TaxTMI 
TaxTMI 
2006 (8) TMI 85
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....eement 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, Show Cause Notices were issued to the following parties. (i) Siri Laboratories Pvt. Ltd. (ii) M/s. TTKHL (iii) Siri Pvt. Ltd. (iv) K. Hariharasubramanian, Vice President of TTKHL (v) P. G. Shan B....
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....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 the basis of outright sale. The inference that TTKHL has control over the manufacturing process is factually wrong and even the Show Cause Notice does not allege this. None of the employees of TTKHL work in the plant of the appellants nor does the management take any c....
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....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. &nbs....
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....nce dated 15-7-2000 with an endorsement clearly that Woodward's gripe water would be manufactured by the appellants. During that period, it would have been correct in law to have discharged the duty liability on the cost of production plus margin of profits on the basis of Apex Court's decision in the case of Ujagar Prints. It was actually a mistake to have discharged duty, liability on the selling price of TTKHL. This mistake was realized in view of the Tribunal's decision in the case 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 th....
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....leged. Further, he has stated that he had carefully examined the following case laws cited by the assessee and found them not applicable to the facts of the present case. (a) Poona Bottling Co. - 1981 (8) E.L.T. 389 (Del.) (b) Kamra Bottling Co. Ltd. - 1987 (27) E.L.T. 240 (c) Steel City Beverages Pvt. Ltd. - 1987 (23) E.L.T. 147. 9.He has observed that the above decisions relate to manufacture by himself or on behalf of another person. Since the present issue is not related to the nature of manufacture but only that 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 signific....
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....ion for arriving at the conclusion. Thus, if the agreement provides for not only an advice, assistance and technical know-how and the supervision to the petitioner's unit but also provides for necessary working capital by way of interest free advances for operation of plant and other working expenses with the stipulation to sell the whole stock with brand name of the company clearly establishes that the petitioner's were not an independent unit but was an agency of the company and the agreement entered into between them was not at arms length." The said decision has been affirmed by Hon'ble Apex Court in 2000 (120) E.L.T. 289. Applying the ratio to the instant case, it 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 ....
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.... time to time". 12.From the above it is clear that the appellants who are the manufactures would sell the impugned products at mutually agreed prices. It is also seen that there is a separate agreement for use of trade mark of TTKHL. That agreement in Para 9 has clearly spelt out by that no remuneration whether by way of royalty or otherwise shall be payable by the manufacturer to the company in respect of use of the said trade marks. Therefore, Revenue's contention that the value of technical know-how, secrecy of formula should form part of the price has no basis. The appellants who have excess capacity to manufacture the impugned goods had entered into an agreement with another company owning 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 t....
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.... at all examined the case laws cited by the appellants. The Apex Court in the case of Sidhosons v. UOI- 1986 (26) E.L.T. 881 (SC) had occasion to examine the similar issue. In that case the petitioner company manufactured electrical goods under a contract with another company viz., Bajaj Electricals. The agreement between the parties provides for the buyers having the right to reject the goods if the goods are not in accordance with the buyers specifications or do not come up to the stipulated standard of quality. After the manufactured goods are tested, approved and accepted by the buyers, the manufacturers apply the label of the brand name of the buyers (in this case Bajaj). Revenue authorities contended that for excise duty purpose the price at which Bajaj Electricals sells the goods 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....
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....on of Bombay High Court in the case of Pilky Footwear (supra) and applied the ratio of the above decision to the instant case. The learned advocate pointed out that in the above case relied on by the Commissioner, it was observed by the court that "if the agreement provides for not only advice, assistance and technical know-how and the supervision to the petitioner unit but also provides for necessary working capital by way of interest free advances for the operation of the plan and other working expenses. With these stipulations to sell the whole stock with brand name of the company, then that would establish that the petitioners were not an independent unit but was a agency of the company and the agreement entered into between them was not at arms length. He said that this decision has been 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....