TaxTMI 
TaxTMI 
2006 (10) TMI 66
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....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 imposition of penalty, inter....
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....30s 265.70 567.93 302.23 53.21 20. Antoxid 10x30s 202.20 630.00 427.80 67.90 21. Antoxid HC 5x30s 269.70 620.46 350.76 56.53 22. Natoxid 5x30s 109.90 276.83 166.93 60.30 23. Antoxid CC 5x30s 259.00 472.50 213.50 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 manufa....
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....old the Land & Building and Plant & Machinery at Ambattur Industrial Estate to SMIPL for a consideration of Rs. 3.94 crores. It was seen from the Books of Account of ARL that the written down value of Plant & Machinery itself had worked out to Rs. 2.49 crores and the Land & Building had been valued at Rs. 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'....
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....DRL dated 6-3-2000. ARL had recorded sales of Rs. 73.50 crores for the three quarters ending December 1999. ARL had a strong prescription base of more than one lakh specialized doctors. With the amalgamation of ARL with DRL, DRL expected its sales to go up to Rs. 350 crores in the financial year 1999-2000. 13. All the ten shareholders of SCPL were 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 Pl....
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....ts emphasized the status of ARL as the owner of the Trade Mark and SMIPL as the user. As per the agreement ARL always retained the right to use the Trade Mark or permit its use by any other person. SMIPL would use the Trade Mark on products manufactured in accordance with the specifications and standards communicated or approved by DRL from time to time. SMIPL was not liable to pay any royalty 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....
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....eived Rs. 10.73 crores from DRL towards sale of 6,13,564 shares of ARL at a premium price. (c) Smt. Vijayalakshmi Raaman, wife of Shri V.S. Raaman and a major share holder in SMIPL/SMPPL received Rs. 68,539/- per share and totalling to Rs. 6.43 crores from ARL (then controlled by DRL) for selling her shares in SCPL (major beneficiary) (d) SMIPL benefited by purchasing the fixed assets of ARL, Ambattur 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) Tech....
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....ad co-operated in their design floated two manufacturing units SMIPL & SMPPL. Shri V.S. Raaman was employed as he was qualified for his role as manufacturer of the impugned goods by of his expertise and he was appropriately compensated. In the view of the adjudicating authority the manufacturing activities came to be entrusted with Shri V.S. Raaman as an outcome of advance planning. She did not believe that ARL had been bogged down with problems 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....
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....ccounted for by six of their brands, three of which belonged to SCPL (as per DRL's price release dated 6-3-2000), DRL obtained substantial advantage to increase its business by the take over of SCPL while Shri V.S. Raaman received huge remuneration on sale of his wife's shares in SCPL and was able to continue his business activities of production and sale of medicines. 22. Pursuant to the Agreement between ARL/SCPL and SMIPL/SMPPL the assessable 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....
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....ould be manufactured. Therefore, "Transfer Price" determined under the agreement had explicitly favoured the buyer. The formula of "Transfer Price" was such that if the sale price of ARL for any product came down then conversion charges of SMIPL would automatically come down whereby DRL/ARL while holding leverage over SMIPL had adopted a methodology for payment of conversion charges and profit of the manufacturer which was highly profitable to DRL. 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 pac....
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....premium sale price received for shares in ARL held by Shri V.S. Raaman and his family members and premium sale price received by Mrs. Raaman for her shares in SCPL showed that Shri V.S. Raaman received substantial benefit. He received non-compete fee of Rs. two crores. Moreover, SMIPL was able to purchase Plant & Machinery of ARL below their book value which was a substantially low price. SMIPL enjoyed free usage of Land, Building, Plant and Machinery of ARL without 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 ....
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...., imposing penalty of Rs. 5 lakhs on DRL under 209A of Central Excise Rules 1944/Rule 26 of Central Excise Rules (No. 2) 2001, imposing a penalty of Rs. two crores on ARL under Rule 209A of Central Excise Rules 1944/Rule 26 of Central Excise Rules (No. 2) 2001 and imposing a penalty of Rupees fifty lakhs on Shri V.S. Raaman, Chairman and Managing Director of M/s. Sai Mirra Group of Companies under Rule 209A of Central Excise Rules 1994/Rule 26 of Central Excise (No. 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 ....
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....tion of relationship with DRL. DRL had purchased shares of ARL whereas appellant Company was constituted on 6-3-2000. Appellant had allowed to purchase 15 year old buildings, land, plant and machineries of ARL. Plant, fixed assets and other as sets would be sold at book value of ARL as on 31-3-2000. IT clearance had been obtained under Section 269 UL(1) of the IT Act, 1961 for the transaction. ARL & SMIPL had entered into a memorandum of agreement of sale on 30-6-2000 for 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....
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....by DRL and goods covered by invoice No. 268 dated 21-7-2000 was destroyed by the appellant and Rs. 35,42,395/- paid to DRL. This showed that both were principal manufacturers. Manufacturer and brand name owner were liable for punishment under Drugs and Cosmetics Act, if medicines were sold with poor quality. As per the ratio of Sidhosons v. UOI- 1986 (26) E.L.T. 881 (S.C.) it was decided that buyer could test the goods before his brand was affixed. Excise duty was to be 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 tr....
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....and and Buildings of SCPL at Keelkattalai, Chennai. As per the agreement between ARL/SMIPL, Land & Buildings and other assets were to be sold to SMIPL for over Rs. 396.82 lakhs. Similarly SCPL and SMPPL entered into an Agreement of Sale on 30-6-2000 for the sale of Land & Buildings belonging to SCPL for a total consideration of Rs. 275.77 lakhs. The Land & Building were sold at the current market value approved by the Income Tax authorities. Fixed and other assets were sold 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 th....
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....reciprocatory shareholding or flow of funds between SMIPL and DRL. There was no basis to hold the two entities as related persons. ARL's shares were bought at negotiated price of Rs. 175/- and all shareholders received the above amount and the same was not restricted to Directors of ARL alone. The price was close to the existing marketing price. The above transactions were prior to incorporation of SMIPL/SMPPL and operationalising Manufacturing Agreement. DRL was outsourcing 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 ....
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....ment and cited the following ratio of the above judgment. "……Firstly, there should be mutuality of interest, secondly the price charged should not be the normal price but lower to the normal price and extra commercial considerations for reducing the normal price and lastly the person producing the commodity should be related to the assessee. In case all the three conditions are not satisfied, then price cannot be stated to be the one coming under Section 4(1)(a) of the Act." (c) Lakme 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 i....
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.... Proctor & Gamble v. CCE, Bhopal [2005 (190) E.L.T. 490 (Tri. Mumbai)} In the above case, facts were that Proctor & Gamble India Ltd. (PGIL) had received Rs. 12.8 crores from Proctor & Gamble Home Products Ltd (PGUP) as non-compete fee. PGIL sold the entire production of aerial detergent powder to PGHP. It was held that payment of non-compete fee and licence fee could not be a consideration to depart from normal price. So also the fact that entire sale of goods was made to PGHP. The fact that PGHP had control or quality 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 a....
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.... certain trade-marks being the property of the foreign company - Ciba Geigy of Basle. Tripartite agreements were also executed between the buyer, the seller and the foreign company, recognising the buyer as the registered or licensed user of the trade-marks, authorising the seller to affix the trademarks on the products manufactured "as an agent for and on behalf of the buyer and not of his own account" and the right of the buyer being reserved to revoke the authority given to the seller to affix the trade-marks. The respondent in that case 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....
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....le of shares in the company ARL, SCPL and the purchase of assets of ARL/SCPL after they had become property of DRL. It would be seen that drastic fall in the assessable value of the medicines manufactured by SMIPL/SMPPL from 15-4-2000 onwards from the prices that ruled up to 14-4-2000 was not accidental but a reciprocatory gesture to ARL/DRL by SMIPL/SMPPL, 90% of the shares of which were owned by Shri V.S. Raaman, CMD and his wife. He also relied on the observations of the Supreme Court in Atic Industries Ltd. [1984 (17) E.L.T. 323 (S.C.)] where the Court 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....
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....at they were blood relations or family members. ARL's shares were purchased at Rs. 175/- when its book value was Rs. 33/- and market value Rs. 155/- Directors of ARL got huge non-compete fee of Rs. two crores each. On purchase of SCPL on 25-2-2000 with its factories at Keelkattalai, DRL sold the manufacturing facility of SCPL. Shri V.S. Raaman and his wife owned 90% shares of SMIPL. Directors of SMIPL were S/Shri V.S. Raaman and his brother Shri V.S. Ravikumar. From 14-4-2000 agreement between SMIPL and ARL came into force. Ninety percent shares of SMPPL were owned by Shri V.S. 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....
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....s which affected the price. He concluded that the transfer price was price for sale to related person and had to the basis for determining the correct assessable value. 43. We have carefully studied the records of the case and considered the detailed submissions made by the parties. The common issue involved in these appeals is whether appellants SMIPL/SMPPL and ARL/DRL are to be treated as related persons in the matter of computing assessable value of medicines manufactured by the appellants and whether duty should be demanded from the appellants on the basis of the sale price of 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 ....
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....ob worker producing goods with materials supplied by the principal. DRL exercised strict control over production and the schedule of production. SMIPL did not have independence even to choose vendors from whom to source its raw material. DRL negotiated with select vendors and communicated the list of vendors and their prices to the manufacturer for purchase of raw materials by SMIPL. These indicated that SMIPL was solely dependent for its operations on DRL who apparently also decided the price. DRL was benefited by the low value charged by SMIPL/SMPPL which was based on a formula in favour 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....
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....artment has not shown that the IT department had not accepted the consideration as fair value of the fixed assets and had initiated proceedings for recovering any tax in relation to this transaction. Therefore, the price of Rs. 76 lakhs paid to DRL for the fixed assets of ARL as against the book value of Rs. 2.31 crores appearing in the accounts of ARL as on 31-3-2000 cannot be taken as not representing their market price. In this regard Commissioner has also not given detailed findings to justify her decision with reference to the manner of accounting of depreciation in ARL's accounts or in any 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....
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....As regards the technical know-how, the appellants (DRL) have claimed that they had not imparted any technical know- how as the goods manufactured were standard drugs. This claim does not appear to be correct. However, from the impugned order, it is not clear if the appellants manufactured medicines of pharmacopoeial formulations affixing their brands or they were of exclusive and secret formula developed by ARL/SCPL. From the contract, it appears that the manufacturer had to keep information on the formula of the medicines confidential for its exclusive use. Therefore, the value appropriate to this intangible 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 ....
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....ce in either case was not fair value. Also the transactions in immovable properties of ARL and SCPL were transparent and with the approval of the competent authority in the IT Department. The Department has not been able to show that the transfer price decided by mutual agreement was lower than the normal price. The con version cost paid to SMIPL/SMPPL was shown by the appellant to be higher than conversion charges fixed under Drugs Price Control Order. As already discussed, we do not find that the control exercised by ARL/DRL over the manufacturer of medicines sold to it carrying the buyer's brand names was an 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 we....
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.... The Tribunal decided that it was only natural that a person who got a sensitive product like ice cream manufactured on contract basis insisted on its quality and required the manufacturer to produce samples for its inspection as and when it wanted. On going through the non-competition agreement entered into between the parties it was found that the amount paid to the appellant was only Rs. 0.50 crores. The Tribunal disagreed with the view taken by the Commissioner (Appeals) that the price was affected due to payment of the above amount to the appellant as a consideration of non-competition in the market with BBLIL as per 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 dis....