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TMI Blog1990 (10) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... other point according to the Department is that the appellants were selling their product Patent or Proprietary medicines to M/s. Pharma Chem Distributors of Bombay with a large price difference as between the assessable value declared by the appellants and the selling price of same goods by M/s. Pharma Chem Distributors of Bombay. As a follow up the Departmental Officer visited the premises of the appellants on 4-1-1990. One Shri K.P. Patel, Director of the Appellant Firm and that of M/s. P B Laboratories was present. It was found that the M/s. P B Laboratories are not having the exemption under Notification No. 175/86 since March, 1986 as their clearance value had exceeded 1.5 crores. The brand name P B is owned by P B Laboratories of Bombay who marketed their product with the same brand name and logo. The sales of both the units is being done through M/s. Pharma Chem Distributors situated in the same compound and having inter-linking door. The Directors and partners of the three units concerned were found to be related as under :- S. No. M/s. P B Pharm Pvt. Ltd. Cambay (Regd. office 11, Chakravarty Ashok Road, Kandivali (East) P B Lab. Pvt. Ltd. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-12-1987 and in Schedule 7 thereof it was stated as under or the sundry amount of Rs. 5,80,783/- Sundry debits includes amount due from the P B Pharmaceuticals Pvt. Ltd., Cambay, a company under same management . Similarly in the Balance-sheet of the appellants ended on 30-9-1987 at Schedule 6 thereof, the entry was Purchased 10 equity shares of Rs. 100/- each of M/s. P B Pharmaceuticals Pvt. Ltd., Bombay Rs. 1,000/- (a company under same management) . The Department also obtained a statement dated 5-1-1990 of Shri G.M. Govekar, Works Manager in the P B Laboratories saying that he was having general supervision over production and Central Excise work of P B Laboratories and that they were not availing of exemption under Notification No. 175/86. He also said that certain medicines were originally manufactured by P B Laboratories but they were subsequently produced by the appellants as the appellants were a family concern of P B Laboratories who also continue to use the same logo of their product manufactured and marketed. In regard to the other units M/s. Pharma Chem Distributors, it was found that they have invested or given fixed deposits to the appellants in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade name according to the Explanation VIII to the notification shall mean, a brand name or trade name whether Registered or not that is to say a name or a mark such as monogram label or writing which is used in relation to such specified goods for the purposes indicating connection between the goods and the persons using the brand name or trade name. After issuing of show cause notice and considering the reply thereto and hearing the appellants during which certain persons were also cross-examined, the Collector passed the impugned order holding the appellants ineligible for exemption under Notification No. 175/86 and also that the assessable value of the goods should be fixed at the selling price of the related persons. He confirmed the demand for Rs. 79,67,267.05 under Section 11A of Central Excises and Salt Act, 1944 and held the goods seized to be liable to confiscation and accordingly appropriated the security amount in lieu of confiscation in terms of the bond executed at the time provisional release of the goods. The Collector also imposed personal penalty of Rs. 20 lakhs on the appellants under Rule 173Q of Central Excise Rules, 1944 and [Salt Act, 1944]. 2. Shri Paresh M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Collector s order is based on the fresh evidence which was not before the Assistant Collector. The learned Counsel stated that the Collector s findings that there was no co-relation in respect of each bill is unsound because it is the usal practice of accounts adjustment in trade and in such condition, there may not be Bill to Bill co-relation. The other fresh point said to be taken up by the Collector, is regarding element of cost which can be grouped as marketing expenses. However, the learned Counsel pointed out that the appellants have furnished the details of buyers which was also checked by the Department in 1985-1988 showing incurring of expenses of marketing, the learned Counsel argued when the fundamental issue of whether the appellants and Pharma Chem Distributors were related persons or not has been decided finally by the Assistant Collector and when no appeal is filed against these orders, in such a context, the Department cannot be permitted to take the same plea again and again. The learned Counsel referred to the Civil Code Procedure, 1908 Explanation IV and argued that the bar of res judicata will apply even if the earlier decisions are of an authority subo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(1)(a) of Central Excises and Salt Act, 1944 is not attracted. The case law considered in the Collector s order relating to certain aspects like common Directors etc. for all, is relevant only in a case of clubbing of clearance and they do not have any application in a case under Section 4(1)(a) for the purposes of this Section what has to be established is mutuality of interest. The learned Counsel cited and relied upon the Union of India Others v. Atic Industries Ltd., reported in 1984 (17) E.L.T. 323 (S.C.) and 1988 (35) E.L.T. 8 (S.C.) in the case of Collector of Central Excise, Madras v. T.I. Millers Ltd., Madras and Another. In respect of the grounds for denial of exemption under Notification No. 175/86 on account of common trade mark, the learned Counsel contended that P B Laboratories is a large scale manufacturer and the appellants are a Small Scale Unit. As regards the brand name in 1983, the registration of the brand name and logo was assigned by P B Laboratories to the appellants. There is a deed in this regard dated 1-7-1984 and application for registration of the trade mark was made on 21-9-1990 and registration order obtained on 24-1-1992. The Collector has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P B Laboratories even after the transfer. This is further supported by the evidence of the statement of Shri G.M. Govekar about the use of the logo by both the units. The certificate regarding the trade mark also shows renewal thereof after expiry in 1987 which raises the question as to who was the owner of the trade mark meanwhile. On the question of the appellants and the distributor firm are the related persons, the learned Departmental Representative referred to the details evidence in this regard as set out in the Collector s order and chart giving the relationship of each of the partner. The medicines manufactured by the appellants are marked by the common distributors using the same logo by both the manufacturers, there are other features like loans and fix deposit interest free and rate of interest far below the market rates. The two companies are infact one, being managed by the same family and controlled by them. Sales, promotions and other expenses incurred by Pharma Chem Distributors, the learned Departmental Representative pointed out is an additional consideration which has to be borne by the manufacturers. There is the evidence of statement of Shri K.P. Patel sayin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g purposes only at the premises of the Pharma Chem Distributors after being removed from the appellants premises. 4. The submissions made by both the sides have been carefully considered. The main charges against the parties are that (1) M/s. P B Pharmaceuticals Pvt. Ltd., at Cambay; (2) M/s. P B Laboratories Pvt. Ltd. at Bombay; and (3) M/s. Pharma Chem Distributors are belonging to the different members of one family and thereby the excisable goods, viz., P or P medicines manufactured and removed from the factory of M/s. P B Pharmaceuticals Pvt. Ltd., Cambay with the Logo P/B owned by M/s. P B Laboratories Pvt. Ltd. of Bombay (not entitled to exemption under Notification No. 175/86-C.E., as amended), were not entitled to concessional rate under the said Notification No. 175/86-C.E., as amended by Notification No. 223/87-C.E.; and that M/s. Pharma Chem Distributors, as stated above, were the favoured buyers and related persons and therefore the duty of excise was required to be paid on the price at which such favoured and related buyers had sold the said excisable goods, subject to deduction of the duty element, local taxes and freight admissible. The duty of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 18%. (ii) The Director of Company at Cambay made investment in Bombay company by deposit to the tune of Rs. 3,94,714.00 (in 1986 ended on 31-12-1986) and Rs. 4,49,011/- (in 1987 ended on 31-12-1987). (iii) M/s. Pharm Chem Distributors (where two partners out of three, are Directors of Bombay and Cambay companies) has deposited with Cambay company an amount of Rs. 10 lakh from March, 1985 to March, 1986 interest free and Rs. 15 lakh from April, 1986 to June, 1987 and then continued the same at 12% interest; i.e. lower rate than the prevailing in the market on unsecured loans. Likewise, the said firm has made investment by interest free deposit of Rs. 10 lakh for the year ending 31-12-1986 and 31-12-1987 and continued thereafter. (iv) The Bombay Company and Cambay Company are commonly managed by the common Director, Shri K.P. Patel. (v) M/s. Pharm Chem Distributors, Bombay have undertaken following activities on behalf of Cambay company : (A) Advertisement and sales promotion of products for which (a) they have appointed approximately 100 representatives and Area Managers, who are paid employees and being paid commission also; (b) they have advertised the products in N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that there are sales to independent buyers other than M/s. Pharm Chem Distributors. All the sales, including Pharm Chem Distributors, are at factory gate at the same price and that there was no mutuality of interest in each others business. The Assistant Collector took the view that since the appellants are a private limited company and M/s. Pharm Chem Distributors are a partnership firm, they cannot be held to be a related person. He, further, observed that Further the notice alleges that the assessee and M/s. Pharm Chem of Bombay have substantial mutual interest in each other s business but I find that no evidence has been led to bring home the said allegation either in the form of document or in any other manner. In absence of such an evidence, I find enough force in the submission of the assessee that the allegation is merely a presumption and that no evidence has been disclosed in support of the said presumption in the notice which was squarely a burden cast on the Department. The Assistant Collector also observed that there is nothing on record to conclude that both the parties are so associated in business as to have interest in the business of each other. He also, furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants by use of a common trade mark of P B Laboratories who were themselves ineligible for the exemption came to light and alongwith these investigations further fresh evidence regarding assessable value, which was not all before the Assistant Collectors, were also discovered. These were in the nature of financial tie-up between the appellants and M/s. Pharm Chem Distributors and the latter undertaking marketing costs of the appellants products as well as the fact that the goods were cleared from the appellants factory and latter repacked for marketing by the Pharm Chem Distributors at Bombay. In this context, there is also the other evidence of the interception and seizure of a truck on 9-2-1990 by the Department while on its way to Bombay from the appellants premises. The truck contained medicines manufactured by the appellants in cartons, but these cartons did not have any marking or writing and were not sealed or strapped. This goes to support the allegation of Department that the further sealing and strapping of the goods for marketing is done by M/s. Pharm Chem Distributors. There were also evidence of the statements of the Directors/Partners of the appellants and M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a common Director of both the appellants and P B Laboratories and whose son is the 3rd partner in the distributing firm, in a statement of 4-1-1990 said whatever expenses M/s. Pharm Chem Distributors had undertaken in terms of sales promotion activity were being met from the quantity of discount given to M/s. Pharm Chem Distributors by the appellants for selling their products. This has been, further, confirmed by the statement of Shri Govekar, who is the Works Manager in P B Laboratories and there is an evidence of the Balance-Sheet of these two firms to say that P B Laboratories and the appellants are under a common management as has been brought out in the Collector s order. In such circumstances, the financial transactions between the appellants and the distributing firm have also to be viewed. M/s. Pharm Chem Distributors had invested or given fixed deposit to the appellants in connection with their business which has been categorised as unsecured loan in the Balance-Sheet of the appellants. In 1985-86 and 1986-87, amounts to the extent of Rs. 10 lakh in each year have been invested as such fixed deposit interest-free for no obvious reasons. In 1987-88 and 1988-89, a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the amount of duty paid at Cambay. According to the appellants there is a need for correct calculation of duty by arriving at the correct assessable value at the hands of M/s. Pharm Chem Distributors at Bombay. They have also referred to the detailed working on the basis of actual figures of assessable value in an affidavit dated 31-1-1992 before the Tribunal. This is, however, a matter of detail which can reasonably be looked into by the Collector. The assessable value should be determined on the basis of the sale price at the hands of M/s. Pharm Chem Distributors, but in arriving at such assessable value permissible deductions as per law, have to be made. If there is any error, the appellants may be given an opportunity to put-forth their point before the Collector who may examine whether there is a case for such re-determination or not. In respect of the eligibility of the appellants for the Notification 175/86, the evidence on record clearly shows that Logo and trade name was being used in respect of four medicines produced by the appellants and M/s. P B Laboratories even at the time of seizure in this case which took place in 1990 although the appellants claim is that fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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