ORDER
S.S. Sekhon, Member (T)
1. The Respondents herein (referred to as M/s. BSUA for short) were selling the said goods to M/s. BPL Ltd., for a price lower than the price at which M/s. BPL Ltd., were selling the
goods to their dealers; as it appeared that the price adopted by M/s. BUSA was not a normal price as contemplated under Section 4 of Central Excise Act 1944, the assessments were made provisional under Rule 9B of Central Excise Rules, 1944 from April 1994 onwards. Further the facts that M/s. BSUA were clearing their entire production only to M/s. BPL Ltd; They were determining their selling price by taking in to account only the raw material cost, labour and over heads, interest costs and profit without including marketing and advertisements expenses; they were permitted to use the trade mark belonging to M/s. BPL Ltd., who were holding 11% of the share capital in M/s. BSUA and had been advertising for the said goods being manufacture by M/s. BSUA from April 1994, suggested that M/s. BSUA and M/s. BPL Ltd., had associated themselves in such a way so as to have an indirect interest between them in the business of each other; thereby rendering the transaction between them as not at arms length and the selling price between them as a price not in the normal course of wholesale trade. As it appeared that M/s. BSUA and M/s. BPL Ltd., were related persons in terms of Section 4 of Central Excise Act, 1944, having mutuality of interest in the business of each other, the price at which the goods were sold by M/s. BPL Ltd., to dealers appeared to be the normal price; hence M/s. BSUA were issued with an SCN dated 27-12-96 proposing finalisation of provisional assessment by revising the Assessable value by taking the price at which the goods were sold by M/s. BPL Ltd., to their dealers and demanding of Rs. 10,84,58,075/- as differential duty for the period April 94 to September 96. Four more SCNs were issued to the assessee covering the period upto June 98 which proposed to demand another Rs. 22,19,01,264/-.
2. These SCNs were decided by the Assistant Commissioner of Central Excise, IV Division, who ordered finalisation of provisional Assessment and confirmed the demand for the whole period and ordered that the future clearances would be made based on the wholesale price of M/s. BPL Ltd. While passing the order, the Assistant Commissioner brought out how the marketing strategy adopted by M/s. BSUA of marketing the goods only through M/s. BPL Ltd., has helped them in undervaluation of the goods and how the agreements between them being colourable devises have helped them in evasion of duty. He established the existence of mutuality of interest between M/s. BSUA and M/s. BPL Ltd., based on various internal documents of the assessee which clearly reveal the nexus between the parties and their relations. He relied on various judicial pronouncements to supplement the decision taken.
3. The Commissioner (Appeals) had ordered for pre-deposit of 50% of the duty demanded. Appellant filed a Writ Petition against this order of Pre-deposit in the High Court of Karnataka and the High Court headed by a single judge ordered pre deposit of 40% of the duty demanded. The order was subsequently upheld by the Division Bench of High Court of Karnataka. The appellants then appealed to the Supreme Court which also confirmed the order of the single judge in the pre deposit issue. The appellant, accordingly made the deposit of Rs. 3,60,00,000/-.
4. Vide OIA No. 101/2001 dated 18-1-2001, the Commissioner (Appeals), has set aside the OIO No. 151/98 dated 13-11-98. While passing the order the Commissioner (Appeals) had discussed the issue only with reference to the agreement between the assessee and M/s. BPL Ltd., dated 1-3-89 without considering certain other documents relied upon by the original authority and without going into the nature of transaction between the parties and without discussing the other arguments put forth by the original authority, based on various judicial pronouncements, while deciding the case. Therefore, Revenue filed an appeal before CEGAT vide Appeal No. E/206/2001. The Tribunal vide Final Order No. 144/2002 dated 2-5-2002 [2002 (141) E.L.T. 446 (T)] remanded the case back to the Commissioner (Appeals) observing that as documents relied upon by the jurisdictional Assistant Commissioner had not been looked into and proper reasons for not accepting those documents has not been given by the Commissioner (Appeals).
5. The Commissioner (Appeals), vide Order-in-Appeal No. 237/2002 dated 1-5-2002 decided the issue de novo, arising along with other appeals filed by the assessee against O.LOs No. 98/2000 dated 1-4-2000 and 119/2000 dated 21-9-2000 passed by the Assistant Commissioner of Central Excise, IV Division, Bangalore. The details of the product, period and duty involved in the three appeals are as follows :
O.I.O. No. and Date
Product
Period
Amount Rs.
151 /98 dated 13-11-98
Washing Machines
4/94 to 6/98
9,10,98,179/-
98/2000 dated 14-8-2000
Washing Machines
7/98 to 2/99
1,80,62,763/-
119/2000 dated 21-9-2000
Vaccum Cleaners and Microwave Ovens
5/97 to 5/98
57,61,744/-
TOTAL
11,49,22,686/-
6. Aggrieved by the above O.I.A. passed by the Commissioner (Appeals) present appeal is being filed by Revenue, on the following grounds :
(a) The learned Commissioner of Central Excise (Appeals) while passing OIA No. 237/2002 dated 1-5-2002 has erred in holding that the price at which the goods were sold by the M/s. BSUA to the buyer M/s. BPL Ltd., has to be treated as the normal price under Section 4 of the Central Excise Act, 1944. While setting aside the OIOs No. 151/98 dated 13-11-98, 98/2000 dated 14-8-2000 & 119/2000 dated 21-8-2000 the learned Commissioner (Appeals) has erred by confining the discussion only to the agreement made between the assessee and M/s. BPL Ltd., on 1-3-89 and by failing to decide the case on merits after considering various other documents relied upon by the original authority while deciding the case.
(b) The learned Commissioner of Central Excise (Appeals) even in the de novo order also has erred in holding that the transactions between M/s. BSUA and M/s. BPL Ltd., were on principal to principal basis and is in the normal business transaction. This decision is arrived in spite of availability of various incriminating internal documents, relied upon by the original authority, which unequivocally revealed existence of mutuality of interest between the appellants and the buyer. The OIA is not legally correct and proper being silent about such relevant documents as listed below:
(i) Letters (i) DC: MD BSU/714, dated 9-4-94 (ii) DC/WM 94 dated 2-12-94 and (iii) DC/BSU/94 dated 5-12-95 which show that the price at which BSUA was clearing the goods was only a ‘Transfer Price’ such a transfer price is not normal price under Section 4.
(ii) Letter CMN. SYO-1:94 dated 11-3-94 – indicating 100% control of all the group companies by the Group Chairman.
(iii) Letters dated 13-7-94 and Fax dated 4-7-94 which show that M/s. BSUA was monitoring the collections made by BPL Ltd., from dealers.
(iv) Letters indicating that the advertisement and marketing expenses that BPL Ltd., had to incur was determined by M/s. BSUA.
(v) Letter Ref. No. CNN:SL 93 indicating marketing, Sales and Service of BSUA products being integrated with the CMO (BPL) w.e.f. 1-4-94.
(vi) M/s. BPL have executed a lease deed in favour of M/s. BSUA in respect of land allotment to them during 1985.
(c) The learned Commissioner (Appeals) has erred by not examining the observation made by the original authority that, the appellant and M/s. BPL Ltd., had associated themselves in such a way, so as to have an indirect interest between them in the business of each other in so far as the manufacturing and marketing of the said goods were concerned; that the activities of manufacturing and marketing were divided between them by way of an arrangement in which the costs of manufacturing and cost of marketing were also divided and thus the cost of marketing were not included in the Assessable value determined by the appellants, thereby rendering the transaction between them as not at arms length and the selling price between them as a price not in the normal course of wholesale trade; that on the other hand the said goods entered in to the main stream of market in the normal course of wholesale trade when the said goods were sold by M/s. BPL Ltd., to their dealers, thereby making the price at which M/s. BPL Ltd., were selling goods as a normal price in the course of wholesale trade as contemplated in the Act.
(d) The learned Commissioner (Appeals), while setting aside the OIOs has erred by not discussing the observation made by the original authority that the agreement between the appellants and the buyer M/s. BPL Ltd., was an agreement for mutual benefit and was a colourful device adopted by the appellants to avoid payment of duty. The Hon’ble Supreme Court in the case of Union of India v. Playworld Electronic (P) Ltd., 1989 (41)
E.L.T. 368 has referred to the order in the case of M/s. McDowell and Co. Ltd., v. Commercial Tax Officer – 1985 (164) ITR 149 -wherein it is observed – “It is true that tax planning may be legitimate, provided it is within the frame work of law. Colorable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by dubious method. It is the obligation of every citizen to pay the tax honestly without resorting to subterfuges. It is too much to expect the legislature to intervene and take care of every device and scheme to avoid taxation and it is up to the Court some times to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are and to refuse to give judicial benediction.” The Calcutta High Court in its judgment in the case of M/s. I.T.C. Ltd, and Another v. Union of India and others reported in 1988 (34) E.L.T. 473 has held that – “It is no longer the duty of the Court to interpret the statute strictly to help evasion. It is the duty of the Court to construe statute in a manner which will suppress the evasion of tax.”
(e) The Commissioner (Appeals) has erred by not giving any regard to the above decisions relied upon in the OIOs. The OIOs are set aside in spite of existence of various documents suggesting mutuality of interest and understanding between the parties intended to evade payment of duty. The Commissioner (Appeals) has not gone into the nature of transaction between the parties and has erred by failing to discuss the other arguments put forth by the original authority based on various judicial pronouncements while deciding the case.
(f) The Hon’ble Supreme Court in the case of Calcutta Chromotype Ltd., v. Collector of Central Excise -1998 (99) E.L.T. 202 (S.C.): 1998 (76) ECR 385 (S.C.) has observed that “where the manufacturer and distributor are both limited companies having common directors it can be pressured that they have interest directly or indirectly in the business of each other and the Corporate veil should be lifted depending on facts and circumstances.” The learned Commissioner (Appeals) has erred by deciding the case not considering the above judgment also.
(g) The main contention of the Appellants in the appeal was that the original adjudicating authority had violated the principle of natural justice by relying on the fresh documents not referred in the Show Cause Notice and by not giving a fair and reasonable opportunity to make their submissions on the documents. Under such circumstance, in all fairness, the learned Commissioner (Appeals) should have examined the veracity of such documents or remanded the case for fresh consideration. The learned Commissioner (Appeals) has erred manifestly by going ahead and setting aside the OIO without proper appreciation of various facts of the case evidenced by records.
7. After hearing both sides and considering the material it is found –
(a) The Commissioner (Appeals) after considering that the letters [documents mentioned in para 6 (b) supra] having a mention of Transfer Price’ would not effect the nature of transaction between BSUA & BPL unless BPL is established to be a holding company. He held that a letter mentioning 100% control by the Chairman would not effect relationship or that of Monitoring of collections by BPL. Thereafter, he concluded that the interoffice memos especially No. CHM:BC:93 dated 18-11-93 would not reflect ‘relationship between the two companies.’ He finally concluded –
“As stated earlier to establish that the price charged is not the normal price, it is necessary to prove that there was mutuality of interest, in the sense of each of them having a direct or indirect interest in the business of each other. In the case at hand, I find that at one time BPL was a holding company and held shares of the appellant company. Hence, it could be said that BPL had an interest in the appellant company. However, there appear no factors which reflect that the appellant had any direct or indirect interest in the business of BPL. Therefore in this case there was no mutuality of interest to hold that the price at which BPL sold the goods to wholesale dealers should be adopted.”
In view of the same and after a perusal of the findings arrived at in the OIA and the perusal of the impugned documents, we also do not find any substance or material in the grounds alleged by Revenue before us to upset the findings arrived at by the Commissioner (Appeals). The order is not exhibiting any silence as regards the documents to be considered for which the de novo adjudication was to be conducted. A reading of the findings does indicate that the same have been considered.
(b) The Commissioner (Appeals) has given considerable thought and attention to the decision of the Hon’ble Supreme Court in the case of Calcutta Chroma Ltd., 1998 (99) E.L.T. 202 (S.C.) and has come to a finding that “both the conditions must co-exist so that the price at which the manufactured goods are sold” and both the conditions are not met here, there is no challenge of this finding.
(c) The ld. Advocate for the Respondents very clearly has brought out that the facts in this case before us that facts in the case before the Apex Court in the case of I.T.E.C (A) Ltd., [2002 (145) E.L.T. 280 (S.C.) = 2002 (52) RLT 501 (SC)] were different and the case law as laid by the Apex Court in the case of Alembic Glass Industries Ltd., [2002 (143) E.L.T. 244 (S.C.)], by a full Bench of the Supreme Court, would be applicable in the case of Public Limited Companies, as in this case, to determine and uphold the mutuality of interest and relationship. In view of the findings arrived at by the Commissioner (Appeals) of relationship not existing or and proved & applying the law as in the Alembic Glass Industries (supra) which is applicable, we find no cause to upset the findings arrived at by the Commissioner (Appeals) could be formed.
(d) Even on merits the case of Revenue is found to be not sustain-able for the following reasons.
(i) The Assistant Commissioner had relied upon three documents to observe that the internal documents of the Respondents showed that the retail price is being determined by the Respondents. The three documents are letters dated 9-4-94, 2-12-94 and 5-12-94. The Assistant Commissioner had come to the conclusion that the price charged for the products by BSUA from BPL is in the nature of a transfer price and such transfer price is not the normal price under Section 4. Though he has not elaborated further, the reasons for holding such sale price as not normal price, it seems to suggest that there is no sale taking place between BSUA and BPL and that the transactions are more in the nature of transfer of goods from one division to another division of the same company. In this connection, the following aspects are to be noted.
(a) BSUA and BPL are Public Limited companies which are widely held companies. Their stocks are quoted in the Stock Exchanges.] (b) Both are separate legal entities and the sale of the appliances in question takes place between BSUA and BPL as regular normal sale transactions. (c) A perusal of the list of directors would indicate, that excepting for three person, the other individuals are total strangers and do not belong to the family of Shri Nambiar. They have been inducted in the Board for their professional expertise and experience, as is clear from the fact that nominees of financial institutions have also been appointed as directors on the Board of both the companies. (d) There is no material produced by Revenue that the title in the goods does not pass from BSUA to BPL on the sale of the goods within the meaning of the word "sale" under the Sale of Goods Act. Sales Tax under the Karnataka Sales Tax Act on such transactions (though exempted for a particular period by specific Notification being a new industry), and after the expiry of this period of exemption, sales tax was being paid by BSUA for the sale transactions to BPL. (e) When Director-Marketing of BPL is addressing letters to the Managing Director of BSUA seeking the reduction of the sale price and the officials of BSUA are refusing to accept such price reductions as is indicated in the very correspondence relied by the Assistant Commissioner, it is incredible for anybody to suggest/conclude that the transactions
are not in the nature of principal to principal sale transactions. If Director-Marketing of BPL loosely mentions the sale price as ‘transfer price’, it does not become a ‘stock-transfer price’ between one Division and the other. The legal consequences flowing from the actual sale of the goods between BSUA and BPL cannot be obliterated by loose reference by one official of a company and that cannot be taken as a legal proof that the sale did not take place. A perusal of these documents show this to be regular and commercial attempt by BPL in obtaining a favourable sale price. It is typical for a buyer to ask for the reduction in the prices and the seller to refuse. That in essence is free market all about. From the endorsement on the documents, it is clear BSUA officials have gone on record to allege that BPL is pressurizing to reduce the sale price and such proposals can not be accepted. These documents only show a distance between BPL and BSUA and not closeness. The transactions are therefore, in fact, at arms length and not the opposite as suggested by the learned Assistant Commissioner in the order-in-original and as being canvassed before use.
(ii) The Order-in-Original next refers to letter dated 11-3-94 written by Shri T.P.G. Nambiar to the Chairman & Chief Executive Officer, Sanyo Electric Co, Ltd., Japan in order to allege that T.P.G. Nambiar was controlling all the BPL group companies. The learned Assistant Commissioner had failed to appreciate the intent and purpose of this letter and the context in which it is written as BPL Limited had a long-term association with Sanyo Group, Japan. And it is to further that understanding between these two groups, this letter could be written. Further, it is clearly mentioned in the aforesaid letter that BPL group consisted of independent companies. In the present case, the companies have independent existence and operate through the Board of Directors and no one person or family can influence the decision of the company. The claim made by Shri T.P.G. Nambiar which are in nature of negotiation offers and not facts has been wrongly appreciated by the Assistant Commissioner.
(iii) The Assistant Commissioner has next referred to letters dated 13-7-94 and 4-7-94 to observe that the Respondents were monitoring the collections made by BPL. In any case such interest shown in collection of outstanding or helping the same will not exhibit a relationship as envisaged under the Central Excise law. It was submitted that letters were written by the Respondents to M/s. BPL Ltd., only in respect of the sales made by the Respondents to dealers prior to 1-4-94. The same dealers were buying from M/s. BPL Ltd., after 1-4-94. Therefore, there appears nothing unusual to ask BPL to collect the arrears of payment from such dealers. The Respondents had suggested to M/s. BPL Ltd., to take certain action against the dealers in case of not paying the arrears to the Respondents. This would only indicate a desire on part of BSUA to liquidate outstanding in the market and nothing more as in respect of sales made after 1-4-94 to M/s. BPL Ltd., by the Respondents, no such request has been brought on record. The appellants case is that when the goods are sold by BSUA to M/s. BPL Ltd., the manner of disposal of such goods by M/s. BPL Ltd., should not be the appellants concern and whether M/s. BPL Ltd., would incur loss or make profit should not concern them. This obviously would be in respect of the sales made after 1-4-94 which are in dispute in the present case. This position cannot be inferred by the suggestion made in the letters to M/s. BPL Ltd., for collection of arrears of payment from the dealers in respect of sales made by the Respondents directly to the dealers prior to 1-4-94. The order of the Assistant Commissioner holding that monitoring of payment from the dealers is being resorted would not apply to clearances made after 1-4-94. Therefore, interest in the business of M/s. BPL Ltd., cannot be upheld on this account.
(iv) The order has also relied on a letter dated 18-11-93 regarding integration of the Respondents with Central Marketing Organization (BPL). This letter only shows that the marketing, sales and service of the products of the Respondent company will be integrated with CMO which could mean that the goods are going to be sold to M/s. BPL Ltd., who will be selling the same further in the market. In other words, the entire goods would be sold in wholesale to M/s. BPL Ltd., for further sale by M/s. BPL Ltd. This cannot ipso facto be treated as showing mutuality of business interest in each other in order to treat them as related person under Section 4 (4) (c) for treating the price of M/s. BPL Ltd., as the basis for determination of assessable value. Hence, the aforesaid letter dated 18-11-93 has no bearing on the issue.
(v) The Respondents before us, rely on the following decisions in support of the submissions made by them and we find that these cases help them and not the case of Revenue.
(a) Common directors in Public limited Companies does not indicate interest in the business of each other: (1) Alembic Glass Industries Ltd., v. CCE - 2002 (143) E.L.T. 244 (S.C.) (2) Bharati Telecom Ltd. v. CCE, Chandigarh - 2002 (145) E.L.T. 399. (3) CCE & CMS., Aurangabad v. P.W. Dhoot Investment Co. Pvt. Ltd., -1999 (111) E.L.T. 118. (4) Affirmation by the Supreme Court of the above case of P.N. Dhoot as reported in Commissioner v. P.N. Dhoot Investment Co. Pvt. Ltd. - 2000 (120) E.L.T. A194 (S.C.). (5) International Computer India Manufacture Co. Ltd. v. Collector of Central Excise -1989 (41) E.L.T. 287. (b) On mutuality of interest (1) Union of India & Others v. Atic Industries Ltd. -1984 (17) E.L.T. 323. (2) Joint Secretary to Govt. of India v. Food Specialities Ltd.-1985(22)E.L.T.324. (3) Sidhosons & Anr. v. Union of India & Ors. -1986 (26) E.L.T. 881. (4) Kwality Ice Cream Co. v. CCE, Chandigarh - 2002 (145) E.L.T. 584. (5) British Health Products Ltd., India Ltd. & Ors. v, CCE, Jaipur-1999(34) RLT 244. (6) Affirmation by the Supreme Court of the above case of British Health Products Ltd. - Order dated July 19, 2001 in Civil Appeal No. 4972 of 1999 -2001 (133) E.L.T. A160 (S.C.). (7) Cosepa Fiscal Industries Ltd. & Ors. v. CCE, Aurangabad - [2002 (149) E.L.T. 421 (T) = 2002 (49) RLT 608]. (8) Automotive Axels Ltd. v. CCE, Bangalore - [2002 (142) E.L.T. 706 (T) = 2002 (49) RLT 926]. (c) On advertisement expenses incurred by buyers not in-cludible (1) Corner Stone Brands Ltd. v. CCE, Ahmedabad - 1996 (86) E.L.T. 257. (2) Philips India Ltd. v. CCE, Pune -1997 (91) E.L.T. 540 (S.C.). (3) Besta Cosmetics Ltd. v. CCE, Ahmedabad -1999 (109) E.L.T. 237. (4) Precision Instrument Co. v. CCE - 2001 (129) E.L.T 99 (5) Shri Ram Honda Power Equipment Co. v. CCE, Meerut -1999 (107) E.L.T. 145. (6) Lakshmi Card Clothing Mfg. Co. Ltd. v. CCE, Coimbatore- 2001 (137) E.L.T. 924. 8. As regards the provisional nature of the assessments, the Commissioner (Appeals) has held that the assessments cannot be considered as provisional for the period from April 1994 onwards since none of the circumstances contemplated in Rule 9B existed. Since this issue was not referred during the hearing before us we arrive at no findings on the same. 9. In view of our findings, the appeal of Revenue deserves to be rejected.