9911796707
TMI Blog2000 (6) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Commissioner of Customs and Excise, the sole respondent. 3. The facts as have been unfolded are that the petitioner Company is a limited Company under the provisions of the Companies Act, 1956. Its registered office is situated at Bombay and it has a manufacturing factory at Mandideep, Raisen. It is engaged in Manufacturing of detergent powder under the name Ariel falling under Chapter heading 3402.90 of Central Excise Tariff Act,1985. Ariel was being manufactured and marketed by the petitioner Company, namely, Procter and Gamble India Ltd. (hereinafter referred to as PGIL ) till 31-10-1993. Thereafter it is being marketed by another Company called Procter and Gamble Home Products Limited (hereinafter referred to as PGHP ). In the month of November, 1993 PGIL divested the business of Ariel Detergent Powder comprising of Ariel Blue and Ariel Green in favour of the PGHP for a consideration of Rs. 17.8 crores. The PGIL informed the Central Excise Authorities about the divestiture of its business vide letter dated 5-1-1994 along with the price list. In the said list PGIL has specifically mentioned that from November 1, 1993 Ariel is being sold to PGHP and that Mr. D.A. Thomas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decrease in cost of inputs used in the manufactured of Ariel Micro System, Detergent Powder manufactured by PGIL. After receipt of the said letter PGIL submitted its reply stating that w.e.f. 1-11-1993 there has been change in the marketing and distribution pattern of Ariel Micro System Detergent powder and PGIL has transferred the marketing and distribution of Ariel to PGHP. It was also pointed out that the Agreement between PGIL and PGHP had already been filed vide letter dated 2-5-1994. As averred in the petition, on 26th and 27th April, 1995 Central Excise Audit was conducted by the Internal Audit Team of the Collectorate, Indore and the Audit party raised certain queries. These queries were replied to by the PGIL wherein the names of Directors of Richardson Vicks Inc. USA were submitted along with other replies. The Superintendent (Preventive) along with his team visited the Factory premises of PGIL on 26-8-1995, checked the records maintained by PGIL at the factory and seized certain records and stocks. The Central Excise Officers made certain queries which were replied to by the PGIL by letter dated 30-8-1995 and in the said reply PGIL submitted the relationship between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to Procter Gamble, USA and the PGHP are licencees to use the above brand name. It is averred in the writ petition that the product label and packing material used in packing the Ariel detergent powder was also well within the knowledge of the Department and it also knew that two of the Directors including Managing Director and whole time Director of the petitioner Company are also Directors in PGHP. It was also in the knowledge of the department that the majority of shareholders of the petitioner company in M/s. Richardson Vicks Inc. USA and Richardson Vicks is a subsidiary of Procter Gamble, USA. It is asserted that all the above facts were within the knowledge of the Central Excise Department by 30-8-1995. 6. While the matter stood thus, the Central Excise Department issued a show cause notice No. 17530 dated 23-12-1998 of PGIL alleging that they are the manufacturer of marketing of Ariel Detergent Powder and they had made short payment of Central Excise duty amounting to Rs. 25,53,91,961/- for the period December 93 to September 1997. It was alleged in the said show cause notice that PGIL is the agent of PGHP. While a show cause notice was issued to PGIL the department i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department cannot issue a show cause notice is totally erroneous and misleading. It has also been stated in the return that the non-compete agreement and licence of Ariel business were received by the department on 8-7-1997. In this connection reference has been made to Annexure P.16 of the petition. It has been put forth that at no point of time the petitioners had submitted all the agreements together but submitted in piecemeal over a long period of time during which the officers handling the case were transferred and new officers came to handle the case. A reference has been made to Annexure P 16 which clearly admits that the Company had submitted the agreements on 2-5-1994 and 30-8-1995 and had submitted the non compete agreement and licence of Ariel business on 30-6-1997. Further some new facts had been submitted by the petitioner regarding non-competition fee and licence on Ariel business amounting to Rs. 12.80 crores as disclosed by them on 30-6-1997 and many other important information were given having revenue implication. It is stated in the return that in view of the additional facts that came to the knowledge of the department the show cause notice was issued. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." During the meeting of the Board of Directors of M/s. PGIL at Bombay the proposal of transferring maximum business of the Ariel brand was taken. The relevant contents of the minute has been reproduced in the counter affidavit. By narrating all these the stand taken in the return is that PGHP is a related person to PGIL and there has been suppression of this relationship by the petitioner by mis-stating that the transactions were on principal to principal basis. The legal relationship between the two companies was suppressed by the petitioner and hence, the extended period of limitation is attracted in this case. 9. In the counter affidavit it has also been pointedly stated that as per the non-compete agreement the PGIL agreed with PGHP that during the period in question PGIL shall not without their prior written consent, directly or indirectly own, manage, operate, join have an interest in, control or participate in the ownership connected in any manner with, any body corporate, partnership, proprietorship, trust estate, association or other business entity which directly or indirectly engages as a commercial activity in India. The agreement further stipulates PGHP engages PGI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not disclose any mis-statement or suppression of fact which has been made by the petitioner. (vii) The factual matrix will show that there is a change of opinion and that does not entitle the Authority to take re-course to the proviso to Section 11-A(1) of the Act. (viii) A quasi-judicial authority by deciding a jurisdictional fact in an erroneous manner cannot confer jurisdiction on itself. (ix) A show cause notice must be read as it is and nothing can be added to it by the department and the department cannot travel beyond the show cause notice. (x) The plea of the department that there is an alternative remedy does not create a bar for exercise of jurisdiction of this court, more so, when the show cause notice has been issued without any foundation. (xi) The entire show cause notice is based on the agreement dated 19-11-1993 effective from 1-11-1993 and this agreement as well as all the conditions of the agreement were known to the department by 2-5-1994 and, therefore, they cannot take re-course to the extended period of limitation to initiate a proceeding against the petitioner. (xii) There can be only one manufacturer of goods and not two and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny transferred the loss in making detergent business to PGHP w.e.f. 1-11-1993. The share holder pattern was disclosed fully by this letter to the department. But PGIL never submitted the whole facts before the department and they had supplied the material facts on piece meal at different stages. The manufacturing agreement was produced on 2nd May 1994, the non-compete licence agreement was given on 30-6-1997, the relationship and share holding pattern was given on 30-8-1995 and price list was given sometime during June, 1997. Thus the department came to know of the entire scenario after a long lapse of time, and accordingly issued the notice to show cause. (d) The facts pleaded by the petitioner and the reply given by the respondent indicate a complex factual matrix and it is not a case where at a glance it can be said that the show cause notice is palpably erroneous and not justifiable. In absence of this, the High Court in exercise of jurisdiction under Article 226 should not interfere. (e) The department has the responsibility to lift the veil or pierce through the veil to find out the real relationship between the two companies. The petitioner Company had given an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words Central Excise Officer , the words Collector of Excise , and for the words six months , the words five years were substituted. Explanation - Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be. Mr. Mathur, learned Counsel for the petitioner, has cited number of decisions to highlight that unless something more is there mere failure to pay would not attract the proviso to Section 11A(1) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso is committed to extend the period from six months to 5 years. Unless the assessee is put to notice, the assessee would have no opportunity to meet the case of the department. The defaults enumerated in the proviso to the said sub-section are more than one and if the excise department places reliance on the proviso it must be specifically stated in the show cause notice which is the allegation against the assessee falling within the four corners of the said proviso .. In the case of Kaur Singh v. Collector of Central Excise, New Delhi, 1997 (94) E.L.T. 289 (S.C.) the Apex Court following the decision laid in the case of H.M.M. Limited (supra) ruled thus :- "3. This court has held that the party to whom a show cause notice of this kind is issued must be made aware of the allegation against it. This is a requirement of natural justice. Unless the assessee is put to such notice, he has no opportunity to meet the case against him. This is all the more so when a larger period of limitation can be invoked on a variety of grounds, which ground is alleged against the assessee must be made known to him, and there is no scope for assuming that the ground is implicit in the issua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade the payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful mis-statement or suppression or contravention of any provision of any Act is a question of fact depending upon the facts and circumstances of a particular case......" Similar view has been taken in the case of Lubri-chem Industries Ltd. (supra) wherein their Lordships have followed the ratio of Chemphar Drugs Liniments (supra). The learned senior counsel for the petitioner has also drawn the attention of this Court to the case of Padmini Products v. Collector of C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in an application for a writ of certiorari ....." He has also placed reliance on the decision rendered in the case of Smt. Shrishti Dhawan v. M/s. Shaw Brothers, AIR 1992 SC 1555. He has also referred to Administrative Law by Wade (7th Edition Chapter 9) to highlight the concept of error outside jurisdiction. 19. As far as related person is concerned submission of Mr. Mathur, learned Senior Counsel, is that if the transaction between the manufacturers and buyers are on principal to principal basis, the latter is not a related person. It is also his contention that a related person must be one so associated with the assessee that they have interest directly or indirectly in the business of each other. Learned Counsel has also putforth that it is not enough that assessee has an interest directly or indirectly in the business of the person alleged to be related person nor it is enough that the person alleged to be a related person has any relation directly or indirectly in the business of the assessee. It is highlighted by him that mutuality of interest directly or indirectly is the test of related person. To highlight the aforesaid submission he has placed reliance on the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Union of India v. Hind Lamp Limited, 1989 (43) E.L.T. 161 (S.C.) it was held that the goods produced with customers brand name and one of the customer holding 50% shares in the manufacturing Company and the other four customers not holding such shares but they are associated with foreign companies holding 50% shares the customers cannot be treated as related person if no extra commercial consideration alleged and proved even if there is lurking doubt about them to be favoured buyers. 21. In the case of Escorts Tractors Ltd. v. Union of India, 1993 (64) E.L.T. 18 (Del.) a Division Bench of Delhi High Court expressed the view that distributors although having share in seller company are not related persons in absence of mutuality of interest between the two, Mr. Mathur, learned Senior Counsel for the petitioner, has also placed reliance on certain other decisions of which I may notice a few to highlight that even if both buyer and seller are Limited Companies they are not liable to be considered related person if the buyer is a distributor of the manufacturer. This view has been expressed in the case of International Computer India Mfg. Co. Ltd. v. Collector of C. Ex., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1990 (50) E.L.T. 15 (M.P.) wherein the Division Bench posed a question whether a notice issued by the respondents in exercise of jurisdiction conferred on Excise Officials by Section 11A of the Act is valid and after referring to the case of M/s. Chemphar Drugs and Liniments, Hyderabad (supra) held as under :- "9. In the instant case, as already observed, there is absolutely no material on record to show that the petitioner company had committed any fraud or made any misrepresentation with regard to the particulars of the goods which would have misled the excise officials in deciding the relevant item of the First Schedule under which the excise duty could be levied on the goods in question. Even assuming that the item number of the First Schedule to the Act under which the excisable goods fall, has not been correctly shown by the petitioners, this fact, by itself, cannot lead to the inference that the assessee is guilty of fraud, suppression of facts or of wilful misrepresentation. Moreover, until the approval accorded by the excise officials to the classification list is reviewed in accordance with law, the question of any short levy, as alleged in the notice, does not arise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 17.80 crores was disclosed on 11-9-1995. The contention of Mr. Mathur is that when all facts were known to the department before 1995 just because a different opinion can be arrived at action under Section 11A cannot be taken as that is basically fallacious in absence of fraud or misrepresentation. Under these circumstances the learned Counsel has submitted that the plea of alternative forum or to go through the entire process of adjudication is unwarranted. 24. Now, I shall proceed to deal with the decisions cited by the respondents. Mrs. Indira Nair, learned Counsel, has placed reliance on certain decisions to highlight that the High Court under Article 226 of the Constitution should not interfere at the stage of show cause, if prima facie show cause is justifiable. In this regard the decisions cited are State of Andhra Pradesh v. M/s. T.G. Lakshmaiah Setty and Sons, AIR 1994 SC 2377, Union of India v. Bajaj Tempo Limited, 1997 (94) E.L.T. (M.P.) 287, Methodex Systems Pvt. Ltd. v. Union of India, 1997 (95) E.L.T. 23 (M.P.), Grasim Industries Ltd. v. Commissioner of Central Excise, 1995 (77) E.L.T. 74, Bata India Limited v. Commissioner of Central Excise, Patna, 1999 (11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) wherein this Court observed that "show cause notices" are not the end but beginning of the matter. The Court proceeded to observe as under :- 11. "Show cause notices" are not the end, but begining of the matter. Absence of jurisdiction" and "erroneous exercise of jurisdiction" are not liable to be intermixed. It is not suggested that notice is not under the relevant Act or Provision or not by the proper authority. Writ Court, these days, is receiving matters which can appropriately be contested at other forums fixed by relevant Acts. Is it not the time, ripe indeed, to exercise restraint, halt rush and push such cases towards their proper destination? The calendar of Court is quite congested. Should the writ Court then be not more strict to prevent in flow of cases which can be examined elsewhere and possibly with specific expertise?" 26. In the case of Seraikella Glass Works Pvt. Ltd (supra) the Apex Court observed as under :- "This case is a good illustration of why the High Court should not intervene in revenue matters in exercise of writ jurisdiction where adequate alternative statutory remedies are available. In the instant case, complications have arisen because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of October, 1998 October 2000 and October 2001 respectively and another Rs. 2.80 crores as fee for licence of Ariel Business. These have been collectively termed both by the noticee and PGHP in all their subsequent dealings and correspondences to the department as divestiture charges. The freedom of Ariel sales have been conveniently divested from the noticee from PGHP while the manufacturing activities rested with the noticee for which the divestiture charges have been paid. This dealing between the noticee and PGHP does not appear to be the result of any commercial compulsion for obvious reasons but a neatly cut and polished strategy to keep the price of produce at a key low level at the end of manufacturing so that the goods are under assessed for the purpose of payment of duty and then sell the goods at their will. The very term divestiture used to signify the dealing between the noticee and PGHP solemnly denotes that the dealing are not purely commercial but includes in its fold more elements than what meets the eyes. In view of the same the price fixed does not appear to be the sole consideration for sale and is influenced by the transaction as above. 8. Whereas by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a monopolistic buyer in contrast to ordinary buyers envisaged in Section 4(i)(a) of the Central Excise Act, 1944. Accordingly, the provisions of Rule 7 of the Central Excise Valuation Rules, 1975 become operative for determining the value of the goods. 11.1 Whereas the goods manufactured by the noticee enter the stream of whole sale trade, as postulated under Section 4, from the Depots of M/s. PGHP. Therefore, the price at which the goods are sole to the independent wholesale buyer, from the Depots of M/s. PGHP, appear to be normal price of the goods for the purpose of payment of duty. 11.2. Whereas M/s. PGHP vide their letter C.No. Nil dated 27-11-1998 have submitted their Depot Price for different packing prevalent during Dec. 93 to Sept. '97 (before introduction of MRP based assessment of the goods. The said price has therefore, being taken for determination of actual duty payable on the goods manufactured and removed by the noticee during the Dec. '93 to Sept. '97 which comes to Rs. 25,53,91,961/-. Details as per chart Annexure-A enclosed. Before I comment on the aforesaid show cause notice, I shall advert to the facutal matrix of W.P. No. 1232/99. In the said case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the packing materials. The goods are being manufactured by PGI on the specifications provided by the noticee. In this connection, the statement of Shri Ravi Prakash, Plant Finance Manager of PGI was recorded on 26-11-1998 wherein he had confirmed that the noticee has the final say in disposal of the finished as well as the raw materials. Further the product label and packing also brings out a clear message that the noticee are the manufacturers of the said goods in India. For brevity the product label description in verbatim is reproduced as under : - Ariel Compact - detergent powder made in India by Proctor Gamble Home Products Ltd. Mumbai- 400011. Considering the terms conditions of the agreement and the facts emerging out of the investigations, it appears that the PGI are simply an agent of the noticee who manufacture the said goods for them and accordingly the relation between the noticee and PGI cannot be termed as one of the principal to principal basis. The noticee appear to have fabricated and devised the agreement dated 19-11-1993 with sole intent to undervalue the goods and for causing loss to the government exchequer by presenting M/s. PGI Ltd., as the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He has also disputed the fact of relationship between the two Companies and has submitted that both the companies are not related to each other as per the existing law. Mr. Mathur has also submitted that the documents were filed before the department and nothing was brought to the notice of department after the year 1995. The department has placed reliance on the show cause notice to show that both the companies are related and this fact came to be known in exact terms in the year 1998. 31. Considering the totality of circumstances and nature of show cause I am of the considered view it is apposite and appropriate that the petitioner should file a reply to show cause raising all the contention which have been raised before this Court so that the authority would appreciate and may withdraw the notice. The basic challenge being to related person , availability of documents and the essential knowledge of the department, and these being questions of fact I do not intend to deal with the same and record findings in that regard. It is not one of those cases where a bare glance at the notice to show cause would make it manifest that the same is absolutely without jurisdiction or d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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