Parle Bisleri Pvt.
LTD. Vs Commr. of Customs & Central Ex., Ahmadabad
JUDGMENT
Dr. MUKUNDAKAM
SHARMA, J.
1.
This
appeal is preferred by M/s Parle Bisleri Pvt. Ltd (formerly known as M/s Limca
Flavours and Fragrances Ltd and appellant herein) and is directed against the
order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai
which set aside the order of Commissioner of CentralExcise, Ahmedabad. The
Commissioner vide order-in-original No.11/Commr/96 dated 16.9.1996, dropped all
proceedings initiated against the respondents in the Show Cause Notice F. No.
V/22/15-18 DA 94 dated 24-2-94. However, on appeal, the CESTAT partly allowed
the claim of the Revenue, and aggrieved by the same, the appellant has
approached this Court.
2.
The
facts may be stated in brief here. M/s. Parle Bisleri Pvt., the appellant,
manufactures soft drink flavours which are assigned `code names', namely G-44T,
L-33A, T-11PC, T-11P, R-66M, K- 55T and L-22L. During the period from years
89-90 to 93-94, the appellant availed of the benefit of Notifications 175/86
& 1/93 as an SSI unit. It is the holding company of M/s. Parle Exports Ltd.
(PEL). The appellant sells its product to PEL, Parle International Ltd. (PIL)
and franchise bottlers of M/s. PEL. It maybe stated at the outset that the
changes the appellant underwent in its transformation from `M/s Limca Flavours
and Fragrances Ltd' to `M/s Parle Bisleri Pvt. Ltd' bear no significance to the
outcome of this appeal.
3.
M/s.
PEL uses the products sold by the appellant to manufacture Non-alcoholic
Beverages Base (NABB). In addition to NABB, M/s. PEL also manufactures flavours
as the appellant does. During the same period mentioned above, M/s PEL enjoyed
the benefit of Notification No. 175/86 and 1/93 for the year 92-93 and 93-94.
(Oct. 93). The flavours named above are researched and developed by PEL, but
were allowed to be manufactured by the appellant with the code names given by PEL.
The flavours are used in the manufacture of beverages like Gold Spot, Limca,
Rimzim etc.
4.
Consequent
upon the visit to the factory premises and office premises of Parle Group of
Companies at Ahmedabad and Bombay on 20.03.93 by the officers of the
Directorate General of Anti Evasion (Central Excise), New Delhi on the basis of
the information that M/s PEL and their Group Companies were indulged in evasion
of Central Excise Duty, various documents were seized and the statement of key
personnel recorded. As we have mentioned earlier, the order-in-original passed
by the Commissioner of Central Excise and Customs withdrew the demand for
differential duty and found no case for imposition of penalty for any of the
companies in question.
5.
Before
we move on to the appeal as it unraveled before the CESTAT, it is pertinent to
note here that Notification No. 175/86 and 1/93 require that the aggregate
value of clearances of all excisable goods from a factory by one or more manufacturer
should not exceed Rs. 150 lakhs and Rs. 200 lakhs respectively in the preceding
financial year. The allegations against the appellant before the CESTAT, then,
were that the clearances of the appellant during the period from 1989 to
October 1993 must be clubbed with that of M/s PEL and M/s PIL as they are
effectively one and the same company, and thus the appellant is not entitled to
the benefit of the aforesaid Notifications. It was also an issue of appeal
before the CESTAT that the appellant herein was using the brand name belonging
to another person (M/s PEL) who was not entitled to the benefit of the said
Notifications. The third and final issue concerned the allegation of
undervaluation of flavours by the appellant, which resulted in an inaccurate
assessment and hence the differential duty should be extracted.
6.
In
response to these issues in appeal, the CESTAT ruled the Revenue's claim of
undervaluation in favour of the appellant primarily on the ground that the
Department did not come out with quantifiable data to indicate the extent to
which the price was suppressed by the appellant. However, on the issue of misuse
of brand name by the appellant, the Tribunal came to the conclusion that M/s.
PEL did in fact, own the brand name and held that the defence of the appellant
that the flavours were marked only by virtue of a code and not identified as a
brand did not hold water. To quote the Tribunal: -
"25. In view of
the language of the explanation [Explanation VII of Notifications No. 175/86
and 1/93] quoted above it is necessary to see whether the code names on the
flavours indicate a connection in the course of trade between the specified
goods and such person using such name or mark. It is revealed during the course
of investigation that the flavours in question were earlier manufactured by PEL
and supplied to the franchise holders. The same flavours were later on allowed
to be made by LFFL [appellant herein]. The franchise holders thereupon were
buying the very same flavours from LFFL and were placing their orders by mentioning
the same code name, as is evident from their 5 purchase orders. The users of
the flavours i.e. PEL PIL and specified bottlers are all interconnected. The specified
bottlers are franchisees of PEL. Being the franchisees of PEL they are aware
that the flavours belonged to PEL with the code names. Thus the code name
indicated a connection in the course of trade between such specified goods and
same person using such name or mark. The defence that the code number has been
given only for identification of the product cannot therefore be
accepted."On this line of reasoning, the Tribunal held that the appellant
will not be entitled to the benefit of Notification No. 175/86 and 1/93for the
products with code names G-44T, L-33A, T-IIPC, T-IIP, R-66M and K-55T which
belonged to M/s PEL. However, the Tribunal also observed that this finding was
only in respect of the years 89-90, 90-91 91-92 and 93-94 (till Oct 93) and not
for the year 92-93 because in 92-93, as ruled by the Tribunal subsequently in
the same judgment, the brand owner (M/s. PEL)of these flavours himself was
entitled to the benefit of Notification No. 175/86.
7.
On
the primary issue of whether the clearances of the said companies could be
clubbed together, and the companies themselves could be treated as one
manufacturer, the Tribunal found that the effective financial control and
management emanated from a common core, and therefore the companies could well
be said to be interdependent and even interrelated. However, the Tribunal only
partly allowed the appeal of the Revenue in so far as it held that the
appellant herein was indeed entitled to SSI exemption between the period from
88-89to 92-93 (up to 31.3.93]. Such a conclusion was based on the ruling of
this Court in Commissioner of Central Excise, New Delhi v. Modi Alkalies &
Chemicals Ltd. & Ors reported at2004 (171) E.L.T. 155 (S.C.) which
purportedly took notice of Circular 6/92 issued by the Ministry of Finance,
Government of India which stated that the clearance of Limited Companies are not
be clubbed together, and held that the Circular was concurrent in operation
with that of Notification No. 175/86.However, since this Court, according to
the Tribunal, also held that the same Circular was not applicable after the
issue of Notification No. 1/93, the appellant could not claim SSI exemption
from 1.4.1993 to October, 1993. To this effect, the appeal was partly allowed.
Aggrieved by the decision of the Tribunal, the appellant has approached this
Court by way of Civil Appeal.
8.
The
appeal was listed for hearing and we heard the learned counsel appearing for
the parties who have ably taken us through all the relevant documents on record
and also placed before us the various decisions which may have a bearing on the
issues raised in the present appeal.
9.
The
issues in contention between the parties have been filtered through the stages
of appeal, and before this Court we are primarily faced with two of them, which
are:
i.
Whether
the value of production/clearances of the three Companies, namely the
appellant, M/s PEL Ltd. and M/s PIL Ltd. can be clubbed for the purposes of
ascertaining the eligibility to exemption under Notification No. 1/93 CE
dated 28.02.93?
ii.
Whether
the Tribunal was correct in denying the benefit of the said Notification by
treating the product code name as a `brand name' within the meaning of
Explanation VIII to the afore stated Notifications? Since the parties to this
appeal have raised arguments that areal most identical in form and substance to
those submitted in the previous stages of appeal, we may dispense with a
reiteration of the same to proceed directly to the decision and its reasoning.
Issue I
10.
In
so far as the issue of clubbing the value of production/ clearances is
concerned, it is significant to note that it is now beyond dispute that
Circular 6/92 operated concomitantly with Notification No. 175/86. The Revenue
has admitted to this in its Counter-Affidavit to this appeal, and thus the only
point of question is whether the operation of Circular 6/92, and consequently,
the benefit of SSI exemption may be halted from the commencement of
Notification No 1/93.
11.
The
Tribunal, in deciding this question in the affirmative, relied solely on an
interpretation of the decision of this Court in Modi Alkalies & Chemicals
Ltd. & Ors (supra). Therefore, we may examine the operative part of the
decision to adjudicate the correctness of the Tribunal's verdict. In Modi
Alkalies & Chemicals Ltd. & Ors, this Court held The statements of the
employees/Directors show that the whole show was controlled, both on financial
and management aspects by MACL. If these are not sufficient to show
inter-dependence probably nothing better would show the same. The factors which
have weighed with CEGAT like registration of three companies under the sales
tax and income tax authorities have to be considered in the background of
factual position noted above. When the corporate veil is lifted what comes into
focus is only the shadow and not any substance about the existence of the three
companies independently. The circular no.6/92 dated 29.5.1992 has no relevance because
it related to notification no.175/86-CE dated 1.3.1986 and did not relate to
notification no.1/93.
12.
What
this Court was emphasizing in the aforesaid decision was not only the fact that
Circular 6/92 has no effect upon commencement of Notification No. 1/93, but
also the fact that the distinct legal nature of Companies cannot be used as eyewash
to portray its independent nature. Where the companies are indeed
interdependent and possibly even related through financial control and
management, the value of clearances has to be clubbed together in the interests
of justice. The operation of Circular 6/92 admittedly protected entities like the
appellant prior to the commencement of Notification No. 1/93, but certainly not
after the same. In this case, this Court has been presented with a
preponderance of evidence to suggest that the companies are related not only in
terms of financial control, but also through management personnel. In Modi Alkalies
& Chemicals Ltd. & Ors (supra) this Court has held that two basic
features which prima facie show interdependence are pervasive financial control
and management control. We, therefore, proceed to apply the said two tests to
the facts of this case.
13.
R.
Chauhan, P. Chauhan, R.N. Mungale and S.K. Motani, who are the directors of the
appellant herein are among those who also serve on the Board of Directors in
M/s PEL Ltd. and M/s PIL Ltd. It is also a fact on record that that M/s. PEL
advanced an interest-free loan of Rs. 1 crore to the appellant, which was used
for purchase of raw material by the latter (As evidenced from the balance
sheet). Furthermore, the flavours being manufactured by the appellant were
developed by M/SPEL at their R & D Lab at Bombay, whose services were at
the disposal of the appellant. They were at one point of time were manufactured
by M/s. PEL and admittedly owned by them. Clearly, all this points to the
inescapable conclusion that the three companies in question were intertwined in
their operation and management. A careful scrutiny of the records therefore
establishes that both the aforesaid two basic features are overwhelmingly
present in this case. Therefore it would likely seem that the purported
fragmentation of the manufacturing process was but a mere ploy to avail of the
SSI exemption. Piercing the corporate veil, when the notions of beneficial ownership
and interdependency come into the picture, are no longer res integra. On this
count, therefore, we have no hesitation whatsoever in affirming the order of
the Tribunal, which was justified entirely through the precedent set by this Court.
Issue II
14.
The
second issue concerns the question whether the `code names' used to denote soft
drink flavours manufactured by the appellant could in fact be termed as `brand
names' and if so, whether they belonged to another entity. The yardstick in
this regard is Explanation VIII which is pari materia in both Notifications No.
175/86 and No. 1/93 and reads as:
Explanation
VIII--"Brand name" or "trade name" shall mean a brand name
or trade name, whether registered or not, that is to say a name or a mark, such
as symbol, monogram, label, signature or invented word or writing which is used
in relation to such specified goods for the purpose of indicating, or so as to
indicate a connection in the course of trade between such specified goods and some
person using such name or mark with or without any indication of the identity
of that person. We are not convinced by the argument of the appellant that this
Explanation refers only to `brand names' and cannot be used to determine
whether code names, as used by the appellant in the present case, fall within
the said category. The mere difference in nomenclature cannot take away the
import of the Explanation from its applicability to the present case. The
appellant herein manufactures flavours which fall within the ambit of the `code
names' and it is a fact on record that these codes are key to identifying the
flavours which are commercially transferable.
15.
Furthermore,
it is expressly clear that the code names on the flavours indicate a connection
in the course of trade between the specified goods and such person using such
name or mark. The flavours in question, which were earlier manufactured by M/s
PEL Ltd. and supplied to the franchise holders, were subsequently allowed to be
made by the appellant. The franchise holders were in effect buying the very
same flavours from the appellant and were placing orders by referring to the same
code name, as is evident from the respective purchase orders. The users of the
flavours, i.e. M/s PEL Ltd., M/s PIL Ltd. and specified bottlers are all
interconnected since the latter group comprises franchisees of PEL and thus
there is more than an iota of evidence to prove the connection in the course of
trade between the flavours and the entity using the flavours through code
names. Furthermore, the ownership of the codenames by M/s PEL Ltd. is clearly
evidenced from the fact that these flavours were developed, researched and
concocted by M/s. PEL Ltd in its research labs. That M/s. PEL Ltd. Have given
the brand names to the flavours and allowed them to be manufactured by the
appellant, their holding company cannot hide the fact that M/s PEL Ltd were in
fact, the owner of the code/brand names. This conclusion is fortified by the
fact that it was M/s PEL Ltd who transferred the right of the codes when they
were sold to M/s. Coca Cola Company in November, 1993. Since the appellant was
not the owner of the said brand names in question, the Tribunal was justified
in holding that the appellant will not be entitled to the benefit of
Notification No. 175/86 and 1/93 for the products with code names G-44T, L- 33A,
T-IIPC, T-IIP, R-66M and K-55T which belonged to M/s PEL Ltd.
16.
After
careful consideration of the issues in question and on a thorough reading of
the facts on record, we are of the firm opinion that the appeal bears no merit.
Consequently, we dismiss this appeal, but leave the parties to bear their own costs.
............................................J
[Dr. Mukundakam Sharma]
............................................J
[Anil R. Dave]
New
Delhi,
December
15, 2010.
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