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3. The assessee, M/s. Cilag Limited, is a foreign company incorporated in Switzerland and carries in the business of amongst other things, development, manufacture and sale of chemical, medical, pharmaceutical, biological, bacteriological and related products and specialities. It has a world trade and also trade in India and in respect of its income subject to the Indian Income-tax Act, it has been assessed in the status of a non-resident. There is an Indian company named "Cilag Hind Limited", which is a 60% subsidiary of the assessee, incorporated in India with the object of conditioning, manufacturing, treating, refining, importing, exporting, buying and selling, drug, medicines, pharmaceuticals, etc. The three agreements mentioned in the question framed by the Tribunal are the agreements entered into between the assessee and Cilag Hind Ltd. on the respective dates. The first agreement of the 6th October, 1950, and the agreement dated the 1st of March, 1954, which was in suppression of the said agreement, were substantially on the same lines and were entered into with the same objects and purposes in view. Since the first agreement, as we have already pointed out, was superseded by the second agreement, we will refer to the terms of the second agreement only. The said agreement, which was executed on the 1st of March, 1954, stated in its preamble that since Cilag Limited was engaged in the development, manufacture and sale of chemical, medical, pharmaceutical, biological, bacteriological and related products and specialities and since for the purpose of such manufacture Cilag Limited had established, maintained and was continuously developing laboratories for chemical, medical, biological, bacteriological and related research work factory and standardization laboratories and also patent, engineering and propaganda departments and thus had acquired valuable scientific and practical experience enabling it not only to improve already existing products and manufacturing processes, but also to discover new products, etc., and was spending considerable amounts for the maintenance and development of such departments and as Cilag Hind Ltd. was desirous of acquiring the extensive knowledge and practical experience in the pharmaceutical filed that Cilag had acquired by reason of its long and extensive research work and scientific and practical experience which it had acquired in connection with the importation, introduction and distribution of the said products in India and also in other territories to be mutually agreed to between the parties and also for conditioning and manufacture of the same in India, the agreement was being entered into between the parties. Under clause (1) of the agreement, Cilag Hind Ltd. were appointed the authorised importers, distributors, processors and manufacturers of the said products of Cilag Ltd. for the duration of the agreement. Clauses (2), (3) and (4) related to the supply of the products of Cilag Ltd. to Cilag Hind and the price to be paid for by the latter in respect of the same. Under clause (5) Cilag Ltd. agreed to put at the disposal of Cilag Hind Ltd. all their professional knowledge and experience useful in introducing the said products and promoting their sale in India and also to supply to Cilag Hind with the necessary prospectuses and clinical literature, etc. Under clause (6) Cilag Ltd. agreed to supply to Cilag Hind the necessary active substances and furnish adequate conditioning processes, that is, manufacture tables, pills, etc., and also to furnish adequate conditioning processes and formulas and sustain their applicant with all their relevant scientific and technical data, information and experience. The price to be paid by Cilag Hind for the active substances to be supplied was to be as agreed to between the parties. The further clauses of the agreement are more important for the purpose of consideration of the question before us. Under clause (7) it was provided that in order to enable Cilag Hind to manufacture or have manufactured for it the active substances of the said products or any of the said products for it the active substances of the said products or any of the said products in India, Cilag shall grant to Cilag Hind exclusive and non-transferable licences for all Cilag's relevant patents whether protected or not, secret industrial and laboratory procedures for their respective use in India. Cilag shall also grant to Cilag Hind exclusive and non-transferable licences in so far as is permissible in law, to use the relevant trade marks or trade names of Cilag in India. Under clause (8) Cilag agreed to furnish all the necessary construction plans and technical and chemical instructions for the setting up of the required factories, laboratories, industrial apparatuses and installations. By clause (9) Cilag agreed to delegate temporarily their technical and other experts for the supervision of the construction work as well as the setting up of the apparatuses and installations and for the launching of the actual chemical production and to give adequate theoretical and practical training to the Indian personnel of Cilag Hind until they were able to handle the production independently. Cilag also agreed to permit Cilag Hind to delegate its Indian personnel to the manufacturing plant of Cilag for training at the cost of Cilag Hind. Under clause (11) Cilag agreed to make available to Cilag Hind and allow Cilag Hind to participate in all Cilag's future scientific and technical activities and achievements. Cilag Hind on the other hand agreed not to divulge at any time to third parties without the consent of Cilag any of the chemical and technical information supplied to it or made available to it by Cilag and in particular all processes, formulae, scientific data, working rules and prescriptions pertaining to the manufacture of the said products and to keep the same under lock and key. Cilag Hind also under took that the said products manufactured and conditioned by it in India shall also in all respects conform in quality, presentation and outer appearance to Cilag's regulations and prescriptions. It was also agreed that Cilag should be entitled at any time to request samples of there said products to be sent to it by Cilag Hind for approval of Cilag. It was further agreed that Cilag Hind was to be guided in all respects by Cilag's directions and advices as to the conditions of such samples and the improvements, if any, to be made thereto. Cilag Hind also agreed to permit Cilag's representatives to inspect the plants, installations and laboratories of Cilag Hind and to supervise the manufacturing and conditioning processes, whenever required by Cilag. Under clause (14) Cilag Hind agreed that the imported, manufactured and/or conditioned products in India will be sold, marketed and distributed only under the respective registered trade marks of Cilag and will not be substituted, altered or changed, and Cilag Hind also agreed not to claim any right to the said rights or trade names or the get-up of the said products. Under clause (15) Cilag Hind undertook not to export or re-export any of the products imported by it into India nor export or sell outside its territory any of the products manufactured by or for it and/or conditioned by or for it in India except with the express consent in writing of Cilag. Under clause (16) the duration of the agreement was fixed for an initial period of ten years and if it was not terminated at the end of the said period, it was to continue further and be in force for such period as would be agreed to between the parties. On a termination of the agreement, however, Cilag Hind was to cease to use the trade marks, patents, information, data, formulae, processes, etc., covered by the agreements and shall return to Cilag or such persons as Cilag may appoint in that behalf all the copies of such information, scientific data or material sent to it by Cilag under the agreement or any separate licence agreements and then in its possession, power and control. Clause (12) of the agreement provided for the compensation, fee, royalty or payments which were to be made by Cilag Hind to Cilag for the matters mentioned in clauses 7, 8, 9 and 11. Clause (12) provided that the compensation, fee, royalty or payments to be made by Cilag Hind to Cilag for the grant of licences, and for the giving of such information, processes, formulae, scientific and other technical data as provided for in clauses 7, 8, 9 and 11 shall be mutually agreed to between Cilag and Cilag Hind and the same may be by way of current contribution to the scientific and technical research expenses incurred by Cilag or otherwise. It was further provided that the terms and provisions of such agreements and, in particular, the granting of licences by Cilag to Cilag Hind, their validity and continuity were, wherever possible, to be recorded in separate agreements. The compensation, fee, royalty or payments due to Cilag, it was agreed, was not to exceed 5 per cent. of the net proceeds from sales of the said products manufactured by or for Cilag Hind in India under the licences granted by Cilag, during the first ten years and not to exceed half thereof for the remaining five years of such a licence's validity. It was in pursuance of this clause (12) of the agreement that the agreement of 23rd April, 1957, was entered into between the parties, viz., Cilag Limited and Cilag Hind. This agreement having stated in its preamble that it was being entered into in pursuance of the agreement dated 1st March, 1954, and after having referred to the relevant provisions of the said agreement, stated that whereas Cilag in terms of the said agreement granted to Cilag Hind exclusive and non-transferable licences for all of Cilag's relevant patents, whether protected or not, secret industrial and laboratory processes, formulae, scientific and technical data and assistance in connection with the manufacture in India by Cilag Hind of several active substances and whereas Cilag Hind has with the assistance of such information, processes, formulae, scientific and technical data and assistance commenced manufacture, in India of some active substances and will in due course manufacture other active substances, but no formal agreement has been entered into between the parties as to the compensation, fee, royalty or payments to be made by Cilag Hind to Cilag as aforesaid, the agreement was being entered into for fixing the said compensation, fee, royalty or payments to be made by Cilag Hind to Cilag as aforesaid, the agreement was being entered into for fixing the said compensation, fee, fee, royalty or payments. Under clause (1) of this agreement, Cilag Hind was to pay to Cilag, compensation, fee, royalty or payment in respect of any off the active substances hitherto or now manufactured or that may be manufactured thereafter by Cilag Hind in India with the assistance of such information, processes, formulae, scientific data and assistance equivalent to a net figure of five per cent. of the cost thereof, such cost to be computed on the basis of the cost of the raw materials at the site of the manufacture and the costs of production including manufacturing charges. Clause (2) provided for the method of payment of the said compensation, fee, royalty or payments and clause (3) added that the payment of the royalty fixed shall be made by remittance from India subject to the permission of exchange control authorities in India. The duration of the agreement was fixed at ten years.