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High Court Of Delhi
POONA BOITLING COMPANY LIMITED - Appellant
Versus
UNION OF INDIA - Respondent
Civil 916 of 1978
Decided On : 05/19/1981
CENTRAL EXCISE AND SALT ACT, 1944 - SECTION 2(D), 3 - FRANCHISE AGREEMENT - MANUFACTURER - INTERPRETATION OF TERMS - WHETHER PETITIONERS WERE MANUFACTURING SOFT DRINKS FOR AND ON BEHALF OF MESSRS PARLE OR MODERN BAKERIES.
Fact of the Case:
Petitioners, bottling companies, entered into franchise agreements with Messrs Parle and Modern Bakeries for the manufacture and sale of soft drinks under their trademarks. The Central Government, based on an opinion from the Ministry of Law, Justice and Company Affairs, directed the Assistant Collectors of Central Excise to examine whether the petitioners were manufacturing the soft drinks for and on behalf of Messrs Parle or Modern Bakeries, and if so, to deny them the benefit of concessional duty under a notification. The petitioners challenged the directions and show cause notices issued pursuant to them, arguing that they were independent manufacturers and not agents or employees of Messrs Parle or Modern Bakeries.
Finding of the Court:
The Court held that the petitioners were not manufacturing the soft drinks for and on behalf of Messrs Parle or Modern Bakeries, and that the impugned directions and show cause notices were illegal and without jurisdiction. The Court found that the petitioners had their own machinery, employed their own labor, and sold the soft drinks to their own customers, and that the restrictions imposed on them under the franchise agreements were to safeguard the trademark interests of Messrs Parle and Modern Bakeries, not to control the manufacturing process.
Issues: Whether the petitioners were manufacturing the soft drinks for and on behalf of Messrs Parle or Modern Bakeries, and whether the impugned directions and show cause notices were valid.
Ratio Decidendi: The Court held that the petitioners were not manufacturing the soft drinks for and on behalf of Messrs Parle or Modern Bakeries because they were not their employees or agents, and that the restrictions imposed on them under the franchise agreements were to safeguard the trademark interests of Messrs Parle and Modern Bakeries, not to control the manufacturing process.
Final Decision: The Court made the rule absolute and quashed the directions issued by the Central Government and the impugned show cause notices issued by the Assistant Collectors of Central Excise to the petitioner-companies.
( 1 ) THIS judgment will also dispose of Civil Writ Petitions Nos. 387 of 1980 (Mfs. Indore Bottimg Co. and Ors. v. Union of India and Ors.) 6 of 1979 (M[s. Tripty Drinks Pvt. Ltd. , Jagatpur CUttack v. Union of India and Ors.), 82 of 1979 (Varanasi Bottling Co. Dahria, Varanasi v. Union of India and Ors ). 83, of 1979 (Varanasi Bottling Co. , Dahria, Varanasi v. Union of India and Ors.) 195180 (M\s. Amritsar Bottling Co. , Amritsar v. Union of India and others), 197 of 1980 (M\s. Chandigarh Bottling Company, Chandigarh v. Union of India and others) and 565 of 1980 (Agra Beverages Corpn. Ltd. ; Delhi and another v. Union of India and Ors.), as the questions of law and facts involved are common in all these cases. We will notice the facts of the present case (C. W. 916178) and need not give the facts of the other petitions because the facts are almost similar.
( 2 ) MESSRS Poona Bottling Co. Ltd. , petitioner No. I in this petition (C. W. No. 916 of 1978) is a public limited company carrying on, inter alia, the business of manufacturing and bottling of soft drints, i. e. Gold Spot, Limca, Thumsup, etc. Nons of its shares was held directly or indirectly by messrs Parie (Exports) Pvt. Ltd. (for short m\s. Parie ) Petitioner No. 2, Ramesh Kumar More, is the Executive Director of petitioner No. I Company. The factory of petitioner No. I is duly registered under the Factories Registration Act 1948. The petitioner company has also obtained Central Excise Licence under the Central Excise and Salt Act. For the purpose of manufacturing the said soft drinks the petitioner company has installed a bottling plant by an alleged investment of about Rs. 40 lacs. For manufacturing the soft drinks, it has to purchase numerous articles such as bottles, crown corks, sugar, citric acid etc. Besides these, it purchases essences from M\s. Parie under frenchise agreements dated July 25, 1977 and February 27, 1978 (Armexure a collectively ). The relevant terms of July 25, 1977 agreem ent read as under: 2. The Company hereby permits and authorises the
BOTTLER, upon the terms herein contained to bottle, sell and distribute the beverages known as and sold under the trade Marks. Trade Marks Registered Number 1. GOLD SPOT 2. 3. 4. 5. 6. 7. (hereinafter called "the said Beverages") within the following described territory (hereinafter called the Territory) Franchise Town proper and within a radius of 25 miles of the Town proper. The territory may be extended to othe places in writing by the Company for a period not exceeding one year, at one time.
( 3 ) THE Bottler agrees to deposit with the Company a sum of Indian Rs. 100,000 (Rupees One lac only) or any higher amount in accordance with the Territory of the Bottler on signing of the Franchise Agreement.
( 4 ) THIS deposit amount shall be kept by the Company towards the effective and satisfactory fulfilment of the terms and conditions of the agreement of the franchise. The Company will pay on the deposit amount an interest at the rate of 1-112 per cent over the Bank Rate prevailing on the 1st day of January of each preceding Calendar Year.
( 5 ) THE Company will sell to Bottler and the Bottler will buy from the Company essence for the Beverages at the prevailing prices. All bottles and crowns purchased by the Bottler will be notified by the Bottler to the Company every quarter. No essence, crowns or finished merchandise will be sold, loaned or delivered to any other Bottler without written permission of the Company and the Bottler shall not directly or indirectly sell or distribute the said Beverages in any territory other than that assigned to the Bottler.
( 6 ) THE said Beverages will be manufactured in a plant approved by the Company, and located within the above described territory. Beverages will be manufactured only according to formula provided by the Company in accordance with the Local and National Laws of the Bottler s country. Samples of finished Beverages will be sent at Bottler s exp
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