Indian Kanoon - Search engine for Indian Law

1. The dispute relates to whether the assessable value of the goods sold by the appellants to M/s. Voltas under a marketing agreement should be on the basis of the price at which M/s. Voltas sell to their dealers.

2. The facts in brief are that the appellants M/s. Pepsi Foods (P) Ltd. are engaged in the manufacture of Potato chips and cheetes corn savoury food products. They sell their goods through their main distributor namely M/s. Voltas under a distributorship agreement. M/s. Voltas have 24% of the shares in the appellants' company. The appellants do not have any share in M/s. Voltas. They have filed price lists under Part I. A show cause notice was issued proposing to approve the price list under Part IV on the ground that M/s. Voltas are the related persons of the appellants. On receipt of the reply, the authorities below confirmed the proposal made in the show cause notice and rejected the plea of the appellants that M/s. Voltas are not the related persons. Hence, the appeal before us.

3. The Collector held that, "The sale of the Pepsi products is based on the distribution system of Voltas, if this is an inefficient one, then it definitely adversely affects Pepsi and the same holds true conversely. Therefore, to argue that interest can be gauged on merely percentage of share holdings of each other firm would be too restrictive a view on the term of related person".

He also held that the appellants manufacture goods as dicated by M/s. Voltas Ltd. in terms of quality, specifications, brand names, valuation and complete marketing. Therefore, there is thus a mutuality of interest between the appellants and M/s. Voltas Ltd.

41. The Ld. Counsel, Sh. V. Sridharan, addressed the following arguments on the point of difference between the two Hon'ble Members of the referring Bench. It was submitted that the admitted position is that M/s. Pepsi Foods (P) Ltd. have a shareholding interest in M/s. Voltas, but there is no shareholding by M/s. Voltas in the former firm. The goods are manufactured by M/s. Pepsi Foods under their own brand name and they are the sole owners of the goods. It is an outright sale of the goods by them to M/s. Voltas. The Ld. Counsel, in this connection, referred to the Agreement between the parties. It was urged that in clause 12 of the Agreement, it has been specifically provided that the transaction between Pepsi Foods and Voltas, in pursuance of the Agreement, shall be on a principal to principal basis and that nothing in the Agreement shall constitute either party as the agent of the other. On the outright sale of the goods to M/s. Voltas, the property vests with M/s. Voltas. The Ld. Counsel urged that all the clauses in the Agreement were standard commercial clauses and there was nothing unusual in them. The Ld. Counsel referred to the reasoning in the Hon'ble (Technical) Member's order and submitted that it cannot be said that M/s. Pepsi Foods are related person to M/s. Voltas on the basis of Pepsi Foods, being beneficiaries of increased sales by M/s. Voltas. This in fact, the Ld. Counsel urged, would only mean that Pepsi Foods are interested in their own business or that they can be said to be interested in Voltas for the sake of their own business. The Ld. Counsel cited and relied upon the case of Collector of Central Excise v. T.I. Millers Ltd., Madras and Anr. -1988 (35) E.L.T. 8 (S.C.) in this context. The Departmental argument that the manufacturer of the goods, M/s. Pepsi Foods, is interested in the buyer, has been dealt with and repelled by the Delhi High Court in the case of Jay Engineering Works Ltd. and Anr. v. Union of India and Ors. -1981 (8) E.L.T. 284 (Del.) wherein the Court held that the manufacturer cannot be said to have interest in the business of the buyer. In the present case also, the Ld. Counsel pointed out that if Voltas were to incur losses, it will have no impact on M/s. Pepsi Foods and another feature is that the Agreement is liable to be terminated as has been brought out in clause 18 thereof for any non-performance as per the terms of the Agreement. The Ld. Counsel, further, referred to the case law reported in 1982 (10) E.L.T. 463 (Del.) in the case of Sylvania & Laxman Lid. and Anr. v. Union of India and Ors. to say that mere fulfilment of commercial transaction between the two parties cannot be said to be an instance of related person. He also referred to and relied upon similar other decisions of the Delhi High Court in the case of Straw Products Ltd. and Anr. v. Union of India and Ors. -1987 (30) E.L.T. 275 (Delhi) and in the same Volume at page 281 in the case of Ashok Leyland Limited v. Government of India and Ors. as well as the Delhi High Court decision in the case of Escorts Tractors Ltd. v. Union of India and Ors. reported in 1993 (64) E.L.T. 18 (Del.) wherein the same argument, based on actual and marketing arrangement, had been taken up by the department considering the parties as related persons, but is not found accepted by the High Court.

42. Shri Ram Parkash, Ld. S.D.R., contended that the nature of the Agreement in this case would show that it is essentially an agency Agreement. The totality of the Agreement and the features, as a whole, has to be looked into for the true nature of the Agreement and not mere reference to a particular clause therein. The conduct of the parties and the purport of their dealing is of relevance, according to the Ld. SDR. On this basis, a perusal of the Agreement would show that it is only an agency Agreement vesting M/s. Voltas as the sole selling agents of Pepsi Foods. He cited and relied upon a Supreme Court decision in the case of Snow White Industrial Corporation v. Collector of Central Excise reported in 1989 (41) E.L.T. 360 (S.C.). The Ld. SDR drew attention to clause 10 of the Agreement, which is in relation to direct sales and says that if Pepsi Foods make a direct sale under unusual circumstances, Voltas shall be entitled to be paid compensation for such sale. The Ld. SDR urged that this would clearly show mutual interest between the two parties. Similarly, the warranty clause in the Agreement, according to the Ld. SDR, also indicates mutual interest. Hence, there is reasonable ground to say that the transaction between these two parties is not at arm's length and in such a situation, valuation has to be on the basis of the related persons concept. The Ld. SDR cited and relied upon the case law reported in 1989 (39) E.L.T. 147 (Tribunal) in the case of Eddy Current Controls (India) Ltd. v. Collector of Central Excise, Cochin. In reply, the Ld. Counsel urged that the Supreme Court decision in the case of Snow White Industrial Corporation (supra) is not comparable on facts and submitted that the test of an agency to sell is that the principal manufacturer continues to be the owner of the goods whereas in the present case, by caluse 13 of the Agreement on delivery to Voltas of the goods, the property in the product shall vest with Voltas and clause 12 specifically says that it is not an agency Agreement. It was, further urged that the warranty clause was the normal standard warranty clause for goods found with manufacturing defects and it would not amount to a facility for returning unsold stock.