TaxTMI 
TaxTMI 
1992 (10) TMI 181
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....w cause notice was issued proposing to approve the price list under Part IV on the ground that M/s. Voltas are the related persons of the appellants. On receipt of the reply, the authorities below confirmed the proposal made in the show cause notice and rejected the plea of the appellants that M/s. Voltas are not the related persons. Hence, the appeal before us. 3. The Collector held that, "The sale of the Pepsi products is based on the distribution system of Voltas, if this is an inefficient one, then it definitely adversely affects Pepsi and the same holds true conversely. Therefore, to argue that interest can be gauged on merely percentage of share holdings of each other firm would be too restrictive a view on the term of related person". He also held that the appellants manufacture goods as dictated by M/s. Voltas Ltd. in terms of quality, specifications, brand names, valuation and complete marketing. Therefore, there is thus a mutuality of interest between the appellants and M/s. Voltas Ltd. 4. The main contention of Shri Laxmikumaran is that the dispute is covered by the judgment of the Supreme Court in Atic Industries case [1984 (17) E.L.T. 323 (S.C.)]. Secondly, th....
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....appellants and under clause 3.32 M/s. Voltas are prohibited from marketing products similar to the appellants' product manufactured by any third party. Clause 10 provides for payment of compensation in case of direct sales by the appellants to the customer. The above clauses of the agreement indicate that the appellants have an indirect interest in the promotion of sales of M/s. Voltas and therefore, the agreement is not from principal to principal basis. The restrictive clauses created an interest in M/s. Voltas. The agreement is tainted with additional consideration in the form of restrictive covenants. In support of his contention, he relied upon the order of this Tribunal in Prabhat Zarda Factory Ltd. v. Collector [1988 (34) E.L.T. 239], Ashok Leyland v. Govt. of India [1987 (30) E.L.T. 281], Television Factory, Solan v. C.C.E. [1986 (26) E.L.T. 317], Pilky Footwear Co., Ltd. v. U.O.L [1980 (6) E.L:T. 338], Nagpal Petro-Chemicals [1979 (4) E.L.T. J 117], Ahmedabad Manufacturers v. Collector [1982 (10) E.L.T. 821]. 6. He also referred to clause 8.1 of the agreement under which M/s. Voltas have to undertake the marketing obligations and submitted that in view of which the appe....
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.... 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% ." 13. The facts of the present case are exactly on all fours with the judgment of the Supreme Court in Atic Industries. The fact that M/s. Voltas have 24% of the shares in the assessee company indicates that M/s. Voltas has undoubtedly an interest in the business of the assessee but the converse is not true. In the words of Supreme Court, the fact that M/s. Voltas has 24% shares held in the assessee, does not automatically follow that assessee has an interest in the business carried on by one of its shareholders. Therefore, we agree with Sh. Laxmikumaran that the facts of the present case are covered by the judgment of the Supreme Court in Atic Industries case. 14. We now consider the arguments advanced by Sh. Prabhat Kumar. 15. The argument of Sh. Prabhat Kumar is that the clauses of the agreement impose a restriction on its shareholders from dealing in similar goods of any other manufacturer and that the entire production is sold to its shareholders and that M/s. Voltas deal with entire a....
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....d they may deal with the goods in their discretion and it is none of the concern of the appellants at what prices the goods are sold. The fixation of resell price in consultation with Voltas is only to protect the interest of the manufacturer as he may not suffer any set back in the market on account of retail price being very high. 19. Let us now take up the argument of Sh. Prabhat Kumar. Similar argument was considered by the Supreme Court in Atic Industries v. H. Dave [1978 (2) E.L.T. 444]. We may briefly refer to the facts of the case. The appellants sold the entire products of dye stocks to wholesale dealers, namely I.C.I. (India) Ltd. and Atui under respective agreements entered into by them. 70% of the dye stocks manufactured by them were sold to I.C.I, while the remaining 30% to Atul. The High Court held that, "since no independent buyer could purchase the dye stock in wholesale market at or near the place of manufacture, so as to attract the applicability of the first part of Section 4(a), they are favoured buyers". The Supreme Court while setting aside the judgment of the High Court, upheld the price at which Atic sold to I.C.I, and Atuil, as the normal price, observed....
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....n it be the case of the respondent that the entire production of the petitioner is marketed through M/s. Escorts Ltd. even then the department cannot include the sum of Rs. 750/- retained by the distributor to the value of the goods sold through them. We may also point out that under the agreement Escorts Ltd. were to undertake sale promotion, distribution, and servicing of the tractors manufactured by the Escorts Tractors Ltd. 24. The Supreme Court in T.J. Millers case (supra) were considering a case of common distributor to subsidiary as well as holding company. Under the agreement, the distributor was prohibited to deal with competitors' goods and they were to get mark up for covering their expenses for advertisement and also to maintain showrooms of sub-dealers. The Supreme Court held that they cannot be treated as "related persons" even if a major portion of the sales has been effected by the manufacturer through the distributor. 25. The Madras High Court in Standard Electric Appliances v. Superintendent (supra) held that the appellants were not "related person" of M/s. Philips (India) to whom they were selling 90% of the goods at a lower price than the price at which th....
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....this Tribunal in Television Factory v. Collector (supra). The facts relevant are : M/s. ECIL entered into an agreement with Television Factory. It provides for transfer of technology and know-how and shows a very close collaboration with ECIL paying a major role to ensure proper standards in the activities of M/s. Television Factory. This Tribunal held that the manufacture of television is on behalf of ECIL. No reasons were given as to which part of Section 4(4)(c) is attracted. They have not categorically stated that it is an agency agreement. On the other hand, they said since the property continues to vest in ECIL, there is no sale between the Television Factory and ECIL. If that is so, then it should be a case of an agreement of agency and is not covered by Section 4(4)(c). 31. Having regard to the facts and circumstances of that case, it was held that the relationship between the ECIL and Television Factory is one of principal and agent. The order referred to above is not relevant as it is nobody's case that the appellant is an agent of M/s. Voltas or vice versa. 32. The next order relied upon by Shri Prabhat Kumar is Prabhat Zarda Factory v. Collector (supra). The relev....
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....competitors' product and on the basis of which the price is fixed by mutual agreement. 35. Therefore, on a reading of the agreement, no inference can be drawn that it creates a mutuality of interest between the appellant and M/s. Voltas. 36. We, therefore, allow the appeal and set aside the impugned order of the Collector. 37. [Dissent per: P.C. Jain, Member (T)]. - I regret to disagree with the order proposed by my learned sister. My order is as follows :- 38. Question is whether the appellants herein and M/s. Voltas Ltd. to whom the goods are sold by the appellants are 'related persons' in terms of Section 4(4)(c) of the Central Excises and Salt Act, 1944. 38.1 Voltas Ltd. having a share-holding to the extent of 24% in the appellant company has an interest in the business of the latter, as a shareholder. Learned advocate for the appellants urges that the appellants do not have any interest in the business of Voltas Ltd. Thus, for lack of mutuality of interest in the business of each other, the two companies - appellants and Voltas Ltd. - cannot be treated as "related persons" within the scope of definition of that expression under Section 4(4)(c) supra. A good numb....
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....mer firm. The goods are manufactured by M/s. Pepsi Foods under their own brand name and they are the sole owners of the goods. It is an outright sale of the goods by them to M/s. Voltas. The Ld. Counsel, in this connection, referred to the Agreement between the parties. It was urged that in clause 12 of the Agreement, it has been specifically provided that the transaction between Pepsi Foods and Voltas, in pursuance of the Agreement, shall be on a principal to principal basis and that nothing in the Agreement shall constitute either party as the agent of the other. On the outright sale of the goods to M/s. Voltas, the property vests with M/s. Voltas. The Ld. Counsel urged that all the clauses in the Agreement were standard commercial clauses and there was nothing unusual in them. The Ld. Counsel referred to the reasoning in the Hon'ble (Technical) Member's order and submitted that it cannot be said that M/s. Pepsi Foods are related person to M/s. Voltas on the basis of Pepsi Foods, being beneficiaries of increased sales by M/s. Voltas. This in fact, the Ld. Counsel urged, would only mean that Pepsi Foods are interested in their own business or that they can be said to be interested....
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.... sole selling agents of Pepsi Foods. He cited and relied upon a Supreme Court decision in the case of Snow White Industrial Corporation v. Collector of Central Excise reported in 1989 (41) E.L.T. 360 (S.C.). The Ld. SDR drew attention to clause 10 of the Agreement, which is in relation to direct sales and says that if Pepsi Foods make a direct sale under unusual circumstances, Voltas shall be entitled to be paid compensation for such sale. The Ld. SDR urged that this would clearly show mutual interest between the two parties. Similarly, the warranty clause in the Agreement, according to the Ld. SDR, also indicates mutual interest. Hence, there is reasonable ground to say that the transaction between these two parties is not at arm's length and in such a situation, valuation has to be on the basis of the related persons concept. The Ld. SDR cited and relied upon the case law reported in 1989 (39) E.L.T. 147 (Tribunal) in the case of Eddy Current Controls (India) Ltd. v. Collector of Central Excise, Cochin. In reply, the Ld. Counsel urged that the Supreme Court decision in the case of Snow White Industrial Corporation (supra) is not comparable on facts and submitted that the test of ....
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....does not create inter se interest between the two companies, directly or indirectly in the business of each other. The only interest that M/s. Philips India Ltd. has is to ensure that it gets the goods it has ordered in time and of the specifications required. The only interest in the transaction which the first petitioner has is to get the price of the goods it manufactures for M/s. Philips India Ltd. It is a pure transaction of sale. The interest in the business of each other contemplated by the section is something more than the fulfilment of one single commercial transaction entered into between the parties. M/s. Philips India Ltd. are not concerned whether the first petitioner makes a profit or loss in the transaction covered by the contract between the two. Likewise, the first petitioner is not interested as to whether M/s. Philips India Ltd. sells or does not sell or sells at a profit or loss the goods purchased by it from the first petitioner. Indeed, the two companies are competitors in the trade of manufacturing and selling electric bulbs and electric tube-lights. They cannot have any interest in the business of each other, their interest being confined only to successful....
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....e contention of learned counsel for the respondents that Usha will be a related person under the above portion of the definition clause. Certain judicial decisions to which we shall be referring later also touch upon this aspect of the matter and reinforce our conclusion." 45. This decision was again followed by the Delhi High Court in its subsequent judgment in Straw Products Ltd. (supra) and the Court observed that mere commercial contract between two independent parties for the purchase and sale of the goods manufactured by one party cannot ipso facto lead to the conclusion that the two of them are so associated as to have interest in the business of each other. This association, the Court observed, has to be of financial or managerial interest in the business of each other and not mere business connection between two persons. In the present case, the perusal of the clauses in the Agreement, shows that the transaction is one of outright sale of the goods by the appellants to M/s. Voltas and on such sale, the ownership of the goods vests with Voltas who are free, according to the Agreement, to fix their own sale price and clause 12 of the Agreement, specifically, lays down tha....