Customs, Excise and Gold Tribunal - Delhi
Agro Foods Punjab Ltd. vs Collector Of Central Excise on 28 February, 1992
Equivalent citations: 1992(39)ECC174, 1992ECR452(TRI.-DELHI), 1992(60)ELT574(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. Since a common question is involved in all the matters, a common order is being passed.
2.0 Brief facts of the cases are as follows :-
2.1 M/s. Agro Foods Punjab Ltd., Abohar (hereinafter referred to as the appellants) manufacture Tomato Ketchup/Sauce and sell them to M/s. VOLTAS LTD. who are the exclusive marketers/distributors of the said products of the appellants. The brand name 'Volfarm' is owned by the distributors, the said M/s. VOLTAS LTD. the appellants were asked to produce the entire invoices of M/s. VOLTAS LTD. to finalise the assessments after approval of prices declared in the price lists submitted by the appellants. The appellants, however, did not produce all the invoices but produce only limited invoices relating to sale of Volfarm Tomato Ketchup/Sauce. The prices have been revised several times during the relevant periods. Since, as aforesaid, the appellants failed to produce all the invoices of the said M/s. VOLTAS, the Central Excise authorities marked up the prices declared in the price lists by an estimated amount of 25% and on that basis demands of duty were confirmed by the lower authorities.
2.2 In confirming the said demands the lower authorities have arrived at a finding that the said M/s. VOLTAS are the 'related persons' of the appellants in terms of Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the said Act) and therefore, the price at which the VOLTAS sell the aforesaid products in the market would form the basts of the assessable value in Section 4 of the said Act and since all the invoices of M/s. VOLTAS have not been produced by the appellants and ad hoc mark up by 25% over the prices declared by the appellants in their price lists is correct in law, as alleged in the show cause notice.
2.2 In coming to the aforesaid finding that VOLTAS are 'related persons' of the appellants, the original authority has noted the following facts :-
"I find that the assessee (appellant) is manufacturing goods according to the specifications of M/s. VOLTAS LTD. and are affixing the brand name of VOLTAS LTD. As per the agreement reached between the assessee (appellant) and M/s. VOLTAS LTD. Voltas is the exclusive marketer of the product manufactured by the assessee and the entire clearances are to M/s. VOLTAS, who further sell to their wholesale dealers through their network in the country. I find that the contract is for long terms of 25 years and the orders for supply of goods shall be as per Voltas and the price between the two according to the variable and fixed costs of the assessee. Direct sales by the assessee are subject to 10% compensation to be paid by the assessee to the VOLTAS LTD. Para 16 of the agreement says that neither of the parties shall be responsible for any breach or non-performance or delay in performance. I find that normally if the sales are on principal to principal basis, the responsibility is there for both the parties in the event of breach etc. but in this case, no responsibility has been fixed and hence I conclude that the agreement is merely a formality. Keeping in view the above facts and findings, I hold that the assessee (appellant) is dictated by M/s. VOLTAS LTD. in terms of quality, specifications, brand name, valuation and the complete marketing. Moreover, on all the letter pads of the assessee it is mentioned that the unit of the assessee is a joint venture of the Punjab Agro Industries Corpn. and M/s. VOLTAS LTD. I find that there is an agreement dated 10-1-1984 reached between M/s. Punjab Agro Industries Corporation Ltd. and M/s. VOLTAS LTD. that the issued share capital of the jointly promoted company, M/s. Punjab Agro Fruit and Vegetable Products Ltd. (now M/s. Agro Foods Punjab Ltd.) shall be held by the two parties in the ratio of 50 :50 basis. I also find that the party (appellants) vide its letter dated 14-2-1986 addressed to the Collector of Central Excise, Chandigarh has mentioned the names of M/s. VOLTAS LTD. and its subsidiaries holding the shares in the company of the party (appellants). Since M/s. VOLTAS LTD. is holding shares in the company, they have direct interest in the business of M/s. Agro Foods Punjab Ltd. As such mutuality of interest is there. Hence I hold M/s. VOLTAS LTD. to be the 'related person' of the assessee".
2.3 In appeals before the lower appellate authority, it has been held in the impugned order by the said authority that it is insignificant whether the appellants have any share in the VOLTAS. What is material is that VOLTAS and its associated companies hold 50% shares in the appellant company. It has also been found by the lower appellate authority that the appellants manufacture goods as dictated by M/s. VOLTAS LTD. The judgment of Supreme Court in the case of Atic Industries Ltd. reported in 1984 (17) E.L.T. 323 (SC) was not found to be covering the facts and circumstances of these cases. The said authority has confirmed the finding of the original authority that the appellant company and M/s. VOLTAS LTD. have mutuality of interest in the business of each other and therefore two are 'related persons' in terms of Section 4 of the said Act. Thus the orders-in-original were confirmed.
3. Learned Advocate, Smt. Archana Wadhwa, arguing for the appellants has urged that the orders of the two lower authorities are untenable in law in view of the direct judgment, of Supreme Court in the case of Atic Industries, mentioned supra, facts and circumstances of which are on all fours with the facts and circumstances of these cases. Apart from the aforesaid judgment, she has also relied upon the following other judgments of the Supreme Court :-
(1) U.O.I. v. Cibatul Ltd. 1985 (22) E.L.T. 302 (SC) (2) CCE, Madras v. T.I. Millers Ltd. and Anr., Madras 1988 (35) E.L.T. 8 (SC) (3) U.O.I. v. Playworld Electronics 1988 (41) E.L.T. 368 (SC)
3.1 She has strongly relied on the following observations of the Supreme Court in Atic Industries, supra :-
"...It is essential to attract the applicability of the first part of the definition (of related persons) that the assessee and the person alleged to be a 'related person' must have interest, direct or indirect in the business of each other. Each of them must have a direct or indirect interest in the business of the other. The quality and degree of interest which each has in the business of the other may be different; the interest of one in the business of the other may be direct, while the interest of the latter in the business of the former may be indirect. That would not make any difference, so long as each has got some interest, direct or indirect in the business of the other. Now in the present case, Atul Products Ltd. has undoubtedly interest in the business of the assessee (Atic Industries Ltd.), since Atul Products Ltd. hold 50 per cent of the share capital Of the assessee and has interest as shareholder in the business carried on by the assessee. But it is not possible to say that the assessee has any interest in the business of Atul Products Ltd. There are two point of views 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 the 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 per cent. Secondly, Atul Products Ltd. is a wholesale buyer of the dyes manufactured by the assessee but even then, since the transactions between them are as principal to principal, it is difficult to appreciate how the assessee could be set by virtue of that circumstance to have any interest, direct or indirect, in the business of Atul Products Limited. Atul Products Limited buys dyes from the assessee in wholesale on principal to principal basis and then sells such dyes in the market. The assessee is not concerned whether Atul Products Ltd. sells or does not sell the dyes purchased by it from the assessee nor is it concerned whether Atul Products Limited sells such dyes at a profit or at a loss. It is impossible to contend that the assessee has any direct or indirect interest in the business of the wholesale dealer who purchases dyes from it on principal to principal basis."
[Emphasis supplied by the advocate] 3.2 Next contention of the learned advocate is that findings of the lower authorities that the appellant company is manufacturing the excisable goods as dictated by M/s. VOLTAS and that the agreement between them is not on principal to principal basis is also erroneous. She has submitted that the agreement between the two has normal clauses which are found in any commercial agreement between the two parties working on principal to principal basis. Learned advocate has taken us to the various clauses of the agreement. She has submitted that the agreement in the present cases is more or less on the same basis as the agreement between the manufacturer and the buyer in the case of Cibatul, mentioned supra. She has in this connection relied upon paras 6,7 and 8 of the Supreme Court's judgment in Cibatul's case, mentioned supra.
4. Opposing the said contentions of the learned advocate, Shri Satish Kumar, learned JDR points out that there is a mutual agreement of sale and purchase of the goods manufactured by the appellants with the said M/s. VOLTAS LTD. The mutual agreement by itself creates mutuality of interest between the appellants and the said M/s. VOLTAS LTD. who are also to bear the cost of advertisement of the product VOL-FARM Tomato Ketchup/Sauce. Advertisement of the product is normally the liability of the manufacturer of the product. This clause, therefore, relating to advertisement in the agreement indicates that the appellants have interest in the business of M/s. VOLTAS and thus there is a mutuality of interest between the two. He has in short reiterated the findings of the lower authorities, as already set out above.
5. We have carefully considered the pleas advanced on both sides. Dealing with the second contention of the learned advocate for the appellants that agreement between the appellants and M/s. VOLTAS is a normal commercial agreement and therefore, purchase of goods by the said M/s. VOLTAS from the appellants is on principal to principal basis, we are inclined to agree with her after going through the various clauses of the agreement. The long period of agreement, exclusiveness in marketing of the products in favour of the said M/s. VOLTAS LTD. affixation of the brand name of the customer of VOLTAS on the products, the manner of placing of order in clause (6) of the agreement, affixation of prices by mutual agreement between the appellants and the VOLTAS, the responsibility of advertising and promotion of the products on the said customers M/s. VOLTAS LTD. and the overriding commission of 10 per cent in respect of the sales to other persons made directly by the appellants to the VOLTAS, keeping VOLTAS harmless and indemnified against any claims from third party regarding standard and quality of the products do not detract from the nature of the agreement as being one on principal to principal basis between the two parties, namely the appellants and M/s. VOLTAS. These clauses in our view do not make the transactions between the appellants and their customer M/s. VOLTAS LTD. as being on dictation of the customer. By virtue of the said agreement the transaction between the two parties does not cease to be one as on arm's length. Paras 6 and 7 relied upon by the learned advocate in Cibatul's case, mentioned supra, are quite apt in the facts and circumstances of this case.
5.1 Similarly, on the question whether the said M/s. VOLTAS LTD. are 'related persons' of the appellants reliance placed by the learned advocate on the Supreme Court's judgment in the case of Atic Industries is correct in the facts and circumstances of this case. Relevant extracts have already been reproduced from the said judgment and we respectfully follow the ruling of the Apex Court and hold that the appellants and the M/s. VOLTAS are not 'related persons' in terms of Section 4(4)(c) of the said Act. The authorities have not been able to show that the appellants have any interest in the business of the VOLTAS. Thus there is no mutuality of interest. Accordingly, we allow the appeals with consequential relief to the appellants.