9911796707
TMI Blog2002 (1) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. BTL and SL established a Joint Venture Company, M/s. Siemens Telecom Ltd. by a shareholder agreement dated 27-3-95 to manufacture, market, distribute and service consumer telecom products. SL and BTL held 51% and 49% of the shares respectively in the JVC. The Board of Directors of STL was to consist of minimum of 5 and maximum of 9 Directors and SL was always to have one Director more than BTL as per the agreement. BTL was to nominate the Chairman and the Sales and Marketing Director and SL was to nominate the Managing Director and the Finance Director. The Chairman did not have any casting vote. The demand confirmed by the Commissioner was covered by 3 show cause notices dated 4-5-2000, 3-5-2000 and 24-5-2000 covering a period of April 1995 to September 1999, October 1999 to November 1999 and December 1999 to February 2000. 3.The show cause notice issued to BTL proceeded on the basis that STL is a related person and in the light of the provisions contained under Section 4(1)(a)(iii) and Section 4(4)(c) of the Central Excise Act, the price at which STL sells the telephones in the market has to be taken for the purpose of valuation of excise duty. STL has been created by BTL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on behalf of STL. The transaction is one of principal to principal basis. On the other hand the learned Departmental Representative contended that the terms of the Agreement and the conduct of the parties would clearly show that there is mutuality of interest between BTL and STL. Under no circumstances the sale by BTL to STL can be treated as one of principal to principal. 6.We will now refer to the different grounds on which the Revenue proceeded to establish the relationship between BTL and STL which found favour with the Commissioner and which were relied on by the learned Departmental Representative before us to support the findings in the impugned order. We will then examine whether such findings can be sustained in the light of the terms of the Agreement between the parties, their conduct and principles of law as established by decisions of the Apex Court and this Tribunal. Following are the grounds taken by the department in support of its contention that BTL and STL are related persons :- (i) that, M/s. BTL (manufacturer) have 49% shares of M/s. STL (buyer); (ii) that, Chairman, Managing Director and one Director of both the companies i.e. BTL and STL, are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above view. It is quite common that when a company is incorporated very many activities are shown as its objects but it does not take up all the objects on incorporation. Therefore, the fact that STL has not gone into manufacturing activities, one of its objects, does not lead to the conclusion that it is not an independent entity with its own business interest. So also we do not find any merit in the view taken by the Commissioner that BTL not undertaking marketing activity is an indication that STL is not an independent entity. This finding is erroneous both on facts and law. It is incorrect to hold that there is no marketing activity for BTL. As per the terms of the Agreement and on facts also it has come out that BTL could continue to sell telephones to DoT/MTNL of non-Siemens type and any models/products of BEETEL developed by BTL for STL but rejected partially or totally by STL. Apart from the above we have to note that the Commissioner is forgetting the fact that there is one other independent entity namely, SL which has 51% shareholding in STL. SL has no manufacturing unit at all. Apart from the statement of Shri Rakesh Sood an employee of BTL there is no material to show t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in respect of concerned telephone product marketed by STC is also relied on as a ground. 11.The appellant has by furnishing data shown that BTL's sale to STL would come only between 17.94% to 28.9% of its total sale during the period from 1995-96 to 1999-2000 and on average it would come to only less than 25%. Major portion of its sale is to DoT/MTNL in the course of wholesale trade. It is also not possible to hold that telephones sold to DoT/MTNL are not comparable with that sold to STL. The appellant has produced sufficient material, such as invoices and certificate of the Chartered Accountant to show that models sold to DoT and STL have the same nomenclature. Even before STL came into existence BTL was selling comparable models to DoT and in open market. Now that the entire marketing is taken on by STL the comparable models are sold to STL who in turn sells the same in open market. In Annexure 16 a comparative analysis of the phones sold to DoT and open market is given. Except for the conformal coating and the method of gold plating there is not much difference. 12.A reference to the terms of the Agreement would show that it was only in regard to models like EURO-802, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd be viable. However, in case if in any transaction, BTL is not able to provide such a margin to STL, the parties will negotiate before confirming the prices...." According to the Commissioner, their dealings cannot be considered at arms length when M/s. BTL shall provide special margin of profit to STL without taking into consideration its own viability and margin of profit. We are not able to understand Clause 10 in the manner it is interpreted by the Commissioner. There is nothing to show in the terms of Clause 10 that while providing for margin and viability to STL, BTL cannot take into consideration its own interest. The prices are to be fixed as mutually agreed upon by parties from time to time. It is not stated in Clause 10 that STL has to be given margin at the cost of BTL. Apart from the above, it is specifically mentioned that if BTL is not able to provide such margin to parties, the parties shall again negotiate before confirming the prices. The second part of paragraph 10 which is not referred or considered by the Commissioner reads as follows :- "Unless otherwise agreed upon by the parties in any particular transaction, payment shall be made by STL to BTL within 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also pointed out that STL is buying products not only from BTL but from SPCNL as also marketing the products imported from SAG. The above facts would clearly show that by applying the principle evolved in the decision relied upon by the Commissioner it cannot be held that STL has interest in the business of BTL. 16.One of the reasons relied upon by the Revenue to support its case of relationship between BTL and STL is that STL is using its trade mark "BEETEL" upon its letter heads. This aspect is covered by Clause 4 of the Purchase Agreement. According to Clause 4 during the continuance of the Agreement STL will be entitled to use BTL's trade mark "BEETEL" upon its letter heads etc. On cessation of the Agreement STL shall discontinue use of BTL's trade mark in any form subject to its entitlement to exhaust the stock of material as on the date of cessation within 3 months. The mere use of the manufacturers' trade mark by the buyer will not in any way make the sale one not between principal to principal. In Union of India v. Playworld Electronics Pvt. Ltd. - 1989 (41) E.L.T. 368 (S.C.) the Supreme Court of India has held that merely because goods are produced with customer's br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, Atul Products Limited has undoubtedly interest in the business of the assessee, since Atul Products Ltd. holds 50 per cent of the share capital of the assessee and has interest as shareholder in the business carried on by the assessee. But it is not possible to say that the assessee has any interest in the business of Atul Products Ltd. There are two points of view from which the relationship between the assessee and Atul Products may be considered. First it may be noted that Atul Products Limited is a shareholder of the assessee to the extent of 50 per cent of the share capital. But we fail to see how it can be said that a limited company has any interest, direct or indirect, in the business carried on by one of its shareholders, even though the shareholding of such shareholder may be 50 per cent. Secondly, Atul Products Limited is a wholesale buyer of the dyes manufactured by the assessee but even then, since the transactions between them are as principal to principal, it is difficult to appreciate how the assessee could be said by virtue of that circumstance to have any interest, direct or indirect, in the business of Atul Products Ltd." The above principle was reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll proceed to examine the nature of the shareholding of both the companies and as who are in control of the management. As mentioned earlier SL is having 51% shareholding in STL whereas BTL is having 49%. There is no case that SL has any shareholding in BTL. As per the terms of Agreement SL shall always have one Director more than BTL in the Board of Directors of STL. Even though BTL can nominate the Chairman and Sales and Marketing Director, it is relevant to note that the Chairman has no casting vote. It is for SL to nominate the Managing Director and Finance Director. Thus, it is clear that it will be the nominees of SL who will be 'calling the shots' in STL. Therefore, the fact that the Chairman of STL and BTL are one and the same person and that including the Chairman there are two Directors in the Board of STL who are members of Mittal family will not lead to the conclusion arrived at by the Commissioner that STL is under the control of Mittal family. In a Board of 5 Members the 2 nominees of BTL cannot have their way. Therefore, both on the basis of shareholding and in the nature of control on the affairs of the companies it cannot be held that there is mutuality of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise than in his official capacity as an employee of the manufacturer. Therefore, no penalty under Section 209A can be imposed on him. In support of his contention reliance was placed on a decision of this Tribunal in Z.U. Alvi v. CCE, Bhopal - 2000 (117) E.L.T. 69. 26.In the light of our finding that BTL and STL are not related persons and that the sale between the two companies are as one from principal to principal, we are not going into the question whether the demand of duty is barred by limitation which is also a ground taken by the appellants. For the same reason we are not expressing any view on the contentions raised by M/s. Siemens Telecom Ltd. and Shri Rakesh Bharti Mittal that no penalty under Section 209A could be imposed on them since the basis of imposition of penalty itself is no longer available. The only other point will have to be considered is the finding regarding clandestine removal of 3302 pieces of telephone sets by BTL to STL, the duty demand against BTL in respect of which would come to Rs. 7,30,306/-. The BTL had denied the allegation and contended that no sale has taken place with STL without payment of duty. Rejecting the contentions raised by BTL the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
