JUDGMENT :

S. RAVINDRA BHAT, J.

1. The question which arises for consideration in these appeals, directed against an order of the Customs, Excise and Service Tax Appellate Tribunal¹[Dated 23.04.2010 in Order No. 330-337/WZD/AHB/20210] (hereafter ‘CESTAT’ or ‘tribunal’) is whether the price at which the appellant M/s Bilag Industries Ltd., Vapi (hereafter ‘BIL’) sold its products to the buyer, should be treated as a transaction with a “related person” under Section 4(4)(c) of the Central Excise Act, 1944 (hereafter “the Act”).

2. BIL was incorporated as Mitsu Industries Ltd. (hereafter ‘MIL’) in 1992; it was formed by members of the Bilkhias family who were its major shareholders/promoters. MIL used to manufacture pesticides, insecticides and their intermediaries classifiable under Chapter 38, Central Tariff Act, 1985 (hereafter ‘CETA’). These fell under the broad category of pyrethroid products. Besides other products like Cypermethrin and alpha Cyermethrin, MIL manufactured Allethrins, Deltamethrin, and intermediates for the entire range of products. Before July 1999, MIL did not manufacture Esbiothrin and Esbiol (falling under the product group of Allethrins).

3. On 16.02.1998, AgrEvo GmbH and MIL signed a Letter of Intent, and on 22.11.1998 they signed a letter of Memorandum of Understanding (‘MOU’) expressing their intention to form a joint venture for research, manufacture, and sale of mainly synthetic pyrethroids products and their intermediates. Thereafter, MIL, AgrEvo GmbH, and AgrEvo SA entered into a Joint Venture Agreement (JVA) on 03.07.1999. This was for the purpose of researching, developing and manufacturing agrochemicals and environmental health products. MIL agreed to first transfer its entire non-pyrothroid business to another company, namely, Mitsu Pesticides Ltd.

4. On the date of closing of the JVA, MIL’s name was changed to M/s Bilag Industries Ltd. (‘BIL’). At the time of formation of the joint venture, AgrEvo SA held 51% of the share capital in BIL and the balance share capital in BIL was held by the Bilakhias family. Further to the JVA, a Technology and Know-How Licence Agreement (dated 13.07.1999) was entered into by AgrEvo SA and MIL. In terms of this licence agreement, the necessary process and know-how to manufacture Esbiothrin and Esbiol as per the specifications provided by AgrEvo SA was transferred to BIL. In terms of this agreement, AgrEvo SA had agreed to licence BIL to manufacture the allethrin molecules (i.e., Esbiothrin and Esbiol products) conforming to AgrEvo SA’s specifications. Thus, as a JV partner, AgrEvo SA invested a certain amount as capital in BIL and also brought the technical know-how for the Joint Venture Company (BIL) to manufacture Esbiothrin and Esbiol products. In terms of the JVA, it was agreed that three members of the Bilakhias family (who were directors of MIL), were to be paid non-compete fee of Rs.25.51 crores as conforming parties to the JVA. This non-compete fee bound the Bilakhias to not compete with the JVA after it came into force, i.e., from 03.07.1999.

5. BIL had been selling its manufactured products to various bulk formulators including Rhone Poulenc Agro Chemicals India Ltd./Aventis CropScience (India) Ltd. The Esbiothrin purchased from BIL had been sold by Aventis CropScience (India) Ltd., to various end-consumers. Other products purchased from BIL were used by Aventis CropScience (India) Ltd., for formulation. The price at which the goods manufactured by BIL and sold to AgrEvo SA on export was based on supply agreement dated 03.07.1999. According to the supply agreement, BIL agreed to sell deltamethrin product at a particular price for different periods from April 1999 to March 2003. The price was to be arrived at on the basis of actual cost of production plus profit margin as mentioned in the table in Annexure 3.1(a) of the supply agreement dated 03.07.1999. Similarly, the allethrin products (Esbiothrin) were also agreed to be sold by BIL to AgrEvo SA at the ac