the two Show Cause Notices to demand differential duty based on sale price of the respondent manufacturers distributors compared to its own corresponding price to its distributors (buyers).
2. Heard both sides.
3. We find that as per the Show Cause Notice the assessee sells 80 to 85% of its production from its depots to unrelated buyers. It is also seen that some of these buyers are allowed a higher discount than that allowed to the distributors alleged to be related persons of the assessee. We find that as per the Section 4 of the Central Excise Act,1944(the Act), as it existed prior to 1.7.2000, assessable value was the normal price at which excisable goods were sold by the assessee for delivery at the place of removal to unrelated buyers. As such all the goods cleared during the period prior to 1.7.2000 had to be assessed at the normal price and not with reference to the sale price of any related person. Sale price of the related person is relevant value only when there is no normal price as defined in Section 4(1)(a) main definition clause and the assessee arranges to sell the goods ordinarily to, or through, a related person in terms of proviso (iii) to Section 4(1)(a).This proviso (iii) read as follows.
(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 assessee 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. Therefore, we hold that the impugned order correctly dropped the proposal to demand differential duty on clearances made during the period upto 1.7.2000 with reference to the sale price of the distributors of the assessee. In this connection, we note that the Commissioner correctly relied on the decision of the apex Court in UOI Vs M/s Kanthilal and Chunnilal [1986(56)ELT 289(SC)] where it was held as follows:
If a part of the sales are made to a related person and the rest to non-related persons, in course of normal whole sale trade, the price at which the assessee ordinarily sale to whole dealers at the factory gate even in respect of the sales made to are to the related persons would form the basis of arriving at the assessable value.
4. As regards the clearances made w.e.f. 1.7.2000, we note that the respondent and its three dealers were tentatively held to be related for the reason that they had mutuality of interest in the business of each other. As per Section 4(3)(b) of the Act 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.
5. As per the grounds raised in the appeal, the following were the bases to hold that the buyers and the assessee had mutuality of interest and were related.
Moreover, the buyer and the seller were the same person masquerading as different persons behind their corporate veils. The learned SDR supported this submission relying on the Apex Courts judgment in the case of Calcutta Chromotype Ltd. Vs CCE [1998(99)ELT202 (SC)].
6. We find that the Show Cause Notice does not discuss the composition of the Board of Directors of the assessee or distributors, their shareholding pattern and show that the assessee and its distributers are the same person. The position that one or more Directors in the assessee company is also Director in one or other buyer company alone cannot lead to the inevitable conclusion that the entities are one and the same. Two corporate entities can be related persons when,
(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.
That the distributors hold some shares in the assessee company cannot be held to make them related persons of the assessee. As for the transactions between them, the buyers of the assessee standing guarantee to the bank for the bill discounting facility enjoyed by the assessee for sales to them to the tune of three crores for three months cannot be held as an arrangement that is not commercial in nature. The respondent has denied the facility extended to be for a higher amount as alleged. A few instances of interest free loans advanced among the companies or loans to others at the instance of Directors of Themis also need not indicate any extra commercial relationship between Themis and the distributors. Sharing of common premises or employing a common statutory auditor, we find, are inadequate to find mutuality of interest between them. If the assessee requires its distributors to sell its products to specified stockists or not to charge a higher price than what it prescribes for its products cannot also be seen as a noncommercial arrangement. We do not find pervasive managerial and financial control by the assessee over the affairs of the distributors as argued by the ld. SDR. There is no finding of the entities operating common funds as if they are a single entity. There is no sharing of profit. We observe that the following attributes of the entities could justify a finding that they are related.
(1) Mutuality of interest of the units, (2) Financial flow back and distribution of profit.
(3) Separate entity only a facade (4) Common management.
7. We find that these elements do not define the relationship/transactions between the assessee and its distributors. In the circumstances we hold that the impugned order is in accordance with law and does not call for any interference. The appeal filed by the Revenue is rejected.
(Operative portion of this order pronounced on conclusion of the hearing) (P. KARTHIKEYAN) MEMBER (TECHNICAL) (M.V. RAVINDRAN) MEMBER (JUDICIAL) Nr 8