ORDER
S.S. Sekhon
1. The appellant is a limited company manufacturing audios. Till March 1997, the excisable goods manufactured by the appellant were sold to various dealers all over India including M/s. BPL Ltd. The appellants in March 1997 i.e. from April 1997 onwards appointed M/s. BPL Ltd. as their Consignment Agent undertaker of selling and handling of the excisable products and the assessable value thereof was being determined considering the sale price of the Consignment Agent, M/s. BPL Ltd. After about a year of operations, under above said arrangement, it was felt by the appellant to change the same due to various factors and the Consignment Agency was discontinued since April 1998 onwards. The audios being manufactured by the appellant were thereafter almost entirely sold to M/s. BPL Ltd. and the said price was adopted as the basis for determination of assessable value for discharging excise duty. M/s. BPL Ltd. placed purchase orders on the appellants from time to time. The selling price of the audios to BPL Ltd. was agreed between the appellant and M/s. BPL Ltd. in the normal course of trading and this change in the selling pattern was intimated to the Department vide letter dtd. 1.4.98 and was clearly mentioned in their declarations filed under Rule 173C of the Central Excise Rules, 1944.
2. Enquiries cast by the Department, in view of the revised marketing pattern, particularly as regards the using of the brand name of M/s. BPL Ltd. which was clarified that the brand name was used on the products as it was done earlier and supplies were made as per the orders received. While these enquiries were going on, the auditors of the Department visited the appellant’s premises followed by Preventive Officers visit which culminated in the Show Cause Notice dtd. 25.5.2000, inter-alia, raising the following allegations:
“a. The value adopted by the appellant is not the normal price in terms of Section 4(1)(a) of the Act.
b. The transaction between the appellant company and M/s. BPL Ltd. (BPL) are not on principal to principal basis.
c. Price is not the sole consideration.
d. M/s. BPL Ltd., have exercised various control over the activities of the appellant company including administrative control, control over costing, pricing of products and marketing, etc.
e. Profitability of the entire group is worked out by M/s. BPL Ltd.
f. Change in selling price was effected only to evade duty.
g. Projection of BPL brand common for all products.
h. There is mutuality of interest between these companies.
i. Said units have suppressed several facts with on intention to evade payment of central excise duty.
j. They have violated the provisions of Rules 9(1), 49, 173C, 173F and 173G of the Rules.
Based on the above allegations the following proposals are made:
i. to adopt the selling price of M/s. BPL Ltd. as normal price in terms of Section 4(1)(1) of the Act.
ii. to demand differential duty of Rs. 92,03,195 for the period between 7.4.98
to 28.2.99.
iii. to impose penalty equivalent to the duty demandable under Section 11AC of the Act.
iv. to levy interest at the rate applicable in terms of Section 11AB of the Act.
v. to impose penalty on the appellant in terms of Rule 173Q of the Rules read with Rule 209 of the Rules.
vi. to impose penalty on M/s. BPL Ltd. in terms of Rule 173Q read with Rule 209 of the Rules.
vii. to impose penalty under Rule 209A of the Rules on the following:
(a) Shri T.P.G. Nambiar, Chairman of BPL Group
(b) Shri M.A. Uppal, Managing Director of the appellant company
(c) Shri Shashi Nambiar, Director of the appellant company
(d) Shri Ajit Nambiar, Vice-Chairman & Managing Director, BPL Ltd.
(e) Shri T.C. Chauhan, Director Marketing, BPL Ltd.
(f) Shri R. Murali, Chief Financial Officer of BPL Ltd.”
The noticee relied upon various documents which were in the appellant’s possession and have been used in the case of other companies’ Show Cause Notice by the Department. The Ld. Commissioner after considering the replies made, passed the impugned order on 28.6.2001 issued on 29.6.2001 confirming the following:
"i. Duty for the period from 1.4.98 to 28.2.99 Rs. 92,03,195 ii. Penalty under Section 11A Rs. 92,03,195 iii. Penalty under Rule 173Q and 209A Rs. 5,00,000 iv. Interest under Section 11 AB v. Penalty on M/s. BPL Ltd. (CMO) Rs. 1,00,000"
and also was pleased to hold that there was no evidence to invoke the provisions of Rule 209A of the Central Excise Rules against the other noticees and dropped the proceedings initiated against them.
3. The appellants contended –
(a) The order of finding that the sales made to M/s. BPL Ltd. were not on principal to principal basis, is ex-facie bad in law on material goods.
(b) The sale price adopted by the appellant were the normal price as per Section 4(1)(a) of Central Excise Act and this submission and facts thereto have been ignored and adoption of sale price of M/s. BPL Ltd. on extraneous grounds that invalid reasons is bad in law and not permissible in the facts of this case.
(c) The finding that no royalty is paid by the appellant and thereafter the conclusion that this would indicate the transaction to be not on principal to principal basis to establish the mutuality of interest is not called for. They rely on the decision in the case of UOI v. Cibatul Ltd., 1985 (22) ELT 302 (SC) wherein it was clearly held that the brand owner’s price shall not confirm the assessable value as per Section 4 of the Act. The Commissioner mis-construed the use of the brand name and arrived at this finding which was not correct.
(d) Since the use of brand name of the buyer does not render the transactions to be not on principal to principal basis or and establish mutuality of interest, the reliance on inter-office memos issued by Shri Ajit Nambiar, VP & MD of BPL Ltd. and other material in this connection relied upon by the Commissioner could not be a basis to hold mutuality of interest.
(e) The Commissioner’s finding that the inter-office memo dtd. 8.9.93 of the Chairman addressed to various companies of BPL Group issued much before 1.4.98 suggesting to invest any property does not establish mutuality of interest to make the transactions not classifiable to principal to principal basis and also decision taken by M/s. BPL Ltd. were in any case not adopted by the appellant.
(f) The finding that sale of entire production to a single buyer does not render the transaction as not on principal to principal basis and or established mutuality. The transactions in this case were on sales at factory gate basis and not transfer of goods and the interpretation being placed on the documents and statements was not correct on facts. As the goods entered the wholesale stream, when they were sold to M/s. BPL Ltd. and relying upon the Supreme Court’s Attic Industries’ case, the price should have been accepted.
(g) Since M/s. BPL Ltd, neither determined the prices nor exercised any control over the functioning of the appellant, costing and marketing strategy of the appellant was not planned. The two independent companies dealt with principal to principal basis and the evidence on record has been not interpreted correctly. The similar documents have been appreciated by the Ld. Commissioner (Appeals) and by this Tribunal to come to a conclusion that the sale prices were not being fixed by M/s. BPL Ltd.
(h) Advertising expenditure incurred by the buyer will not cause a conclusion of mutuality of interest. Similarly sale of price at alleged lower prices does not make transactions not be on principal to principal basis and they relied upon the following case law:
(i) Atic Industries, 1978 ELT J444(SC)
(ii) UOI v. Mahindra & Mahindra, 1989(43) ELT 611 (Bom)
(iii) Hind Lamp, 1977 (1) ELT J1-Allahabad
(iv) UOI v. Attic Industries, 1984 (3) ECC 90 (SC) : 1984 (17) ELT 323 (SC)
(v) Sylvania Laxman and Anr. v. UOI, 1982 ELT463 (Delhi)
(i) The Commissioner’s reliance on retail sale prices was not permissible under law.
(j) Demands in this case are barred as there was no suppression of facts and they relied upon the following decisions:
(i) CCE, Chemphar Drugs & Liniments, 1989 (21) ECC 66 (SC) : 1989 (40) ELT 276 (SC)
(ii) Pushpam Pharmaceutical Co. v. CCE, 2002 (80) ECC 6 (SC) : 1995 (78) ELT 401(SC)
(iii) Singareni Collieries Ltd. v. CCE, 1988 (37) ELT 361 (CEGAT)
(k) The imposition of penalty was not called for alongwith interest.
4. The Ld. DR while reiterating the findings of the Commissioner submits that the reliance on the decision of this Bench of the Tribunal in the case of BPL Sanyo Utilities & Appliances Ltd., 2003 (153) ELT 398 (Tri) as submitted by the Ld. Advocate for the appellants is not called for in the facts of this case, which are different, inasmuch as in this case there is evidence of financial and managerial control of the manufacturer by the buyer BPL Ltd. In para 15 of his order, the Commissioner has discussed the various aspects of this control, which is as under:
“15. It is not in dispute that both M/s. BSTL and M/s. BPL Ltd. are public limited companies, registered separately under the Companies Act which have also taken separate registrations with the Central Excise authorities for the manufacture of excisable goods. However, I find that there is substantive evidence to show that the transaction between them was not on a principal to principal basis. Firstly, during the disputed period M/s. BPL Ltd. were the absolute owners of the brand “BPL”. M/s. BSTL were allowed to use the said brand name on the goods manufactured by them for which no royalty or consideration in any form was paid by the latter to the former. This is unusual. The products manufactured by M/s. BSTL were better known in the market as the products of M/s. BPL rather than of M/s. BSTL. This is evident from a news item appearing in the “Economic Times” edition dated 1.9.99 wherein Shri Ajit Nambiar, Vice Chairman and Managing Director of M/s. BPL Ltd., had clearly stated that M/s. BPL used a common logo across 232 products. Thus, the goodwill created by the brand BPL which belonged exclusively to BPL Ltd., whose major activity was the manufacture of colour TV Sets, flows to the other products manufactured by the group companies including those manufactured by M/s. BSTL. This apart, within the group the inter-company correspondence resorted to by the group units are referred to as “inter office memos”. All policy decisions were taken by M/s. BPL Ltd. which were adopted and implemented in toto by the other companies. The entire production of the excisable goods of M/s. BSTL were supplied only to M/s. BPL Ltd. Nothing was available to any other wholesale buyer for direct purchase from M/s. BSTL. The price charges by M/s. BSTL from M/s. BPL Ltd. were referred to as “the transfer price” and not the sale price.
Thus, they themselves considered the transactions as only transfer of the goods and not as sale. The goods manufactured by M/s. BSTL reaches the wholesale stream only through the hands of M/s. BPL. Further, with effect from 1.1,99, Shri R. Murali, Vice President-Corporate Finance Officer of M/s. BPL Ltd. had been designated as Chief Finance Officer of M/s. BPL Ltd. and entrusted with the additional responsibility of overseeing the work of finance controllers of all the companies including BSTL, other than the Telecom and Power Business Group as per the announcement dtd. 1.1.99 issued by Shri Ajit G. Nambiar, Vice Chairman and Managing Director of M/s. BPL Ltd. Shri K.R.V. Panickar, Vice President, Corporate Accounts had to oversee the functioning of the Accounts Controller of the said companies including M/s. BSTL. Both Mr. Murali and Mr. K.R.V. Panickar were directed to conduct rigorous independent reviews of their team and companies every month which bad to focus on all aspects of their operations. Shri Panicker was responsible and answerable to the Group Internal audit and Group Taxation cell. Moreover it is the normal practice in the trade that the manufacturers determine the price of their products for sale in the wholesale/retail markets whereas in this case contrary to such accepted practice, M/s. BPL who claim to be only independent wholesale buyer determines and communicates the price at their own discretion which they term as the transfer price, through inter office memos, It is seen that there was no correspondence from M/s, BSTL to M/s. BPL either confirming or requesting for modifying the suggested prices. Thus, the control over the price of goods manufactured by M/s. BSTL was totally exercised by M/s. BPL. I also find that the costing and marketing strategy was being planned by M/s. BPL only, through the Group Supervisory Board, which was directly working under Shri T.P.G. Nambiar. Shri N. Murali (AGM) Commercial of M/s. BPL had confirmed in his statement dtd. 16.12.99 that the market price or MRP was arrived at on the basis of the recommendations of their Notional Product Group (NPG) for each commodity which was directly functioning under M/s. BPL. In other words, this NPG used to decide the prices at which the products could be sold in the country. This has a direct bearing on the costing of audios. Similarly, the marketing strategy of any product, including audios manufactured by M/s. BSTL was devised by M/s. BPL exclusively as was evident from the interoffice memo dtd. 20.6.98 which was communicated to all NPG heads among others, to Senior DGM Audios. It is also seen that Shri T.P.G. Nambiar, Chairman of M/s. BPL Ltd. had addressed an inter-office memo dtd. 8.9.93 to all the group companies calling for their contribution towards purchase of a property by M/s. BPL for which M/s. BSTL had been directed to contribute Rs. 20.5 lakhs by 1.12.93 and Rs. 24 lakhs by 1.4,94. Similarly, with reference to the news item from Economic Times dtd. 8.11.93 regarding the concessional preferential shares to the tune of Rs. 982 crores allotted to, the promoters of 15 Indian companies, the Chairman of M/s. BPL had addressed a confidential letter dtd. 10.11.93 to the Managing Director/Management of Associated Companies the contents which are reproduced below:
“Please don’t say that your own Associate companies have done great favour to BPL. The Green field Projects that you have taken up would have been simply not possible without BPL’s umbrella and this umbrella came to you in several forms. In return BPL got nothing, At this stage, I wish to warn you. In further, greater control over your companies (New Project Expansion, Public Issues”, Raising of Debts from Fis, Fls and Banks) will be exercised by the Family, Ajit, Rajeev and Anju the manner and method of which will be advised later.”
Thus, Shri R. Murali, Vice President and Chief Financial Officer of BPL was overseeing the work of the finance controller of BPL Sanyo Technologies and Shri Panickar, Vice President, Corporate Accounts had to oversee the functioning of the Accounts Controller of BSTL. Furthermore, the price of the goods was unilaterally fixed by BPL and communicated through inter-office memos. It is pointed out by the Commissioner in Para 17 of his order that officials of the assessee company confirmed that the prices of the audios were not fixed by them but by BPL, and also that BPL bore the advertisement expenses for the same and relying on the following two decisions, this appeal should be dismissed:
(i) 2002 (81) ECC 316 (T) : 2002 (143) ELT 315 (Tri-Bang), Brindavan Alloys Ltd. (Para 3c)
(ii) 2002 (142) ELT 706 (Tri-Bang)-Automotive Axels Ltd., (where it was held in para 11 that mere business connection does not make the buyer a related person; only financial/managerial interest would result in this)
5. The Ld. Advocate draws attention to the following submissions made, as regards the statement of Shri R. Murali and their interpretation and the detailed grounds as taken therein which are as follows:
L3. The Learned Commissioner has grossly erred in holding the view that M/s. BPL Ltd., only determined and communicated the prices to the appellant (para 15). The learned Commissioner has not appreciated the statements of various officers in this regard. This is evident from the following statements:
Statement of Shri R. Murali, Chief Financial Officer, M/s. Limited dated 28.9.99.
Question No. 3:
Who fixes the prices in respect of audio products manufactured by BSTL, Doddaballapur?
Answer:
“The prices are negotiated by CMO with BSTL as in the case of other vendors also and are based on discussions and communicated normally in writing”
Statement of Shri N. Murali, Assistant General Manager (Commercial) of M/s. BPL Limited dated 16.12.99
Question:
Please see inter-office memo of BPL dt. 24.2.99 from CFO, on transfer prices for audios. This is a policy matter. Were you present for the preparation of the same? And what is role played by you?
Answer:
Yes. The role played by me is part of my role as originally explained. That is negotiating purchase prices for audio products agreed to between M/s. BPL Limited and BSTL for the year 1999-2000, which is an enclosure to the abovereferred letter.
It was the submission of the appellant that the prices were always negotiated between the appellant and M/s. BPL Limited and communication used to be sent to the appellant indicating the prices agreed upon which was followed by formal purchase orders. The Commissioner has not appreciated these submissions and passed order on some assumed grounds.
L4. While a particular portion of the statement of Mr. R. Murali, has been relied upon by the learned Commissioner for drawing his own inferences, it is not known as to why he has failed to appreciate the vital piece of information in the very same statement which clearly defeats the finding of the Commissioner. The statement has to be read as a whole and not in isolation. It is very relevant to note that no effort is made to appreciate the scope of negotiations that took place between the appellant and the buyer, but the learned Commissioner chose to rely upon certain portions of statement obtained and read out of context. It is vehemently reiterated that the prices are determined after thorough negotiation between the two companies and not determined by BPL alone and forced upon the appellant as erroneously inferred by the learned Commissioner in para 15 of the impugned order.
L5. The learned Commissioner failed to note when the Heads of respective organisations agreed upon the prices and directed their subordinates to implement the same, there is no need to have any specific contract other than the purchase orders. The essential ingredients of a contract i.e. “offer and acceptance” have been satisfied in this case and it is not necessary that there should always be a written contract/agreement.
L6. The learned Commissioner’s findings that since there was no correspondence by the appellant to M/s. BPL Ltd., conveying their confirmation or requesting for modification of the price offered by M/s. BPL Ltd., and therefore, it shows that M/s. BPL had the control over prices is only devoid of any substance in the facts and circumstances of the case as clearly explained in the replies filed by the appellant to the show cause notice.
L7. The learned Commissioner has also relied upon the news Item in Economic Times dt. 8.11.93 and confidential letter dt. 10.11.93 of the Chairman and letters dt. 16.8.93, in support of his conclusion that M/s. BPL exercised control over the appellant (para 15). All these documents pertain to the period much prior when it was not even contemplated that the appellant would appoint M/s. BPL Ltd., as consignment agent from 1.4.97 and thereafter to sell their products from 1.4.98 onwards. Besides all these documents were in possession of the department in 1995 Itself as seen from the very show cause notice itself. Hence, these documents cannot be the basis for the events that took place from 1.4.98 and that too with due intimation to the department.
L8. Without prejudice to the above, it is submitted that all these communications are totally irrelevant to the issue involved. The news item in the Economic Times dated 8.11.93 relate to the preference allotment of shares to promoters of various companies, in which there is no mention of either the appellant company or M/s. BPL Limited. Hence this has no relevance to the issue in question. This news item was enclosed to the confidential note dated 10.11.93 written by the Chairman to various group companies. Merely for the reason that Mr. TPG Nambiar has made an assertion that in future greater control over the companies will be exercised by the family, it cannot be legally held that Mr. TPG Nambiar is having control over the appellant company. The impugned Order has not led in any evidence to show that in fact, such a control was exercised. No doubt Mr. TPG Nambiar has participated in the decision making process of the appellant company since he is the Chairman of the company. This does not mean that he has exercised control over the appellant. Even otherwise, this cannot be a ground to hold that M/s. BPL Limited have exercised control over the appellant.
L9. With regard to the Note dated 16.8.93, by this Note the Group Companies were asked to contribute towards technical exhibition of BPL products which are manufactured by various companies of BPL Group. During this period, the appellant were selling their products to dealers apart from M/s. BPL Ltd. Since the expenditure was initially incurred by M/s. BPL Ltd., other companies who were also benefited by this exhibition were asked to share the expenditure. It is not the case where M/s. BPL Ltd., has incurred the expenditure on behalf of the Group Companies. Apart from this the learned Commissioner has given no finding on the submission of the appellant that going by the above principle, all organisations involved in any exhibition/trade fair/mela would become persons having mutuality of interest in the business of each other. Further, the expenditure pertains to the period much prior to 1.4.98 and as such, has no bearing on the transactions in question.
L10. Further, the observation that there are not major changes in the constitution of M/s. BPL or Group Companies is far from the factual position (para 16). Subsequent to 1993, M/s. BPL Ltd., went public during 1995, there were changes in the constitution of the Board. Even the transactions between the appellant and M/s. BPL Ltd., have undergone series of changes. Hence, the findings given by the learned Commissioner are on assumptions and therefore, not maintainable.
L11. The fact that Chairman and others have been held to be not concerned in determination of prices would itself prove that these documents are not relevant for the determination of value in question. Besides, the learned Commissioner has not at all considered the valid document-wise explanation given in the reply dt.17.1.2001. Consequently it has to be held that the impugned order has been passed without considering the explanation offered by the appellant in their reply to the show cause notice and therefore, such Order is an invalid order.
L12. It is held by the learned Commissioner that the costing and marketing strategy was being planned by BPL Ltd., through Group Supervisory Board, which was directly working under Shri TPG Nambiar (para 15). The appellant had clearly explained that Group Supervisory Board which was constituted during 1993, much before the disputed period, met only once so far. Further, this Board was to discuss the affairs of various Companies which were under the Chairmanship of Shri TPG Nambiar, which is not unusual. Since, the Board did not meet subsequently, there was no occasion for the Board to discuss on the issues relating to planning, costing and marketing strategy of either M/s. BPL Limited or the appellant company. No evidence is also brought on record to show any such instance. Further, the constitution of the Board which was constituted in 1993 which had met only once long ago, can have no bearing on the transactions in question during 1998-99. Hence, the learned Commissioner was incorrect in giving the above finding.
L13. The learned Commissioner has misconstrued and used out of context the statement of Shri N. Murali, AGM-Commercial of BPL dt. 16.12.99 with regard to fixation of MRP for audios (para 15). Admittedly M/s. BPL Ltd., are the wholesale buyers of audios and they knew the market trends, competition etc., Naturally, on the basis of market survey they were able to determine as to what would be the best price to be fixed for various commodities to capture the highly competitive market. National Product Groups which is part of M/s. BPL Ltd., negotiate the purchase price of products with the appellant accordingly. Based on such survey, the purchase prices were also negotiated with other manufacturing companies in the same was as in the case of appellant. Merely because the appellant accepted the prices so offered by M/s. BPL Ltd., it does not mean that the prices were determined by BPL Ltd., alone and the appellant had no say in the matter. No public company would act in the manner as presumed by the learned Commissioner. The inter office memo dt. 20.6.98 also has to be read in the light of this normal commercial study of marketing fluctuations and determination of prices and not as presumed by the learned Commissioner.
L14. The learned Commissioner erred in not considering the evidence produced alongwith the reply dt. 25.4.2001 to support the following contentions.
1.
Prices are on the basis of negotiation
Note dt. 28.9.98 and 6.1.99
2.
Inter office correspondence not always in the form of memos
Copies of letters dt. 18.1.99, 5.2.99 & 20.4.99 written by BPL to BSTL
3,
Transactions were purely commercial in nature
Note dt. 24.2.99 of Shri R. Murali to BSTL
4.
BSTL is
treated as any other normal creditor in
the books of BPL
Copies
of payment voucher of BPL Ltd.
5.
BSTI , had no share in BPL as on 1.4.98. To
allege mutuality of interest, both the
companies should have share holdings.
Annual report of both the companies reveal the BSTL has not share holding in BPL and BPL’s share in BSTL is to the
extent of 4,73,100 equity sharesagainst
the total paid up share capital of
1,87,36,507 equity shares.
6.
Shri N. Murali’s statement dt. 28.9.99
Prices are negotiated
7.
Statement
of Shri Petha Perumal dt.30.11.99
Prices
are determined by mutual discussion and
negotiation.
8.
Shri R. Murali’s statement dt. 29.3.2000
Procurement of audios from BSTL is purely a commercial decision taken by the marketing department of BPL and the manufacturer
of audios, Sale price of Sangeeth is higher than purchase price. It is low price model and aimed at rural
and semi-urban markets when highvolumes wouldgivehigh earnings.
9.
Shri N. Murali’s statement dt. 16.12.9.9
BSTL is
a separate legal entity and went public before BPL did. It is awidely held
company and has no obligation whatsoever
to small section of shareholders.
6. After considering the submissions made by both sides and the material on record, we find:-
(a) Certain documents as listed in Para 6b of the decision in the case of BPL Sanyo Utilities & Appliances Ltd., 2003 (153) ELT 398 (Tri-Bang), do not lead to a conclusion and or indicate, to the Department and to this Tribunal, that the mutuality of interest between BPL Ltd. and BPL Sanyo Utilities & Appliances Ltd. to be established. It appears that in this case also, those very same documents and material akin, has been relied upon with an additional submission of financial control and managerial supervision as it emerges from statements relied upon. These appreciation, now arrived at, in this case, after considering the documents and the statements in totality cannot be cleaved into one part of appreciation derived from the documents and another part to be derived from statements. In the facts of this controversy, we would consider setting aside the order and remit the matter back to the Commissioner to re-determine the aspect of mutuality of interest, if any, and then work out the values once again by considering the alleged addition material, de hors, the documents as mentioned at Para 6 of the decision in the case of BPL Sanyo Utilities & Appliances Ltd., 2003 (153) ELT 398 (Tri-Bang). While working out the demands, if any, the Commissioner also should come to a finding on the submissions being made, that ‘almost all the production’ was sold to BPL Ltd., which would indicate that there was a factory gate sale. This fact has to be established in the de novo adjudication and is left open for both sides to present material to support their respective contentions. If material is available to indicate factory gate sale price for the very same models of the audios, the position may dramatically differ. In the remand proceedings, this fact is, therefore to be established and or ruled out.
(b) We make it clear that the other issues on limitation, quantification etc., being raised are left open for the appellants to urge before the adjudicating authority in the de novo proceedings.
7. In view of the findings, this appeal is disposed of as remand to the original authority in above terms.
