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2010 Supreme(SC) 1140
2010 (8) Supreme 259
SUPREME COURT OF INDIA
B. Sudershan Reddy and Surinder Singh Nijjar, JJ.
Commissioner, Central Excise, Chandigarh — Appellant
versus
M/s. Kwality Ice Cream Co. — Respondent
Civil Appeal Nos. 8456-8463 of 2002
Decided on : 26-11-2010
IMPORTANT POINT
To be treated as related persons u/s 4 of the Central Excise Tariff Act, 1985, each of the parties involved should have an interest, whether direct or indirect in the business of each other.
Headnote:Central Excise Tariff Act, 1985 – Section 4 – Related persons – Ambit and Scope – ‘Related person’ means a person who is so 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 etc – The expression “relative” has the same meaning as in the Companies Act, 1956 – Merely because goods are produced with customer brand name and the entire production sold to the owner of the brand name, cannot be treated as a sale between ‘related persons’ – To be treated as related persons each of the parties involved should have an interest, whether direct or indirect in the business of each other. (Paras 9, 10 and 15)
1983 ELT 1896 SC; 1984 (17) ELT 323 SC : 1984 (3) SCR 930; 1989 (41) ELT 368 (SC); 1998 (99) ELT 202 (SC); 1988 (35) E.L.T. 8 (SC); 1989 (41) E.L.T. 360 (SC); (2003) 2 SCC 86; (2006) 9 SCC 556; (2003) 1 SCC 142 – Relied upon
Facts of the case:
1. M/s. Kwality Ice Cream is engaged in the manufacture of ice cream. It entered into an agreement for the sale of the entire production to BBLIL, which later merged with HLL, for marketing. It has entered into agreement with BBLIL for a period ending on March 21, 1997. Later an agreement was entered into with M/s. HLL with effect from March 22, 1997. The terms and conditions of this agreement are the same as those with BBLIL.
2. The contention raised by M/s. Kwality Ice Cream that the entire transaction between the parties covered by the agreement was on principal to principal basis and that the price was sole consideration for the sale of the goods was not accepted by the departmental authorities.
3. Appeals preferred by M/s. Kwality Ice Cream were rejected. The appellate authority took the view that the transactions between the parties were not on principal to principal basis.
4. CEGAT reversed the order. The Tribunal held that M/s. Kwality Ice Cream and M/s. BBLIL/HLL are not ‘related persons’ and the transaction between them is one on principal to principal basis and the price was the sole consideration for the sale of the goods and assessable value cannot be computed on the basis of the price at which BBLIL sold the products from its depot.
Finding of the Court:
The Tribunal rightly arrived at the conclusion that pricing in terms of clause (6)(iii) would not lead to the conclusion that the transaction was not one between principal to principal.
The assessable value cannot be computed on the basis of the price at which BBLIL sold the product from its depot.
Result : Appeal dismissed.
JUDGMENT
B.Sudershan Reddy, J. —
1. The short question that arises for our consideration in these appeals is whether M/s. Kwality Ice Cream Company on the one hand and Brooke Bond Lipton India Limited - (BBLIL) on the other (which later merged with Hindustan Lever Limited -HLL) are treated to be related persons in the matter of computing assessable value of ice cream manufactured by M/s. Kwality Ice Cream and as to whether duty should be demanded from M/s. Kwality Ice Cream on the basis of the price at which BBLIL sold the said product from its depot.
2. M/s. Kwality Ice Cream (respondent-assessee) is engaged in the manufacture of ice cream falling under the Schedule to the Central Excise Tariff Act, 1985 (for short ‘the Act’). It entered into an agreement for the sale of the entire production to BBLIL, which later merged with HLL, for marketing. It has entered into agreement with BBLIL for a period ending on March 21, 1997. Later an agreement was entered into with M/s. HLL with effect from March 22, 1997. The terms and conditions of this agreement are the same as those with BBLIL.
3. The contention raised by M/s. Kwality Ice Cream that the entire transaction between the parties covered by the agreement was on principal to principal basis and that the price was sole consideration for the sale of the goods was not accepted by the departmental authorities. The demand under show cause notices covering the period from February, 1996 to November, 1997 was confirmed by the Assistant Commissioner under Section 11 of the Central Excise Act, 1944. Appeals preferred by M/s. Kwality Ice Cream against the said order were rejected on the ground that the agreement between M/s. Kwality Ice Cream and BBLIL/HLL does not leave any scope but to indicate that M/s. Kwality Ice Cream has no autonomy to run its unit. Starting from the procurement/purchase of raw material to the manufacture of final product, all the activities of M/s. Kwality Ice Cream were fully controlled by BBLIL/HLL. The nature and type of machinery to be put in use was in terms of the directions of BBLIL/HLL. M/s. Kwality Ice Cream did not have any liberty to market its goods. The appellate authority took the view that the transactions between the parties were not on principal to principal basis. Interest accrued on interest free deposit with M/s. Kwality Ice Cream, read with other terms and conditions of the agreement, reveal that it was clearly an extra commercial consideration.
4. M/s. Kwality Ice Cream preferred appeals challenging the order passed by the Commissioner before CEGAT, New Delhi, inter-alia, contending that the price of the product was not determined exclusively at the instance of BBLIL but was determined in terms of the formula given in Appendix 4 to the source agreement. The formula was an integral part of the source agreement according to which the price was fixed. There was even a provision for pricing after upgrading of the existing factories/manufacturing facilities or at the new factories/manufacturing location of M/s. Kwality Ice Cream.
5. The CEGAT after elaborate consideration of the matter found that the provisions contained in clause (9) read with Appendix 4 and 5 of the agreement between the parties clearly establish that the price was not being fixed by BBLIL exclusively but on the other hand the price was fixed on the basis of the formula agreed between the parties. The Tribunal concluded that the transaction between the parties was on principal to principal basis. The Tribunal accordingly held that M/s. Kwality Ice Cream and M/s. BBLIL/HLL are not ‘related persons’ and the transaction between them is one on principal to principal basis and the price was the sole consideration for the sale of the goods and assessable value cannot be computed on the basis of the price at which BBLIL sold the products from its depot. It is that order which is under challenge in these appeals preferred under Section 35-L of the Central Excise and Salt Act, 1944.
6.
