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TMI Blog2010 (11) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on March 21, 1997. Later an agreement was entered into with M/s. HLL with effect from March 22, 1997. The terms and conditions of this agreement are the same as those with BBLIL. 3. The contention raised by M/s. Kwality Ice Cream that the entire transaction between the parties covered by the agreement was on principal to principal basis and that the price was sole consideration for the sale of the goods was not accepted by the departmental authorities. The demand under show cause notices covering the period from February, 1996 to November, 1997 was confirmed by the Assistant Commissioner under Section 11 of the Central Excise Act, 1944. Appeals preferred by M/s. Kwality Ice Cream against the said order were rejected on the ground that the agreement between M/s. Kwality Ice Cream and BBLIL/HLL does not leave any scope but to indicate that M/s. Kwality Ice Cream has no autonomy to run its unit. Starting from the procurement/purchase of raw material to the manufacture of final product, all the activities of M/s. Kwality Ice Cream were fully controlled by BBLIL/HLL. The nature and type of machinery to be put in use was in terms of the directions of BBLIL/HLL. M/s. Kwality Ice Crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the respondent - assessee submitted that the findings recorded by the Tribunal do not warrant any interference by this Court as the same were based on proper appreciation of the material available on record. It was submitted that the Tribunal merely applied the principle enunciated by this Court and came to the right conclusion that the parties are not to be treated as `related persons' in the matter of computing assessable value of ice cream manufactured by M/s. Kwality Ice Cream. It was submitted that even on the facts pleaded by the Department there is no evidence of any mutuality of interest in the business of each other. 7. We have carefully considered the submissions made by the learned counsel in these appeals. 8. It becomes necessary to examine the ambit and scope of the term `related persons' in order to gauge whether the relationship between M/s. Kwality Ice Cream and HLL can be brought within its fold. A catena of cases have explored and expounded the concept of `related persons' and the intricacies involved in invoking its application. We shall refer to some of those relevant cases in order to decide the points urged by the learned counsel for the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons), who sell such goods in retail; (b) Where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. (2)........... (3)........... (4) For the purposes of this section,- (a) "Assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) .............. (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. Explanation : In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956." 9. According to clause (c) of sub-section (4) of Section 4 of the Act, `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 etc. The explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of such a price, the customer cannot be held to be a `related person' merely because he holds 50% share in the manufacturing company. It is held: "It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition 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 equality 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" 11. In Union of India vs. Playworld Electronics Pvt. Ltd.[1989 (41) ELT 368 SC], this Court took the view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other. But once it is found that persons behind the manufacturer and the buyer are same, it is apparent that the buyer is associated with the manufacturer, i.e., the assessee and then regard being had to the common course of natural events, human conduct and public and private business it can be presumed that they have interest, directly or indirectly, in the business of each other (refer Section 114 of the Evidence Act). It is, however, difficult to lay down any broad principle to hold as to when the corporate veil should be lifted or if on doing that, it could be said that the assessee and the buyer are related persons. That will depend upon the facts and circumstances of each case and it will have to be seen who is calling the shots in both the assessee and the buyer. When it is the same person the authorities can certainly fall back on the third proviso to clause (a) of Section 4(1) of the Act, to arrive at the value of the excisable goods. It cannot be that when the same person incorporates two companies of which one is the manufacturer of excisable goods and the other is the buyer of those goods, the two companies being separate legal entities, the Excise authorities are barr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Prudent Toothpaste". It was under those circumstances it was held that the parties to the transactions were `related persons'. The said decision in no manner supports the point urged by the learned counsel for the appellants. 14. In CCE vs. Xerographic Ltd.[(2006) 9 SCC 556) this Court reiterated the well settled principle and laid down the three conditions that are required to be satisfied before invoking the third proviso, namely, firstly, there should be mutuality of interest; secondly, that the alleged `related person' should be related to the assessee as per definition of Section 4 (4) (c) given in the Act and thirdly, and importantly, that the price charged from the `related persons' was not the normal price but the price lower than the normal price and because of extra-commercial considerations the price charged was less than the normal value. 15. On analysis of the decisions referred to herein above, it appears what is important is that each of the parties involved should have an interest, whether direct or indirect in the business of each other. The following are the relevant clauses of the agreement between M/s. Kwality Ice Cream and BBLIL/HLL based on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given to M/s. Kwality Ice Cream to intimate BBLIL/HLL about its view in the matter. There is nothing to show in that clause that BBLIL/HLL can compel M/s. Kwality Ice Cream to close down the factory or move it from its current location. The only affect of M/s. Kwality Ice Cream not accepting the suggestion is that BBLIL/HLL will be relieved of its obligations under the sourcing agreement. This clause merely indicates conditions on which the terms of sourcing agreement could be brought to an end. 18. The Tribunal also analyzed clause (6) (i) (c) of the sourcing agreement which inter alia provides that BBLIL/HLL would make interest free deposits of Rs. 2.75 crores to the units of M/s. Kwality Ice Cream. The Tribunal on fair analysis of the clause in the sourcing agreement held that the deposits from BBLIL/HLL were taken by M/s. Kwality Ice Cream as a matter of commercial expediency and as a trade practice required in the circumstances of the case. This was so because the amount due to M/s. Kwality Ice Cream as price of the Ice Cream manufactured for M/s. BBLIL is tied up for more than one month before payment is received by M/s. Kwality Ice Cream and goods were exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X
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