TaxTMI 
TaxTMI 
2018 (1) TMI 1428
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....s profit margin. Revenue authorities were not content with the arrangement, after investigation issued the Show Cause Notice demanding differential duty on an allegation M/s. Biological E Ltd., being holding company of the respondent herein held a view then is short payment of duty. Detailed the Show Cause Notice was issued which was contested by the respondent on merits submitting that for the period 1-4-2003 to 7-1-2005, they were job workers, manufacturers and entitled to discharge liability based upon cost of materials job work charges as decided by in the case of Beacon Neypric Ltd., that they are holding the drug license in their name independently are permitted Biological E Ltd., manufacture under loan licence for any person, that there is no relation between them and Biological E Ltd. The adjudicating authority after following the principles of natural justice, has come to conclusion that allegation in the show cause notice are incorrect and need to be dropped. Holding so he passed the impugned order being contested. 4. Ld. Departmental Representative after taking us through the various documents and the allegation in the Show Cause Notice and findings recorded by a....
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....ngs and have interest in each others business. As * MD Mr. G.V. Rao Finance Director is common They have mutual interest in each other business As * Higher employees of DMTL are from BE and expenditure of BMPL is saved and it has a bearing of financial activities and profitability of BMPL. This shows mututal interest in business of each other. Case law (1) Lubricare - 2000 (125) E.L.T. 904 (Trib.) - financial implications have bearing on profitability of units. (2) Servo ELEC - 1996 (87) 599 SC - Onus is on the assesses to establish as independent units. (3) Modi alkalies - 2004 (171) E.L.T. 155 (S.C.) - Pervasive financial and management control are prima facie indicators of interdependence. (4) Calcutta Chromotype Ltd., 1998 (99) E.L.T. 202 (S.C.) (5) &nbs....
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....sis under loan license basis form year 2002. From the year April, 2003 the unit started paying Central Excise Duty under cost construction method as a job worker under loan license scheme. Both the original directors resigned and the directors of BE, Sri Vijay Kumar Datla and Sri G.V. Rao took over us Directors. Sri Sreemam Raju one of the original directors who promoted BMPL, joined as Manager Commercial in BMPL after resigning as Director. BE at its cost took a comprehensive insurance policy to cover the raw material costs, packing materials, stock in process and finished goods against theft, fire riots etc. BMPL doesn't have any personal at the decision-making level. Employees of BE joined BMPL. Accounts manager reporting to DCM of BE. On perusal of vouchers/bills of BMPL indicate that the amounts relating to it were passed by BE. Overtime allowance and other payments which are prepared by BMPL are finally passed by after HR department of BE approval. The head of HR department of BEML report directly to Vice President of (HR) BE. As per the balance sheets an amount of Rs. 12 crores belonging to BMPL is shown in BE and is being used by BE. The conversion charges which need ....
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....e adjudicating authority on the various allegations raised in the show cause notice. It is her further for the submission, whether suppliers of raw materials has to be considered a manufacturer himself or loan licensee, a issue has been settled by the Apex Court in the Cosme Farma Laboratories -2015 (318) E.L.T. 545 (S.C.). 4. Heard both sides in detail and perused the records. 5. The issue that falls for consideration in this case is whether the respondent herein, 100% subsidiary, of holding company Biological E Ltd., during the period 1-4-2003 to 7-1-2005, as undervalued the goods manufactured on loan licensee basis by declaring the assessee value based upon cost construction method is correct and otherwise. The allegation department is that cost construction method will not be applicable in the case in hand as the respondent 100% subsidiary of the Biological E Ltd., the discharging of duty liability has to be done on the basis of the sale value of the said products as sold by Biological E Ltd. 6. We went through the records which are produced before us, on the perusal of records we find the adjudicating authority, in this case, has recorded factual findin....
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....n made to the statements of Shri Raju and Shri. Murthy. If the entire accounts are inspected, the liabilities of BMPL are cleared by BMPL alone and not through Shri. N.A. Prasad of BE. It is false to state that "all payments" are being made through Shri Prasad. It is also false to state that all these bills are verified by Shri Prabhakar Reddy before granting approval. Shri Prabhakar Reddy only scrutinizes the labour bills to verify that the amounts charged for doing job work is authentically correct. The examination by Shri Prabhakar Reddy is part of normal accounting or for auditing purpose and not exercise of control. The facts referred to in para 21 of the notice will not lead to the conclusion of any lack of independence on the part of BMPL". I am inclined to accept the averments of BMPL in this regard. 121.3 These matters tike passing of vouchers/bills of BMPL by the management of BE do not by themselves militate against the ownership or control of BMPL over the assets of that company. When the statute viz. The Drugs and Cosmetics Act, 1940 recognizes the arrangement of getting goods manufactured under a system of loan licence, where in the loan licensee is under an o....
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....is or by themselves". 124. The averment regarding use of an amount of around Rs. 12 crores belonging to BMPL by BE in itself cannot be held against the independent existence of BMPL. The very fact that the BMPL is a subsidiary of BE enables the later the benefit of manouvering the funds as a holding company so long as such financial transactions are reflected in their accounts and authorized by the statutory authority under the company Law. The fact of payment of Rs. 1.0 crore by BE to BMPL as first instalment in May, 2004 and payment of balance amount in eleven quarterly instalments of Rs. 1.0 crore each along with an interest @ 6% per annum as submitted by the assessees in para 34 of their reply to the show cause notice supports the case of the assessees and it cannot be construed as any sort of financial flow back from BMPL to BE. Similarly, the delayed payments of conversion charges by BE to BMPL and BMPL furnishing its assets worth Rs. 2.0 cr. as collateral security for the loan of Rs. 27.50 cr. taken by BE, which are normal commercial/financial transactions between any two legal entities in no way undermine the independent status of BMPL. It is further submitted by th....
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....manpower; they are an independent legal entity recognized and dealt with by all the above Government Department and others. 131.1 The financial and other working arrangement between BE and BMPL has also been made one of the grounds by the Department in proposing to put the burden of central excise liability on BE. It is further contended in the show cause notice that "all this clearly indicates the economic realities behind the legal facade called BMPL and the beneficiary of this creation is BE and benefits were mostly accrued by adopting colourable devices for avoiding taxes; this coupled with the share holding pattern and the mutuality of interest between both of them and the dominance of BE who was calling the shots in its relationship with BMPL necessitates lifting of corporate veil from BMPL to expose the actual beneficiary who is none other than BE". 131.2 On going through the show cause notice on these aspects of 'legal facade', 'lifting of corporate veil from BMPL', it is seen that apart from dwelling at length on the various commercial and working arrangements, the Department has not adduced any evidence in support of the contention that the setting up of B....
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.... goods manufactured on job work basis. Further, in the pharmaceutical industry, the concept of getting goods manufactured is legally recognized in the Drugs and Cosmetics Act, 1940, wherein both the brand owner (loan licensee) and the job worker are given licensee responsible for maintaining the quality and standards, at the same time lays does the obligations of the job worker. As per the Apex Court's judgement in the case of Ujagar Prints, the job worker is recognised as the manufacturer for the purpose of payment of central excise duty. Thus in the instant case BMPL being the job worker of BE is required to discharge the duty liability despite the fact that the former is a subsidiary of the latter. The same had been followed in a catena of judgments, irrespective of the different interpretations drawn by the Revenue to the job work arrangements, such as valuation under Rule 8 of Central Excise Valuation Rules, 2000, valuation at the price at which goods manufactured on own account, the basis of sale price of raw material supplier as both are related etc. A few case laws which are relevant to the present case are given below. 152. The assesses submitted that, there is no ....
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....dgments in the case of (i) K.R. Balachandran v. CCE - 2003 (151) E.L.T. 68 (T), (ii) Dawn Fire Works v. CCE - 1999 (31) RLT 104 & (iii) Poly Resins v. CCE - 2003 (161) E.L.T. 1136 (Tri. - Chennai) in this regard. (i) In the case of K.R Balachandran v. CCE, Coimbatore (supra), the Hon'ble Tribunal in Para 14 of the order held that 'Non-issue of Show Cause Notice to Rama Industries and also for the reasons that Department has taken different stand on the status of Rama Industries, therefore, the proceedings have become had in law, we are constrained to set aside the impugned order on this ground above'. (ii) In the case of Dawn Fire Works Factory and others v. CCE, Madurai (supra), the Hon'ble Tribunal in Para 5 of the order held that, 'In this case particularly, there is an existence of unit and the Department was required to have shown the financial flow back and sharing of profits and for that they ought to have issued Show Cause Notice to the other unit, which has not been done in the present case and in view of the judgment rendered by the Tribunal in the case of Ogesh Industries and in the case of Hindustan Foam ....