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TMI Blog1997 (5) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... Poornalaya Electricals were manufacturing `V Guard voltage stabilizers in their factory at the above address under an agreement with M/s. Prompt India, Cochin, the owner of the brand name `V Guard and have sold the entire production to M/s. Prompt India. The goods in question have been despatched to their branch sales office at Coimbatore-45 earlier functioning at 398, Pankaja Mill Road, Coimbatore-45 and at present at Door No. 163, Balaji Nagar, Avarampalayam Road, Coimbatore-44. Since M/s. Prompt India, Cochin is only a trader in voltage stabilizers and Electronic Clocks and hence not eligible for the SSI exemption under Notification No. 175/86-C.E. as amended, M/s. Poornalaya Electricals even though a SSI unit, had paid the duty at the full effective rate of 15% adv. on the `V Guard voltage stabilizers without availing the SSI exemption. M/s. Poornalaya Electricals have manufactured and cleared the following varieties/models of `V Guard voltage stabilizers, viz. (1) 300 VA Deluxe (2) 500 VA (3) 300 VA Extra Booster (4) 1 KVA (5) 3 KVA (6) 4 KVA (7) 5 KVA. It was found during the scrutiny of the records that the actual price fetched by the `V Guard Voltage stabilizers in que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers were outside the State. He was not allowed to buy from any other dealer. He also stated that he was getting the following items of raw materials/components viz., guarantee card, Sl. No. sticker, monogram, monogram belt etc., from M/s. Prompt India, Cochin, at the prices fixed by them. The leaflets supplied by them were given free and were not charged for by them. Mr. Vijayakumar further stated in his statement that the technical know-how pattern, model, design and circuit diagram etc., were also given to them free of cost by M/s. Prompt India, Cochin. He added that M/s. Prompt India have been taking the responsibility for the entire sales arrangement, all kinds of advertisements, after sales services and the 7 years guarantee for the goods. M/s. Proornalaya Electricals had no responsibility in this regard. According to the agreement he should sell the entire production of `V Guard Voltage stabilizers only to M/s. Prompt India at the prices accepted by them and he cannot sell them to any one else or at any price other than the price accepted by M/s. Prompt India. He added that he was manufacturing the `V Guard Voltage stabilizers only for M/s. Prompt India and was not manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller. She was drawing a monthly salary of Rs. 1100/- from the branch office of M/s. Prompt India, Cochin at Coimbatore as per the direction of M/s. Prompt India, Cochin. Her duty at M/s. Poornalaya Electricals was to test all the `V Guard voltage stabilizers manufactured in the factory with the specification and quality prescribed by M/s. Prompt India and approve them. In the same manner, she had to test the raw materials/components purchased by M/s. Poornalaya Electricals for the manufacture of `V Guard voltage stabilizers to see that they conform to the specifications and quality prescribed by M/s. Prompt India. Whenever she found any raw materials/components below the quality standard prescribed by M/s. Prompt India she rejected the same. Similarly, she had to test and approve each and every `V Guard voltage stabilizer manufactured in the factory and reject the ones which did not conform to the quality prescribed by M/s. Prompt India, Cochin. She added that she was not connected with M/s. Poornalaya Electricals in any other way and that she was not in receipt of any remuneration or gift from M/s. Poornalaya Electricals. She further stated that her name was not found in the at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India to do quality control checks in M/s. Poornalaya Electricals 3 or 4 days a week. The stabilizers which were approved in the quality control tests alone were packed and sent for sales. He added that he signed on the guarantee card as proof of approval. He had also to test the quality of raw materials, components used in the manufacture of `V Guard voltage stabilizers. He further stated that another employee of M/s. Prompt India, by name Mrs. Thilagavathi was also working at M/s. Poornalaya Electricals as a quality controller. For the quality control test or for any other work done by him at Poornalaya Electricals he was not getting any remuneration from them and that he was not connected with M/s. Poornalaya Electricals in any way. 8. In his further statement given on 30-11-1989, Mr. R. Vijayakumar, Partner of M/s. Poornalaya Electricals, Coimbatore deposed that he was manufacturing `V Guard voltage stabilizers in his factory from October, 1987 onwards and had obtained Central Excise licence No. 5/87 for the same and was paying duty on the same. He added that he was manufacturing and selling the entire production of `V Guard voltage stabilizers to M/s. Prompt India, Cochin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any goodwill for their brand name `V Guard owned by M/s. Prompt India, his values were low. He added that he did not submit any contract or copy of contract along with the Part II price list submitted by him to the Department for approval of the price list since he had not entered into any such contract regarding the prices or the quantity to be sold at a particular price. He had enclosed only the copies of letters of M/s. Prompt India which refer to a discussion regarding the price and their acceptance along with the Part II price list for approval. He added that he had already submitted the file containing such price lists. He further stated that he had paid the duty as per the prices quoted in the gate passes and had received the same amount after issue of invoices. He stated that he had not issued any credit note or debit note to them. He further stated that the `V Guard voltage stabilizers and the raw materials components that go into the manufacture of the same were subject to the quality test by Mrs. Thilagavathi and Mr. C.X. James employed by M/s. Prompt India as Quality Controllers in his factory. He further stated that M/s. Prompt India had instructed him to purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r payment of duty resulting in under valuation of `V Guard voltage stabilizers by M/s. Poornalaya Electricals and consequent evasion of Central Excise duty. 12. M/s. Poornalaya Electricals have filed the price list under Part-II for approval of the Department, while filing the price list they have enclosed only a copy of letter from M/s. Prompt India, Cochin, which referred to some discussions they already had. It did not however contain any record of the nature of discussions held to arrive at the prices quoted nor do they contain a copy of any regular contract or agreement for sale with the terms and conditions of sale, if any, between the parties. The basis adopted for computing the assessable value sought for approval was also not furnished. In all cases only a copy of the letter of M/s. Prompt India, Cochin, addressed to M/s. Poornalaya Electricals, Coimbatore, which referred to a discussion they had with the manufacturer and gave the price at which the goods in question have to be cleared after filing necessary price list in Part II for approval of the Department had been enclosed and filed with the Department. Apart from this there was no mention of the prices quoted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the goods were manufactured with the customers brand name and the entire production was sold to the customer and the advertising expenses are also borne by the buyers and without any written agreement between the parties in this regard it was held in several decisions that such circumstances are not sufficient to hold that these two firms are related persons. He pointed out that in regard to the terms of the agreement the manufacturers sell the stabilizers to the brand name owner on principal to principal basis and the concept of related persons will not arise in the facts and circumstances of the case. In this connection he relied on the following decisions :- (i) 1984 (17) E.L.T. 323 (S.C.) in the case of U.O.I. Others v. Atic Industries Ltd. (ii) 1986 (26) E.L.T. 881 (S.C.) in the case of Sidhosons Anr. v. U.O.I. Ors. etc. (iii) 1987 (28) E.L.T. 445 (Tribunal) in the case of APTE Amalgamation Pvt. Ltd. v. Collector of Central Excise , Bombay. (iv) 1989 (41) E.L.T. 368 (S.C.) in the case of U.O.I. v. Playworld Electronics Pvt Ltd. (v) 1991 (51) E.L.T. 309 (Bom.) in the case of Ceam Electronics Pvt. Ltd. v. U.O.I. (vi) 1992 (60) E.L.T. 574 (Tribunal) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rompt India undertook the entire marketing and responsibility for all advertisement and after sales services, etc., for the goods manufactured by M/s. Poornalaya Electricals, Coimbatore. (ii) The price at which the goods have been sold by M/s. Poornalaya Electricals to M/s. Prompt India are influenced by extra commercial considerations. The invoice price adopted by M/s. Poornalaya Electricals to determine Central Excise duty was much lesser than the rate at which M/s. Prompt India charged to their dealers. M/s. Prompt India undertake the responsibility of after sales service and guarantee for 7 years period for the `V Guard stabilizers manufactured by M/s. Poornalaya Electricals, Coimbatore. The guarantee card is signed by the quality controller employed by M/s. Prompt India in M/s. Poornalaya Electricals, Coimbatore. In the normal course of trade no manufacturer would allow an employee of another concern to conduct the test of the quality and sign the guarantee card for the products manufactured by them. Besides, both the quality controllers employed by M/s. Prompt India to work in the factory of M/s. Poornalaya Electricals, were not paid by M/s. Poornalaya Electricals, but by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the raw materials from any manufacturers whom they like. The raw materials should be purchased as per the instructions given by M/s. Prompt India. This fact is clearly established by the Department from the statements recorded from Shri R. Vijayakumar, one of the partners of the M/s. Poornalaya Electricals. Besides, the statement given by Shri S. Madhusoodhanan, Works Manager of M/s. Micro Wave Products, Coimbatore on 23-11-1989 with reference to purchase of raw materials is a corroborative evidence in this regard. Shri S. Madhusoodhanan, had admitted that M/s. Prompt India had instructed them to supply the required raw materials to various manufacturers of `V Guard voltage stabilizers. From this, it is clear that M/s. Poornalaya Electricals are influenced by M/s. Prompt India, Cochin, in their manufacturing activities. 16. The point that arises for our determination is whether these facts are sufficient to prove that the appellants and M/s. Prompt India are related persons. In this connection the learned Advocate relied on the decision of the Hon ble Supreme Court reported in 1984 (17) E.L.T. 323. In that particular decision the Hon ble Supreme Court held as follows :- What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. In the present case the only fact available are M/s. Prompt India is providing technical know-how and the appellants manufacture the goods with the brand name of M/s. Prompt India and M/s. Prompt India undertook to advertise and after sales services. It only goes to show that M/s. Prompt India is testing the goods to their satisfaction and the appellants manufacture the goods for M/s. Prompt India. M/s. Prompt India is only a purchaser from the appellants and while purchasing the goods they ensure that the quality of the goods do not suffer. The mere fact that M/s. Prompt India sold the goods at higher price than the purchase price from the appellants and the other circumstances including that the entire production has been sold by the appellants to M/s. Prompt India is not enough to show that these two firms have got interest in the affairs of each other. 17. In this connection the learned Advocate also relied on the decision of the Hon ble Supreme Court reported in 1986 (26) E.L.T. 881 wherein at page 882 it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer s specifications or under his supervision or to his brand name does not militate against an arm s length sale. Thus in 1985 (22) E.L.T. 302 Union of India v. Cibatul Ltd. and 1985 (22) E.L.T. 324 Joint Secretary to Government of India v. Food Specialities Ltd., it was held that - (i) manufacture of goods to a specification constituting the buyer s standard, (ii) tests by the buyers and supply only on approval, (iii) affixture of the trade mark of the buyer to those supplied after approval, do not militate against an arm s length sale. The manufacturer owns the plant and machinery, the raw materials and the labour and manufactures the goods and under the agreements, affixes the trade marks on the goods . The manufacturer produces the goods on his own account and sells the goods with the trade marks affixed on them to the buyer. These are decisions under the old Section 4, seeing that the agreements construed as well as the relevant periods were prior to the amendment thereof; (i) in the Tribunal as well [E-Appeal No. 80/82-A Collector of Central Excise v. Misfair Home Products] we had occasion to hold, following the aforesaid decision, that, merely on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons. 20. Reliance was also placed on the decision of the Bombay High Court reported in 1991 (51) E.L.T. 309 wherein at Para 2 their Lordships held as follows :- 2. Shri Shroff, learned Counsel appearing on behalf of the petitioners, submitted that the order of the Assistant Collector cannot be sustained in view of the decision of the Supreme Court reported in 1989 (41) E.L.T. 368 (Union of India v. Play World Electronics Pvt. Ltd.) The submission of the learned Counsel is correct and deserves acceptances. It is not in dispute that M/s. Peico Electronics had placed order for supply 3000 pieces of two band portable transistors with the petitioners and the price fixed for each piece was Rs. 125/- plus taxes as applicable. The Assistant Collector felt that as the sale was not effected at the factory gate but the transistors are supplied to M/s. Pieco Electronics for onward sale to their dealers, the price at which the sets were supplied by the petitioners cannot be considered as normal price of the goods at the factory gate. The Assistant Collector felt that the normal price should be one at which the transistors were sold by M/s. Pieco Electronics in the course of wholesale tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsibility 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 direction 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. Applying the above principles to the facts of this case it is seen that the recital in the agreement as well as the fact that the whole production is sold to M/s. Prompt India and that they have furnished the technical know-how do not make the transaction between the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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