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TMI Blog2010 (4) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... der Chapter 38 of the Central Excise Tariff Act, 1985. 2. BIL was formerly known as M/s. Mitsu Industries Ltd. (for short MIL). MIL was formed in 1992 as a private limited company. MIL was inter alia engaged in the manufacture of pesticides, insecticides, and their intermediates. The goods manufactured by MIL fell under the broad category of pyrethroid products. Besides other products like Cypermethrin and alpha Cyermethrin, MIL was manufacturing Allethrins, Deltamethrin, and intermediates for the entire range of products. Prior to July 1999, MIL was not manufacturing Esbiothrin and Esbiol falling under the product group of Allethrins. 3.MIL was formed by family members of Bilakhias who were the major shareholders/promoters of MIL. 4.On Feb. 16, 1998, AgrEvo GmbH and MIL signed a Letter of Intent and on 22-11-98, they signed a letter of Memorandum of Understanding expressing their intention to examine their interest and willingness to form a joint venture for research, manufacture, and sale of mainly synthetic pyrethroids products and their intermediates. 5. Pursuant to the above Memorandum of Understanding, AgrEvo GmbH, AgrEvo SA and MIL entered into a Joint Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cience to various end-consumers. Other products purchased from BIL were used by Aventis CropScience (India) Ltd. for formulation. 11.The price at which the goods manufactured by BIL and sold to AgrEvo SA on export was based on supply agreement dt. 3-7-99. In terms of this supply agreement, BIL agreed to sell deltamethrin product at a particular price for different period from April 1999 to March 2003. The price was agreed to be arrived at on the basis of actual cost of production plus profit margin as mentioned in the table in Annexure 3.1(a) of the supply agreement dt. 3-7-99. Similarly, the allethrin products (Esbiothrin) were also agreed to be sold by BIL to AgrEvo at the actual cost plus mark up of 35% in 1999-2000, 30% in 2000-2001 and 25% in 2002-2003. 12. Esbiothrin products were sold by AgrEvo outside India. BIL arrived at the price in the same manner for its sale to AgrEvo (India) Ltd./Aventis CropScience (India) Ltd. within India. 13. There were several changes in the foreign share holding companies and their Indian counterparts over the period from 1999 to 2004. However, these changes are not being discussed or explained in view of the fact that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the period of demand be restricted to normal period. All penalties were set aside and the matter was remanded to work out the correct amount of demand. However, when the order was to be dictated, it was found that some clarifications were needed as regards exact date on which the product was sold directly to Sumitomo and the date from which the product was sold to Sumitomo through Aventis CropScience (India) Ltd. Therefore, the matter was listed once again on 25-3-2010 and after obtaining clarifications, the matter was reserved for decision. 16. The first issue to be decided is whether the assessable value should be arrived at on the basis of price charged by Aventis CropScience (India) Ltd. to the end user or the price at which BIL sold to Aventis CropScience (India) Ltd. The impugned order has confirmed the demand of duty on the ground that the BIL has to be held as a related person of Aventis CropScience (India) Ltd. Very detailed arguments were presented and several decisions of Hon'ble Supreme Court were cited before us to show as to why BIL cannot be considered as a related person vis-a-vis Aventis CropScience (India) Ltd. The decision of Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he price at which they were sold by BIL to Aventis CropScience (India) Ltd. Further, learned SDR also drew our attention to the fact that before transactions through Aventis CropScience (India) Ltd. started, BIL was selling directly to end customers and the price was equal to the price at which Aventis CropScience (India) Ltd. subsequently sold the goods. It was submitted on behalf of the Revenue that as per Rule 10 of Central Excise Valuation Rules, 2000, when the assessee so arranges that the excisable goods are not sold by himself but sold through interconnected undertaking, the value has to be determined on the basis of price at which the related person sells to the end customers. Learned SDR on behalf of the Revenue submitted that by drawing support from Para 4.12 of the Order-in-Original that buyer and the seller have interest in business of each other in this case. It was pointed out that Shri Naresh P. Pandya, Assistant Manager of BIL had admitted that price at which the goods are sold by related person has to be adopted. There is no dispute that to treat an interconnected undertaking as a related person, it is not sufficient that they are interconnected undertakings. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the case of M/s. Kwality Icecream Co. 2002 (145) E.L.T. 584. The learned advocate also relied upon the decision of Hon'ble Supreme Court in the case of M/s. Alembic Glass Industries v. CCE as reported in 2002 (143) E.L.T. 244 in support of his contention that the shareholders of a public limited company do not, by reason only of their shareholding have an interest in the business of the company and it was submitted by the learned advocate that in this case the purchaser subsidiary company Aventis CropScience (India) Ltd. did not hold any shares in BIL, but it was the holding company of both subsidiaries which held shares. He also relied upon the decision of the Hon'ble Supreme Court in the case of M/s. IOC as reported in 1990 (48) E.L.T. 80 (Tri), holding that just because IOC was a subsidiary company of a company which had shareholding in Burma Shell, it cannot be said that IOC and Burma Shell had mutuality of interest. In that case, Tribunal had considered agreement between the parties in detail. Further, he also relied upon the cases of M/s. International Computers India Mfg. Co. Ltd. - 1989 (41) E.L.T. 287 (Tri.), which is directly applicable to the facts of this case sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evel of profit for the manufacturing activities undertaken by them, they could continue to develop other products; shareholders of the Private Limited company, Bilakhia also got lumsum non-compete fee. In return, the foreign company and the Indian subsidiary ensured that there will be no competitor to them; market established by them would remain intact; the product price at which they were selling need not be revised; the marketing set up and the consumers identified by them would remain intact in the absence of any competitor. The narration of the transactions between the foreign company and two Indian subsidiaries would show that it was a combined operation by which both benefited. If this is not mutual interest, we do not know what mutual interest can be there? Several decisions cited by the learned advocate, dealt with each issue at a time, whereas in this case, it is a combination of all the issues, which have been considered by the Tribunal or by Hon'ble Supreme Court at one time or the other and discussed. But, there is no case wherein all issues existed. In this connection, we find that there are two subsidiaries of the shareholding company, all the product manufactured is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied extended period of limitation and has held that the appellant company viz. BIL is liable to penalty under Section 11AC and his conclusion is reproduced below : "4.24 In view of my above findings as discussed in foregoing paras and on the basis of material evidence available on records in the form of Panchnama, statements and other case records, it is thus clear that M/s. Bilag Industries Ltd./M/s. Bilag Industries (P) Ltd., 206/3, 2nd Phase, GIDC, Vapi have contravened the provisions of Section-4 of Central Excise Act, 1944 read with erstwhile Rule 5 of Central Excise (Valuation) Rules, 1975/now Rule 10 of Central Excise (Valuation) Rules, 2000, Rule 173-C Rule 173F read with Rule 9(1) of erstwhile Central Excise Rules, 1944/Rule 4, 6 8 of the erstwhile Central Excise (No. 2) Rules, 2001/Now Rule 4, 6 8 of the Central Excise Rules, 2002, inasmuch as they have not determined the correct Assessable Value of their products for discharging Central Excise Duty, inasmuch as they have failed to correct declaration under sub-Rule 3A of Rule 173-C of the erstwhile Central Excise Rules, 1944/Rule 4 of the erstwhile Central Excise (No. 2) Rules, 2001/Now Rule 4 of the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tising or publicity, marketing and selling organization expenses, storage, outward handling services, warranty, commission or any other matter. Further, he has also noted that the amount paid by Sumitomo to the foreign company is regarding information and material provided with respect to pricing strategy, marketing methodology, marketing feasibility report, database and technical information related to the product, research and development report, the marketing survey report, post-market surveillance report, information and database of customers, promotional material, feasibility study relating to distribution mechanism. He also taken note of the fact that according to statement recorded more than 19% of the expenses were incurred in research and development of the product. On the ground of above finding, he has held that claim of BIL that amount was paid only for purchasing of marketing lights to market product cannot be considered as consideration for sale of Esbiothrin, cannot be accepted. Learned advocate submitted that in view of the provisions of amended Section 4, the demand is not sustainable at all. According to the provisions of Section 4, additional consideration can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourselves in agreement with the arguments advanced by the learned advocate in view of the definition of transaction value in Section 4. Even though Sumitomo purchased assets regarding Allethrins in 2001 itself, as far as India was concerned, the marketing rights were only acquired by Sumitomo. Further, Sumitomo continued earlier arrangement which has been entered into by the foreign company which is a 100% subsidiary Aventis CropScience (India) Ltd. and BIL. In the result, from 2001 to 2004, BIL sold the product to Aventis CropScience (India) Ltd., who in turn sold to Sumitomo and Sumitomo was selling the goods to the ultimate customer and for the purpose of marketing, Sumitomo had paid the amount of more than Rs. 14.97 crores to acquire marketing rights. We are not impressed by the finding of the Commissioner that the amount paid by Sumitomo can be said to have been reached BIL, because holding company of the BIL and Aventis CropScience (India) Ltd. can be said to have received the amount through Aventis CropScience (India) Ltd. Further, on going through the details of assets as marketing rights, we do not find any ground which can support the finding of the Commissioner that 19% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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