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TMI Blog2006 (8) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... to December 2000. Central Excise duty was paid on the value at which TTKHL was selling their goods to their customers from their depots. However, with effect from 17-11-2000 TTKHL entered into a new agreement with Siri Labs. In terms of this agreement, Siri Labs themselves would manufacture the Gripe Water under the brand name Woodward's owned by TTKHL and sell the entire quantity to TTKHL at a mutually agreed price of Rs.5.53 paise per bottle of 130 ml. As the earlier agreement, duty was paid on the value of Rs. 16.44 paise per bottle of 130 ml. In view of the huge difference between the values at which the goods were cleared during the period of first agreement and that of the latter, Revenue examined the issue in detail. There were actually three agreements between TTKHL and Siri Labs. One related to job work, the second one is manufacturing agreement and the third one is trade mark agreement. After going through the agreements, Revenue prima facie came to the conclusion that the manufacturing agreement between 3 Siri Labs and TTKHL is not on principal-to-principal basis and consequently the transfer price agreed to by them is tainted by the relationship between them. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined them properly. (ii) During the period from September 2000 to December 2000, duty was paid on the value at which the goods were sold by TTKHL but this cannot be the basis to upset a genuine transaction value. (iii) The Commissioner erred in holding that unilateral relationship is sufficient to upset the transaction value. The reasoning has no basis in law and further factually incorrect. The relationship is only on principal-to-principal basis. (iv) The reason that branded goods have been produced for M/s. TTKHL and therefore, the transactions are not at arms length runs counter to the decisions rendered by the Apex Court. Manufacture of branded goods and sale of branded goods exclusively to the brand owner will not make the transactions a tainted transaction. (v) The Commissioner has referred to the decision of Bombay High Court in the case of Pilky Footwear Co. Pvt. Ltd. - 1980 (6) E.L.T. 338 (Bom.). The above decision is inapplicable to the present case, as the appellants have not been provided with working capital, interest free advance for operation of the plant and other working expenses. The transactions are on a principal-to-principal basis and on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and various Tribunals. The Adjudicating Authority has not discussed or distinguished the following case laws relied on by the appellants. 1. Vikas Metal Works Ors. v. CCE, Mumbai - 2005 (70) RLT 181 (CESTAT-Mum.) 2 CCE, Jallandhar v. Bee Dee Steel Rolling Mills - 2004 (170) E.L.T. 202 (Tri.-Del.) 3. Kirti Kumar Muljibhai Parikh v. CCE, Vododara - 2003 (159) E.L.T. 1139 (Tri.-Del.) 4. Gurmeet Singh Bhatia v. CCE, Delhi - 2002 (148) E.L.T. 437 (Tri.- Del.) 5. Kamra Bottling Company v. CCE, Bikanet Another- 1987 (27) E.L.T. 240 (Raj.) 6. Steel City Beverages Pvt Ltd. v. UOI - 1986 (23) E.L.T. 147 (Pat.) 7. Kwality Ice Cream Co. v. CCE, Chandigarh - 2002 (145) E.L.T. 584 (Tri.-Del.) 8. Joint Secretary to Govt., of India v. Food Specialties Ltd. - 1985 (22) E.L.T. 324 (S.C.). 9. Lakme Ltd. v. CCE, Mumbai - 2003 (162) E.L.T. 272 (Tri.-Mum.) 10. UOI Others v. Atic Industries Ltd. - 1984 (17) E.L.T. 323 (S.C.) 11. Burman Laboratories Ltd. v. CCE, Indore - 2000 (122) E.L.T. 52 (Tri.) 12. Ranbaxy Laboratories P. Ltd. v. CCE, Chandigarh - 2004 (173) E.L.T. 474 (Tri.-Del.) 13. Y.N. Shah v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Smithkline Beecham Asia Ltd. v. CCE, Vishakapatnam - 2004 (168) E.L.T.40 (Tri.-Bang.). For the period subsequent to December 2000, the arrangement was entirely different as the appellants obtained the drug licence necessary to manufacture Woodward's gripe water. The loan licencee arrangement was no longer necessary. Unlike a job work arrangement where the raw materials were supplied by TTKHL the contract was for the manufacture and sale of Woodward's gripe water of TTKHL. All the raw materials were procured only by the appellants and used in the manufacture of the impugned goods. With effect from 1-7-2000 Excise Duty needs to be paid on the transaction value and the transaction value would mean the price at which the good are sold or offered for sale. The goods were sold during the disputed period, only at Rs. 5.53 per bottle and this fact is not in dispute. Once the sale price is not contested, the same becomes transaction value for the purpose of payment of Central Excise duty. 5.The learned JCDR reiterated the points in Order-in-Original. 6.We have gone through the records of the case carefully. The Commissioner in the impugned order had devoted 36 paragraphs for narra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at of relation between the buyer and the manufacture, the above decisions have no application to the facts of the present case. 10.In para 41 of the order, the Commissioner reproduces the definition of "related person" as per Section 4 of the Central Excise Act effective from 1-7-2000. He comes to the conclusion that if any one of the four conditions mentioned in the definition of expression 'related person' is satisfied, the companies can be treated as related. Therefore, he observes that the contention of the noticee that the two-way flow back is essential to be a related person has no significance. 11.After examining the manufacturing agreement and trademark agreement, the Commissioner gives his findings in para 42. His observations are briefly given below. (i) The product "Woodward Celebrated Gripe Water" is not a product which is otherwise manufactured by Siri Labs/Siri. The word 'woodward' indicates that the same belongs to TTKHL. (ii) In order to manufacture such a product, firstly the technical know-how should be disseminated by TTKHL and they should permit manufacture of such product. (iii) Accordingly, it is in the interest of Siri Labs/Siri that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not merely the question of supply of technical know-how but the total supervisory control of the manufacturing process including purchase of raw materials and quality of final product, stamping of brand name, every thing is controlled solely by TTKHL and as such the agreement cannot be concluded as on principal to principal basis. Accordingly, I hold that there is mutuality of interest between Siri Labs/Siri and TTKHL in the business of each other and the transaction price as adopted by Siris to discharge duty in terms of Section 4(1)(a) is liable to be rejected. (viii) After holding that the transaction price is to be rejected, the Commissioner held that Siri Labs/Siri are liable to pay duty on the value of the goods sold by the related person TTKHL to unrelated buyers in terms of Rule 9 of Central Excise (Valuation) Rules, 2000. Accordingly, he confirmed the demand of duty proposed in the show cause notices (para 43 of the impugned order). (xi) In para 44 of the impugned order, the Commissioner justifies the invokation of extended period on the ground that the appellants had suppressed the facts that the price charged is not a fully commercial price tainted by mutualit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the particular brand name. It is true that by entering into an agreement, the appellants unutilized capacity to manufacture is put to use. Similarly, M/s. TTKHL also stand to benefit. This will be true of any commercial transaction. On this ground, the Commissioner comes to the conclusion that the appellant and TTKHL are related persons within the same meaning in Central Excise Act. This conclusion, to say the least, is preposterous. According to Section 4 (3) (b): persons shall be deemed to be "related" if- (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation - In this clause - (i) "inter-connected undertakings" shall have the meaning assigned to it in clause (g) of Section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and (ii) "relative" shall have the meaning assigned to it in clause (41) of Section 2 of the Companies Act, 1956 (1 of 1956). 13.While coming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods should be taken but the Petitioner contended that excise duty must be levied at the price at which the goods are agreed to be sold under the agreement between the manufacturer (petitioners) and the buyers. The Apex Court held that the goods cannot be assessed on the basis of the market value obtained by the buyers merely because the goods have been manufactured under contract by the third party with buyers brand name. The ratio of this case is squarely applicable to the present case. The High Court of Gujarat dealt with a similar situation in the case of Whitco Ltd. v. UOI - 1995 (75) E.L.T. 61 (Guj.). In this case the assessee was manufacturing goods for himself and for other customers. The goods manufactured for one of the customers could be sold to that customer only. The said customer has right to reject below par goods. It was alleged that the relationship between the assessee and the customer is of principal and agent but the High Court held that the relationship is that of principal to principal basis, advance payment of price at commencement of each quarter notwithstanding. The High Court observed that merely because the buyer had a right to inspect quality of the raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied by the Adjudicating Authority wrongly to the present case, as there is no allegation that TTKHL have provided working capital by way of interest free advance. In any case, it has not been established that the appellants is merely an agent of TTKHL. It should be borne in mind that the appellant manufactures other drugs on his own and is not manufacturing only Gripe water meant for TTKHL. 15. Further, we notice that in the agreement between the appellant and TTKHL, there is a provision for termination of the agreement by one of the parties after giving notice to the other. A careful reading of both the manufacturing agreement and trade mark agreement would reveal that they have been entered purely based on commercial considerations. The price at which the goods would be sold by the appellant to TTKHL would be mutually agreed price and not dictated by the buyer. In such circumstances, the price at which the goods are sold to TTKHL would be the transaction value and as per Section 4(1)(a) the transaction value should be taken up for payment of Central Excise duty. There is no allegation that apart from the mutually agreed price, some extra amount has flown from TTKHL to Siri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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