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TMI Blog2006 (10) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... alty imposed are tabulated hereunder. Dispute covers the period of six years from 2000 to 2005. Order in Original & date Appellant & Appeal No. Period of dispute Duty demanded (Rs.) Penalty imposed (Rs.) 17/2003 dt 30-4-2003 SMIPL. 15-4-2000- 8,53,59,043/- u/s 11A (2) of 8,53,59043/- passed by CCE Chennai-II E/629/03 3/2002 CEA 1944. (11 AC) DRL E627/03 5,00,00,000/- Under Rule 209A of CER 1944/Rule 26 of CE (NO. 2) Rules, 2001 V.S. Raaman E/628/03 50,00,000/- u/r 209A of CER 1944/Rule 26 of CER (No. 2) Rules, 2001. 5/2004 dt 26-5-2004 passed by CCE, Chennai-IV SMPPL E/1134/04 15-4-200031-3-2002 4.11,52,235/- u/s 11A (2) of CEA,1994 4,11,52,235/- (11AC) DRL E/1133/04 40,00,000/- u/r 209A of CER 1944/Rule 26 of CER (No. 2) 2001. V.S. Raaman E/1135/04 25,00,000/- u/r 209A of CER 1944/Rule 26 CER (No. 2) 2001. 19/2005 dt. 17-10-2005 passed by CCE, Che-II E/31/06 M/s. SMIPL June 2004- 7-1-2005 2,69,27,235/- u/s 11A (2) of CEA, 1944 27,00,000/- u/r 25 of CER, 2002 21 & 22/2005 dt.18-9-2005 passed by CCE, Che-II SMIPL Sept 2003 7-1-2005 1,88,67,586/- u/s 11A (2) of CEA, 1944 19,00,000/- u/r 25 of CER, 2002 Note : Apart from demand of duty and impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .50 213.50 45.18 The figures under Col. "D" included freight and ATOT, which was 0.48%, claimed as abatement by ARL prior 14-4-2000. This drastic depression in the assessable value of the same excisable goods overnight triggered investigation into the transactions between SMIPL & ARL/DRL and their history. 4. M/s. Sai Mirra Innopharm (P) Ltd. was a Private Limited Company, incorporated in or around March 2000. Their factory at Ambattur started functioning on 14-4-2000, when two Directors, Shri V. Raaman and his brother V.R. Ravikumar started M/s. Sai Mirra Pharmaceuticals Pvt. Ltd. (SMPPL) with two factories at Keelkattalai for manufacture of P or P medicines. American Remedies Limited (ARL), a limited Company had been engaged in the manufacture of P or P medicines and Ayurvedic medicines at No. 288, SIDCO Industrial Estate, Ambattur and also marketed their products . They had manufacturing facility also at Alathur where they manufactured bulk drugs. ARL had four Directors S/Shri V.S. Raaman, S.R. Ramaswamy Iyer. G.K.. Ramani, and R.K. Ramanathan besides the non executive Director Shri K.S. Ramanathan. The four Directors and their family members had held 45% of the total share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.31 crores by a Chartered Engineer and the value had been certified by the competent authority of Income tax Department. SMIPL had entered into an Agreement with ARL for purchase of the property situated at No. 288, SIDCO Industrial Estate, Ambattur for a value of Rs. 2.31 crores. Out of a total Rs. 3.94 crores, the value of Land & Building had been worked out at Rs. 2.31 crores and the balance amount related to factory buildings at No. 426-427, SIDCO, Industrial Estate, Ambattur near the factory at No. 288, SIDCO, Industrial Estate, Ambattur which had been valued at Rs. 78 lakhs, Rs. 7.50 lakhs the value of vehicles and the remaining Ks. 76 lakhs being the cost of Plant & Machinery sold by ARL, Ambattur to SMPIL. The Plant & Machinery and other items available in the factory whose written down value was Rs. 2.49 crores as on 31-3-2000 were sold for Rs. 76 lakhs by ARL. Thus ARL's Ambattur facility was sold as such to SMIPL. 9. Though these items had been sold on 30-6-2000, ARL had allowed SMIPL to use the facility at No. 288, 289, SIDCO Industrial Estate, Ambattur from 15-4-2000 to manufacture medicines. Thus SMIPL used the facility without incur ring any expenses towards the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one Director and relatives of other three Directors of erstwhile ARE Six main brands of DRL accounting for 60% of their total sales had been purchased from ARL and SCPL. The book value of one share of SCPL as on 3 1-3-2000 was Rs. 9,500/- These were sold at the rate of Rs. 68,539/- per share. SCPL used to manufacture three of the main brands, since acquired by DRL. By this transaction the brand names established and the goodwill cultivated among a huge clientele were transferred to DRL. 14. Shri V.S. Raaman floated SMPPL immediately on takeover of SCPL by ARL and purchased the Land & Building and Plant & Machinery of SCPL, the subsidiary of ARL. The Department tentatively concluded that ARL had financially accommodated SMIPL by allowing them use of their manufacturing facility free of cost for two and a half months and by selling Plant & Machinery and other assets to SMIPL for Rs. 76 lakhs incurring a loss of Rs. 1.73 crores in order to obtain medicines manufactured by SMIPL at a value (called Transfer Price in the agreement) much lower than the corresponding value ARL had adopted earlier for payment of duty. Thus ARL/DRL and SMIPL appeared to have benefited each other by the arra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty or other remuneration to ARL. The agreement remained in force for one year. This agreement was renewed for a further period of one year on its expiration by 13-4-2001. 17. It appeared to the Department that the "Transfer Price" was a manipulated price depressing the genuine value of the goods sold to ARL. The value of the brand name/image of the goods was not taken into account in fixing the "Transfer price". It appeared that DRL had paid a premium price for ARL's shares as the products of erstwhile ARL/SCPL had a reputation in the market. The "Transfer Price" included only cost of raw material, packing material and the conversion charges (at the rate of 6% of sale price to stockists by ARL/DRL also called Net Realisable Value). The transfer price did not include the intrinsic value of the products. It appeared that ARL/DRL and SMIPL/SMPPL by entering into the manufacturing agreement and Trade Mark Assignment Agreement had managed to depress the assessable value and thus paid lesser amount of duty than due as both of them stood to benefit by the arrangement. 18. Accordingly a show cause notice No. 47/2002 dated 27-6-02 was is sued by the Additional Director General of Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttur at a relatively low value. (e) The amount outstanding against the purchase of Land and buildings and plant and machinery of ARL by SMIPL was to be paid in twelve quarterly equal instalments without any interest. (f) SMIPL/SMPPL were benefited by the free use of plant and machinery, land and buildings of ARL without any binding, lease or rentals, from 15-4-2000 to 30-6-2000. (g) SMIPL did not have any responsibility regarding raw material procurement, negotiation of procurement quality raw materials, marketing and distribution of finished products etc. (h) The entire production with the brands of DRL/ARL was lifted from the factory of SMPIL by DRL/ARL. (i) Excise duty was required to be paid only on reduced assessable value because of transfer price. (k) Technical know-how for manufacture of goods was supplied free of cost as otherwise SMIPL would have incurred huge amount for acquiring/developing technical know-how. II. INTEREST IN FAVOUR OF DRL/ARL (a) Liability on account of excise duty was reduced substantially on account of very low value of goods purchased from SMIPL, while their own sale price remained the same, thereby DRL/ARL benefited from the higher profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems created by labour as argued by ARL. She found that DRL had purchased 23,63,538 shares from the four Directors of ARL representing also their family members for a total value of Rs. 41.36 crores at the rate of Rs. 175/-. In this transaction Shri Raaman and his family members holding 6,13,564 shares along with his wife earned Rs. 10.73 crores. As the market price of the share was Rs. 155/- at the time of purchase by DRL, DRL paid premium of Rs. 20/- per share to the shareholders. Similarly DRL acquired all equity shares of SCPL at a price of Rs. 27.45 crores. This purchase was at the rate of Rs. 68,539/- per share when its book value (as on 31-3-2000) was Rs. 9,500/-. Beneficiaries in this transaction were mainly Mrs. V.S. Raaman who received Rs. 6.43 crores and relatives of three Directors apart from one of the Directors of ARL, Shri R.K. Ramanathan. 21. As regards the sale of Plant & Machinery of ARL/SCPL DRL had claimed that they were more than 15 years old and out dated and not maintained for quite sometime and the total consideration for the sale of Land & Building and Plant and Machinery belonging to ARL at Rs. 394.78 lakh was at market value and was approved by the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le value of the various products manufactured and cleared by ARL nosedived by 20% to 85% thereby ARL/DRL gaining substantially owing to the adoption of "Transfer Price" as assessable value which was much lower than the market price at which finished products were ultimately sold. 23. "Transfer Price" was determined based on the actual cost of raw materials and packing materials, including conversion cost and manufacturer's profit calculated at 6% of Net Realizable Value of ARL/DRL. The NRV was the sale price of DRL excluding excise duty (which was not paid) thereby increasing the profit of DRL at the expense of SMIPL. from 14-4-2000, SMIPL/SMPPL were responsible for production of impugned goods and deployment of labour. How ever, ARL/DRL enjoyed assured supply of goods and exercised supervisory control on production, deployment of machinery, quality, specification etc. They were freed from investment on Land & Building and Plant & Machinery and from the hassles of managing labour. And, they got the impugned goods at a very cheap price. The "Transfer Price" formula indicated that the highly valued brand was ignored in determining the same. The intrinsic value and the market ability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. The Manufacturing Agreement between ARL/SMIPL showed that SMIPL would undertake manufacture of medicines exclusively for ARL using the know-how supplied by them and strictly in accordance with the specification supplied by ARL. They would source raw materials from vendors approved by ARL/DRL. The know-how was exclusive property of ARL/SMIPL. SMIPL would not disclose it to any other person; ARL would review bill of material and valuation on quarterly basis and the source of supply (vendors) would not be changed without consent of ARL. The "Transfer Price" was cost of raw material and, conversion cost and profit, at the rate of 6% of NRV. SMIPL had to obtain approval of sample by ARL before releasing any batch. ARL would approve packing materials, and art work of packing. The agreement recognized that ARL had exclusive title and interest in trade mark, patent and designs and, know-how vested solely and exclusively with ARL. ARL had access at all times to the manufacturing premises of SMIPL and their Books and Records. SMIPL would not undertake manufacture directly or indirectly of any products similar or sounding similar with label or in generic form for domestic market or for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout having to pay any lease rental during the period from 15-4-2000 to 30-6-2000. It was also found that SMIPL had not paid any interest on 50% of the purchase price of the assets of ARL paid after 30-6-2000 in 12 quarterly instalments. More importantly their association with DRL/ARL had assured them continued business and enhanced profit. 30. As regards DRL/ARL, the "Transfer Price" agreed upon did not represent wholesale price or transaction value of the goods. "Transfer Price" had clearly provided a very favourable price distribution in favour of the buyers. SMIPL had no freedom whatsoever to determine price of the goods they had manufactured. It was obvious that relationship of the two corporate entities DRL/ARL and SMIPL/SMPPL was born out of mutually beneficial business agreement which helped to reduce their duty liability. The absence of the element of money value of technical know-how supplied by the buyer for production of the impugned goods clearly showed that the sale price was not at arms length or normal transaction value as defined under Section 4 of the Central Excise Act, 1944. This also helped DRL/ARL to reduce their duty liability. DRL/ARL did not pay any roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2) Rules, 2001. 32. A similar SCN No. 64/2002 dated 16-8-02 with identical allegations was issued by the Additional Director General of Central Excise Intelligence proposing to recover a differential duty of Rs. 4,11,52,235/- from SMPPL, being the difference between the duty due on the transfer price and the price for sale by ARL/DRL to their stockists of P or P medicines and Ayurvedic medicines cleared by SMPPL during the period 15-4-2000 to June 2001. It was proposed to impose penalty on SMPPL, ARL/DRL and Shri V.S. Raaman under various provisions of the Act and Rules. It was also proposed to demand interest due on the duty short paid. The proposals were contested by SMPPL and other notices on the same lines as in the case of the Adjudication Order No. 17/2003 whereby SCN dated 47/62 dated 27-6-02 was adjudicated. The proposals were confirmed in the Order in Original No. 5/2004 dated 26-5-2004 passed by the Commissioner of Central Excise, Chennai IV as shown in the table on page 3 of this order. 33. SMIPL and SMPPL filed similar appeals with identical grounds against the impugned orders demanding duty and interest from them and imposing penalty on the company and Shri V.S. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sale of land and building of ARL. They were sold to them at current market value approved by IT department. Other fixed assets were purchased at book value less depreciation. They had convened ECM on 2-6-2000, filed Form No. 23 with Registrar of Companies on 27-6-2000 and signed memorandum of agreement of sale on 30-6-2000. Plant was handed over to them on 14-4-2000 as they had paid more than 50% upfront. Directors of appellant were not on board of ARL/DRL; there was no share holding between each other and no mutuality, of interest. Affixation of trade mark on goods manufactured on contract was a common practice prevalent in India. Buyer would exploit the good will and reputation of brand. No royalty was collected from the appellant. The buyer and owner of brand name ensured quality and integrity of the brand/product and for that purpose controlled quality. There was no flow back of money from ARL/DRL to appellant. The impugned goods were sold at transaction value. There was no suppression of facts. The appellant had not existed before incorporation in March 2000 and therefore, transactions entered into by DKL with share holders of ARL had nothing to do with the appellant. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on the value fetched by sale of these goods to the buyer by the manufacturer. This was not to include the value of brands, the assessable value being the whole-sale price at the factory gate of the manufacturer. That the buyer who ordered goods to be produced on contract could test the goods under manufacture to ensure quality and in such a situation, the seller could not be said to be manufacturer was the ratio of UOI v. Cibatul Ltd. [1985 (22) E.L.T. 302 (S.C.)]. The situation was similar in the appellant's case. In It. Secretary to Govt. of India v. Food Specialities Ltd. [1985 (22) E.L.T. 324] the Supreme Court decided that that the price at which the manufacturer sold goods in the course of whole sale trade to Nestle was the assessable value and the value of trade mark was not required to be added to determine the value for levy of duty., The demand had been made on the basis that transactions between manufacturer and the buyer were not at arms length and the prices were emaciated due to the relationship between the buyer and the manufacturer. The association between the two had been ascertained not on the basis of any direct or indirect flow back of funds from the buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld at the book value after allowing depreciation. They denied the allegations in the Show Cause Notice No. 47/2002 dated 28-6-2002. They submitted that they had acquired ARL mainly for its customer base, net work, logistics etc. The allegation that they were related persons of SMIPL/SMPPL was denied. They did not have any share holding in SMIPL/SMPPL and vice versa. The factory of SCPL was also fifteen years old and was outdated. They intended to concentrate on their core competency and decided to dispose the plants of ARL/SCPL. Shri V.S. Raaman had offered to buy the two plants through his Company and to pay 50% upfront and balance 50% in instalments. The entire proceeds were paid in three years. DRL considered the amount in excess of land value as surplus, so allowed instalment payment. Rent was not collected between 14-4-2000 to 30-6-2000 since 50% was collected in advance and DRL did not pay interest till 30-6-2000 when the property was transferred. This was owing to time taken in completing formalities in compliance of Companies Act and Income Tax Act. There was no mutuality of interest between SMIPL/SMPPL and DRL. There were no common Directors in SMIPL/SMPPL and DRL. 36. SM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its production wit many job workers/contract manufacturers in Hyderabad and else where in the country. There was, thus, no design on the part of DRL or SMIPL/SMPPL to defraud the Government. As regards the non compete fee the same was not paid to Shri V.S Raaman only but also to other erstwhile Directors of ARL. DRL had no dealings with the other Directors. Payments made by DRL to Shri V.S. Raaman or other shareholders of ARL or Directors of ARL on some day before the incorporation of SMIPL had no relevance to the case on hand. Nothing prevented DRL from entering into Manufacturing Agreement with erstwhile ARL/SCPL to outsource their products. Therefore, the whole basis on which the order had been built on had to crumble down. 37. The "Transfer Price" computed on the basis of conversion cost and manufacturer's profit basing on Net Realizable Value was fair and reasonable. Conversion cost and profit considered for fixing transfer price was much higher than the one specified in Drug Price Control Order for such manufacturing activities. SMIPL had made cash profit out of the business and Department had failed to establish that the normal transaction value agreed between the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CCE, Mumbai-II [2003 (162) E.L.T. 272 (Tri.-Mumbai)] Learned Sr. Advocate submitted that it was entirely legal if the assessee adopted any legal measures to reduce their- tax burden. In the instant case, the assessable value included the raw material cost, conversion cost and the profit of the manufacturer. What was not included was the brand value and the expenditure involved in maintaining the marketing set up. This arrangement cannot be faulted on the ground of attempt to evade excise duty. He relied the following observations of the Tribunal in the cited decision: "It cannot be anybody's case that if the goods manufactured by the appellant were sold to a marketing company in which it had no shares or interest, the expenses incurred by the latter in marketing the product would form part of the assessable value of the goods. It cannot be said that such a step is evasion or avoidance punishable by law. Unless it can be demonstrated that the object of setting up a new company was exclusively primarily or even predominantly for the purpose of reducing tax liability to the extent of hiving of the expenses on advertisement, publicity to another entity, such a step cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty control could not be a ground to hold that price was not a normal price. The finding of related person was also not sustainable as shareholders of public limited company did not, by reason of their shareholding have interest in business of company. (g) Agri More Ltd. v. CCE, Valsad [2004 (64) RLT (762)] The following head notes of the citation were cited: "Appellant enter into supply agreement with M/s. Cyanamide Agro Ltd. for supply of entire quantity manufactured to Cyanamide and non-compete agreement for which Cynanamide undertook to pay Rs. 36.75 crores on ac count of which appellant received Rs. 20 crores - there is no material to show that price was affected due to payment of non-compete consideration hence not to be added to the assessable value-appeal allowed." (h) Amstrin Pharmaceuticals v. Commissioner [2006 (195) E.L.T. 127 (Tri.-Del) The following extract of the case law was cited for consideration. "In the present case, both the manufacturer and buyer are limited Companies. The sale price of the manufacturer is as agreed with the buyer. There is nothing on record to show that the sale price is a favoured price or that it does not include all elements of cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed declaration for the purposes of levy of excise under the said Act showing the wholesale prices of different classes of goods sold by it during the period May, 1972 to May, 1975. The declaration included the wholesale prices of the different resins manufactured under the two aforesaid agreements. The Assistant Collector of Customs revised those prices upwards on the basis that the wholesale price should be the price for which the buyer sold the product in the market.' On appeal, this Court held that the High Court was right in concluding that the wholesale price of the goods manufactured by the seller was the whole sale price at which it sold those goods to the buyer, and it was not the wholesale price at which the buyer sold those goods to others." (j) Union of India v. Cibatul Ltd. - 1985 (22) E.L.T. 302 (S.C.) "For this purpose, the buyer was entitled to test a sample of each batch of the manufactured product and it was only on approval by him that the product was released for sale by the seller to the buyer. It was apparent that the seller could not be said to manufacture the goods in those facts, it was held, on behalf of the buyer. It was further found that it was cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made observation that the "quality and degree of interest which each has in the business of 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, that would not make any difference so long as each has got some interest, direct or indirect in the business of the other". To highlight and support his points that the buyer and the seller companies in the instant case were related he relied on the following case laws: (a) Flash Laboratories Ltd. v. CCE, New Delhi [2003 (151) E.L.T. 241 (S.C.)] wherein it was held by their Lordships that in this case the appellant was a subsidiary company of Pane Products Ltd. Parle Products had also an other subsidiary company. 60% of the products manufactured by the appellant were sold to Pane Products Ltd. and 40% products were sold to Parle Biscuits Ltd. the department had decided that the appellant and Parle Biscuits were related persons within the meaning of Section 4(4)(c) of the Act. The Apex Court had held that: …………"The facts and circumstances of the case show that there is mutuality of interest between the three companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raman and his wife. They owned two factories at Keekattalai. SMIPL/SMPPL were formed around February 2000. Though the non- compete agreement was signed, SMIPL/SMPPL started manufacture of ARL/SCPL medicines from 14-4-2000 and though they had bought factories of ARL and SCPL only on 30-6-2000. Same men, materials and machinery were used. As on 31-1-2001, Rs. 98 lakhs were still to be paid by SMIPL. The issue involved was whether SMIPL/SMPPL and ARL/SCPL were mutually interested in the business of each other. The prices of medicines sold were lower by about 25% to 85% after 15-4-2000 compared to ARL's and SCPL's prices earlier. All goods of SMIPL/SMPPL were sold only to ARL/DRL as per the agreement between ARL/SMIPL at a transfer price. The transfer price was much lower than the price at which the products were sold by ARL to their buyers before and after 14-4- 2000. Sales were of ARL/SCPL brand manufactured by SMIPL/SMPPL. All these brands had a value in the market. ARL prices to stockists remained the same be fore and after 15-4-2000. Transfer price was determined by DRL. 41. He further submitted that SMIPL/SMPPL were not job workers. Prices were fixed by ARL/DRL. Medicines manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ARL/DRL to its stockists. It has been endeavoured in the impugned orders to establish mutuality of interest between the buyer and manufacturer companies. In the order an effort has also been made to unmask the corporate facade of the manufacturer companies and to identify the actual persons behind the corporate veil who had benefited by past transactions between the buyer and the manufacturer. It was concluded that they were related and differential duty demands proposed with reference to buyer's sale price were confirmed. The transactions justifying the logic followed in the order of the Commissioner are set out in the ensuing paragraphs. 44. Following transactions, according to the adjudicating authority had cast an obligation on the manufacturer to sell the impugned goods at lower prices to the buyer. The shares of ARL once owned by Shri V.S Raaman and the three other Directors and their family members had been sold to DRL at a price rate of Rs. 175/- when its book value was Rs. 33/-. S/Shri V.S. Raaman and the three other Directors were paid a non-compete fee of Rs. two crores each by DRL. The shares of SCPL owned by Mrs. & Mr. Raaman and their relatives were sold at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of DRL. 46. We do not find the decision of the Commissioner based on sound reasoning based on facts. An important finding in the impugned order is that DRL had purchased shares of ARL at an unduly high rate of Rs. 175/- per share when its book value was Rs. 33/- . We find that when the shares of ARL were sold, the manufacturer companies SMIPL & SMPPL were not in existence. Therefore, it cannot be said that SMIPL/SMPPL benefited by sale of shares of ARL to DRL. The department's case however, appears to be that Mrs. & Mr. Raaman owned major chunks of the shares of the manufacturing companies and these firms (SMIPL/SMPPL) benefited by the transaction as Mrs. & Mr. Raaman had gained in the sale of ARL shares. Book value and the market value of listed shares are usually different and in the case of successfully running companies, the market price of the shares is much higher than the book value of the shares. The market value depends on the performance of the company and expectations of the investing public. The claim of the assessee that the shares were being sold in the market at around Rs. 166/- in 11/99 has not been disputed. Moreover Shri Raaman and his associates and relatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other manner. Therefore, this ground is also devoid of any merits. 49. Paying non-compete fee is a normal practice when firms producing branded/patented products are taken over. In this case, Shri Raaman got Rs. two crores like other three Directors who did not continue any business association with DRL subsequently. Therefore there was no need to pay a high non-compete fee to all the Directors if the same was unrealistic and was intended as a device to transfer funds to Shri Raaman. Moreover, there is no evidence to show that Rs. two crores is an unreasonably high non compete fee in the instant case. In similar transactions, in the case of Agrimore Ltd. v. CCE, [2004 (64) RLT 762 (CESTAT Del.)]. M/s. Cyanamide Agro Ltd. had received Rs. 20 crores from Cyanamide as non-compete fee out of an agreed Rs. 36.75 crores. This was found to be no ground to decide that the sale price was depressed. Therefore, payment of non- compete fee of Rs. two crores does not justify a finding against Shri Raaman or the manufacturers in support of the decision taken. In any case, Shri Raaman was only one of the share holders of SMIPL/SMPPL and not the manufacturer Company. 50. Another aspect conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible ingredient was not included in the assessable value. However, there is no proposal in the Show Cause Notice to enhance the assessable value on this basis. The demand is solely on the basis that DRL and SMIPL/SMPPL are related persons. 54. Another argument adopted by the Commissioner is that the appellants were allowed to use the manufacturing facility of ARL/DRL without payment of lease or rental during 15-4-2000 to 30-6-2000. The appellants' answer to this allegation is that the appellants had paid 50% of the total consideration in advance and there was no favour shown by ARL/DRL in allowing the use of these properties when ARL/DRL had already received 50% consideration and was not paying any interest on it. The appellants' argument has to be accepted. 55. Yet another related point relied on as a ground by the Commissioner is that the appellants were allowed facility of payment of remaining 50% consideration in 12 quarterly instalments without charging any interest. This facility allowed as part of a negotiated agreement does not lead to an inference that any favour was done by either party in the transaction. 56. We are of the considered view that various case law cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abnormal thing. 58. The appellant-companies are independent entities. There is no share holding in the appellant-companies of ARL/DRL or vice-versa. There is no flow back of funds to compensate for the low price, as perceived by the department, charged by the appellants. The department has attempted to establish a relation ship in terms of Section 4(4)(c) between the buyer and the seller of the impugned goods by researching the circumstances of the transactions entered into between the two entities in the past. It has not been successfully shown that these transactions were not at arms length. As a matter of fact certain transactions such as sale of ARL shares and sale of SCPL shares took place prior to incorporation and coming into existence of SMIPL/SMPPL. Therefore, the department's case fails in the face of the evidence marshalled by the appellants. The department has failed to establish that either party had direct or indirect interest in the business of the other party. 59. We find the ratio of Kwality Ice cream Co. v. CCE, Chandigarh [2002 (145) E.L.T. 584 (Tri.-Del.)] case applies to the instant case in view of the similarity of the facts of that case to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er terms of the sourcing agreement. It was decided that arrangements involved were not adequate to hold that the appellants and BBLIL were related persons and that the negotiated price mutually agreed continued to be the correct assessable value. 62. As per Section 4(4)(c) of the Central Excise Act, 1944, related person' is defined as follows: "related person" means a person who is associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor." We have found that SMIPL/SMPPL and ARL/DRL are not related per- sons as defined in the above said Section 4(4)(c). 63. Proviso (iii) to Section 4(1)(a) reads as follows: "Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to deal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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