1.1 M/s Procter & Gamble (I) Ltd. (presently known as Procter & Gamble Hygiene and Healthcare Limited) (hereinafter referred to as PGIL) are inter alia engaged in the manufacture of Ariel Microsystems detergent powder falling under Chapter 34 of the Central Excise Tariff Act, 1985, the appellants along with their Manager. Thse appeals are being disposed by this common order.
1.2 On 19.11.93 PGIL divested the business of Ariel detergent powder in favour of M/s. Procter & Gamble Home Products Ltd. (hereinafter referred to as the PGHP). The transfer of PGIL detergent business to PGHP was made known to public by news reports in leading newspapers such as Financial Express, Economic Times, Times of India and Indian Express published on 22.9.1993. They informed the Central Excise authority about the divestiture of its business vide a letter dated 5.1.94.
1.3 A price list, consequent to the change in marketing of detergent powder of Ariel brand. In this price list it was specifically mentioned that from 1.11.93 Ariel branded detergent powder was to be sold by PGIL to PGHP and that two Directors of PGIL and PGHP are common. In the questionnaire filed along with the price list, PGIL informed that Ariel detergent powder was sold to the stockists through the depots all over the country and consequent to the transfer of marketing and distribution of Ariel detergent powder business to PGHP with effect from 1.11.93, the entire production would be sold to PGHP. The price at which Ariel detergent powder was sold to PGHP was declared as the basis and value was arrived at accordingly. The assessable value declared in this price list was less than the assessable value declared earlier.
1.4 a) The Superintendent of Central Excise vide letter dated 11.1.94 referred to the price list No.43 dated 3.1.94 and directed PGIL to file the price list in part IV as per the provisions of Rule 173C(2) of the Central Excise Rules, 1944 on the ground that the entire production of Ariel was being sold to PGHP and that PGIL and PGHP have mutual interest in the business of each other and therefore PGHP is related person to PGIL.
b) PGIL vide its reply dated 1.1.94 to the aforesaid letter of the Superintendent, clarified that it had transferred the marketing and distribution of one of the Ariel brand detergent powders to PGHP with effect from 1.11.93 and consequently from 1.11.93 the entire production of the detergent powder of Ariel brand manufactured by PGIL was being sold to the PGHP. PGIL also pointed out that PGHP was not a related person to PGIL.
c) Thereafter Superintendent vide his letter dated 25.4.94 requested PGIL to submit copy of the agreement entered into between PGIL and PGHP. PGHP placed revised purchase orders on PGIL effective from 1.4.1994. In terms of this purchase order the prices agreed were less than the prices at which the goods were sold by PGIL to PGHP prior to 1.4.1994. PGIL vide its letter dated 2.5.94 submitted the agreement to the Superintendent of Central Excise.
d) Vide a letter dated 4.2.95 the Superintendent of Central Excise, Range I, Mandideep, Bhopal enquired as to the reason for decrease in the assessable value despite the increase in the cost of inputs used in the manufacture of Ariel Micro-system detergent powder manufactured by PGIL. PGIL submitted reply dated 27.2.95 to the aforesaid letter of Superintendent of Central Excise specifically mentioning that with effect from 1.11.93, there has been a change in the marketing and distribution pattern of Ariel Micro-system detergent powder i.e.
effective from 1.11.93. PGIL has transferred the marketing and distribution of Ariel to PGHP. It was also pointed out that the agreement between the PGIL and PGHP had already been filed vide letter dated 2.5.94.
e) i) On 26.4.95 and 27.4.95, Central Excise Audit was conducted by the Internal Audit team of Indore collectorate and the Audit party raised certain queries. These queries were replied to by the PGIL wherein the names of Directors of Richardson Vicks Inc., USA wee submitted along with the other replies. Reply filed by the PGIL to the Audit details of consideration received from PGHP for the sale of marketing Ariel business furnished in detail. The Superintendent (Audit) also requested PGIL to furnish certain information regarding divesting of detergent business to the PGHP. A team of officers of Audit branch including Assistant Commissioner visited the factory premises of PGIL on 13.2.1997 & 14.2.1997 and checked the records maintained by PGIL. The queries raised by the officers were replied by PGIL by letter dated 20.3.97. Copy of the agreement entered into by PGIL with PGHP was again submitted by PGIL PGIL vide letter dated 30.6.1997 the information called for by the Superintendent of Central Excise (Audit) letter dated 14.2.1997.
ii) The Superintendent (Preventive) along with his team visited the factory premises of PGIL on 26.8.95, checked the records maintained by PGIL at the factory and seized certain records and stocks.
iii) PGIL vide letter dated 30.8.95 to the department categorically submitted the relationship between it and PGHP as also shareholding pattern of PGIL, PGHP, Richardson Vicks Inc USA and the Proctor & Gamble Company, USA who is holding company of Richardson Vicks Inc. USA was also informed in this letter. Shareholding pattern of PGIL was also submitted along with the other answers to the queries. The shareholding pattern of PGHP was also informed. The fact that Proctor & Gamble India Holdings Inc. USA was holding company of PGHP and that Proctor & Gamble Company USA was holding company of Proctor & Gamble India Holdings Inc.
USA was informed through this letter. It was also specifically mentioned in this letter that PGIL is not a related person to the PGHP and in support of this contention. PGIL also quoted certain judgments of the Hon'ble Supreme Court. On 10.3.1998 Summons were issued to PGIL to produce certain information. On 18.3.1998 Another summon was issued to PGIL for submitting certain information. PGIL submitted the facts sheet to the department. PGIL furnished the necessary details as called for vide this summons. On 19.3.1998 PGIL wrote to the department informing that all the information called for by the department has already been submitted by it from time to time as desired.
1.5 Show cause notice dated 03.07.98 (page 64) was issued to PGIL by the Commissioner of Central Excise, Indore-II, Bhopal. In this show cause notice, duty demands were raised on the goods manufactured by PGIL and sold to PGHP during the period from 01.04.94 to June 1996 giving following reasons for raising the demands.
(a) that PGIL had been manufacturing and selling detergent to various dealers for the period prior to November 1993. In the month of November 1993 PGIL entered into agreement with PGHP inter alia to sell the entire goods manufactured by PGIL to PGHP. According to the agreement PGHP has to furnish to PGIL the product and packaging specification including labelling and trade mark legends.
b) that in terms of the agreement. PGIL had received Rs. 10 crores as non-compete fee plus Rs. 2.8 crores as licence fee for Ariel business; that the entire goods manufactured by PGIL is sold to PGHP and therefore the price at which PGIL had sold the goods to PGHP was not normal price under Section 4(1)(a) of the Act.
c) that Richardson vicks Inc. USA which is a subsidiary of Proctor & Gamble Company, USA holds 65% equity capital of PGIL and that Proctor & Gamble India Holdings Inc. USA, which is a subsidiary of Proctor & Gamble company, USA, holds 100% equity capital in PGHP; therefore both PGIL and PGHP are subsidiaries of Proctor & Gamble, USA, and PGHP has say over the pricing of the products manufactured by PGIL.
d) Annexure to the show cause notice computed the difference between the price at which the goods were sold by PGIL to PGHP prior to 31.03.1994 which was declared in the price list filed under Rule 173C and the price at which the goods were sold by PGIL to PGHP after 01.04.1994 as shown in the invoices issued by PGIL. The difference in the aforesaid value was treated as differential value and differential duty of Rs.4,11,77,059/- had been demanded accordingly for the period from 01.04.94 to June 1996.
e) Further, the show cause notice also alleged that during the period from 01.04.94, although MRPs of the goods were revised upward, there was no proportionate increase in the assessable value based on the price at which goods were sold by PGIL to PGHP. Accordingly, differential duty of Rs. 1,55,22,330/- was demanded for the period from 01.04.94 to 30.06.96 by increasing the assessable value proportionately to the extent of increase in the MRP during the aforesaid period.
1.6 The Commissioner of Central Excise after hearing the appellants, confirmed the demands of duty on the following grounds: a) The price at which the goods were sold by PGIL to PGHP after 1.4.2004 was not the sole consideration since PGHP have given an amount of Rs. 12.8 crores to PGIL as non-compete fee and licence fee.
(c) Both PGIL and PGHP are subsidiaries of Proctor & Gamble Company, USA and therefore they have interest in each other's business.
(d) PGHP had provided specifications and are also having quality control.
(f) PGIL had not provided copy of the agreement to the department and therefore suppressed the facts of having received Rs. 12.8 crores from PGHP.2.1 Perusal of the show cause notice clearly shows that it is not the case of the department that PGIL and PGHP are related persons in terms of Section 4(4)(c) of the Central Excise Act 1944. Further, there is no proposal in the show cause notice to invoke clause (iii) of the proviso to Section 4(1)(a) to treat the price at which PGHP had sold the goods to their buyers as the basis for determination of assessable value. The entire case of the department is that the price at which the goods were sold by PGIL to PGHP after 1.4.2004 was not normal price as that was not the sole consideration for sale.
2.2 In order to allege that the price received by PGIL from PGHP is not the sole consideration for sale, the show cause notice referred the fact that PGIL had received 'non-compete/licence fee' of Rs. 12.8 crores from PGHP and therefore the price at which goods were sold from 01.04.94 to PGHP should not be treated as assessable value. The show cause notice proposed to treat the price declared by PGIL in the price list filed under Rule 173 (C) prior to 1.4.1994 as the basis for determination of assessable value i.e. the reduced price from 01.04.94 was not accepted as correct assessable value by the show cause notice as well as the impugned order. The basic ground given for not accepting the aforesaid price is that PGIL had received non-compete fee from PGHP.2.3 As regards the 'non-compete fee/licence fee' paid to PGIL the same cannot be considered as an additional consideration for the sale of detergent powder. This submission is fully supported by the following decisions:-Godrej Boyce & Mfg. Co. Ltd. v. CCE & nothing contrary is shown which would induce upholding the findings in this respect in the impugned order, or found that such payments could be a consideration to depart from Section 41(1)(a) 'normal price.' 2.4 The finding of the Commissioner that since Proctor & Gamble Company, USA is ultimately holding company of both PGIL and PGHP, PGIL and PGHP are & to be treated as 'related person' having interest in the business of each other, is unsustainable i law. In this regard reliance placed on the following decisions is well founded.International Computer India Manufacture Co. Ltd. v. Collector of Central ExciseFlash Laboratories Ltd. v. CCE-2003 (151) ELT 241 as urged, is not applicable to the present case as- a) The facts of the case of M/s Flash laboratories Ltd. are that Flash Laboratories Ltd was the manufacturer of tooth paste with prudent brand name. they had sold the goods to their holding company M/s Parle Products Ltd, which was the holding company of M/s parle Biscuits Ltd. also. Thus Flash Laboratories had sold part of the goods to its holding company and part of the goods to another subsidiary of the said holding company. The holding company also had been incurring expenses for sale promotion and advertisement for the sale of prudent branded tooth paste. The CEGAT in the Final Order dated 19.5.1994 held that since the advertisement and sale promotion has been done by the holding company, they are related, facts herein are not exactly the same.
b) The issue as to whether two subsidiary companies of the same holding company are inter se related in terms of erstwhile Section 4(4)(c) of the Central Excise Act, 1944 was not the issue involved in the aforesaid case. The entire case of the department as well as the finding of the CEGAT in the case of Flash Laboratories was that the advertisement and sale promotion for the tooth paste therein were undertaken by the buyers and therefore they were related persons. Hence, the aforesaid decision of the Supreme Court cannot be treated as laying down the ratio that two subsidiary companies of one common holding company are inter se related on the ground of mutuality of business interest between them.
c) In terms of the recent decision of Supreme Court in the case of Alembic Glass Industries Ltd. v. CCE reported in 2002 (143) ELT 244, the shareholders of public limited company do not, by reason of their shareholding have interest in the business of the company. The Hon'ble supreme Court considered the decision of the earlier decision of the Supreme Court in the case of Atic Industries and also the decision of Supreme Court in Calcutta Chromotype Ltd and held as under: 7. In our view, this is the heart of the matter. The shareholders of public limited company do not, by reason only of their shareholding, have an interest in the business of the company. Equally, the fact that two public limited companies have common directors does not mean that the one company has an interest in the business of the other. It is, therefore, not possible to uphold the conclusion of the Tribunal that the assessee and the chemical company wee related persons. This being so, it is unnecessary to go into the alternate arguments advanced on behalf of the assessee" following this position of law, we cannot uphold related person concept in this case.Goodyear South Asia Tyres Pvt. Ltd. v. Commissioner of Central Excise and Commissioner of Central Excise v. Goodyear South Asia Tyres Pvt. Ltd vide Final Order No. A/219, 220/WZB/05-C-II dated 11.03.2005, had arrived at a finding pat para 2.1 (c) therein that decision of the Supreme Court in the case of Flash Laboratories Ltd. v. Commissioner of Central Excise (2003 (151) ELT 241) cannot be treated as laying down the ratio that two subsidiary companies of one common holding company are inter se related on the ground of mutuality of business interest between them. That bench referred to and relied upon the aforesaid decision of the Supreme Court in the case of Alembic Glass Industries Ltd v. Commissioner of Central Excise reported at 2002 (143) ELT 244.
Nothing contrary was shown to us, therefore following our earlier decision we would hold that PGIL & PGHP cannot be related persons.
The sales therefore in between two Public Limited Companies, as pleaded at arms length has to be accepted.
2.6 Entire goods sold to PGHP cannot be a ground to hold that sale price of PGIL is not normal price as a) The fact that the entire goods were sold to PGHP cannot be a ground to hold that PGHP is related person. This submission is fully supported by the following decisions:-CCE v. Besta Cosmetics Ltd 1989 (34) RLT 98 affirmed by Supreme Court in 2005 (68) RLT 252 b) The fact that PGHP has control over quality cannot be a ground to hold that price at which PGIL has sold the goods to PGHP is not normal price. This submission is fully supported by the following decisions: Therefore, when it is found that non-competc fee/licence amount of Rs. 12.8. crores cannot be a consideration to depart from normal price, the sales are at arms length between two Public Limited Companies not 'Related persons' and entire goods sold cannot be a reason to depart from the price to be value in this case the proposal of undervaluation ab initio cannot be upheld.2.7 a) The reliance of the Ld DR on the case of Pilky foot wear Company Pvt Ltd (200 (120) ELT 289 SC) to bring about the relationship of the 'manufacturer' and 'buyer' to be 'not at arms length' to impugned the assessable value under Section 4, prima facie cannot apply in this case as it appears from the reported decision the apex court after observing that the Single Judge of the High Court and the Excise Authorities in fact therein had come to a conclusion that the Agreement between the 'manufacturer' and the buyer therein was not at arm length and the apex court found- 2. The Learned Councel has taken us through the agreement in question and, in our opinion, the conclusion arrived at by the Excise authorities as affirmed by the High court calls for no Enterference. The appeal is dismissed with cost.
Therefore, the dismissal of the appeal on perusal of the agreement in the Pilky's case where the Apex Court came to an 'opinion' on facts therein could not be applied in all cases. The agreement herein is not proved to be same as in Pilky's case. Moreove, the Pilky's case was for clearance in 1969 & price under Section 4(4)(c) when 'Related Person' concept was absent, introduced only by amendment of Section 4 on 1.10.1975.
b) The reliance on the decision of this Tribunal in case of Killick Slotted Angles Limited (1988 (35) ELT 647 would help the appellants case since it prescribes that the manufacturers price when sales are at arms length or all sales made to one customer cannot be rejected (see para 6,5, & 2 & 7 of the decision) The price in that case was rejected by the tribunal by relying on specific clause of the agreement that Sales promotion of the product was to be done by the buyers. The issue and attempts of Revenue to add Advertisement Expenses incurred by the marketing Agent of the assessee on the grounds of relationship has been finally laid to rest by the full Bench of the apex Court in case of CCE Baroda v. Beta Cosmetics Ltd 2005 (122) ELR 389 SC as also that Common Directorship would not automatically bring in 'Related person' clause into operation (CCE Surat v. Besta Cosmetic 2005 (122) ELR 390 SC).
This would call for coming to a conclusion that no reason exist for DR's reliance and Revenues effort in this case to upset the valuation declared.
2.8 Before parting with this matter on valuation, we would like to observe that the Commissioners determination of valuation based on enhancement of Maximum Retail Price fixed declarations and ratio therefore as found in para 17 of the impugned order cannot be upheld.The provisions of Section 4 of the Central Excise Act 1944 and the Valuation rules framed therein prescribe the law to arrive at Valuation and the method adopted by the Commissioner does not find a place thereunder. Even the 'Best judgment Valuation' has to be arrived by the application of the provisions of the Act and the Rules and cannot be adopted by invented and applied by fancy orbitary unknown methods.
2.9 The entire demand is barred by limitation as in apparent from the list of dates and events mentioned herein above clearly show that the department was fully aware of the facts and hence there is no basis for the allegation of suppression of facts.
2.10 No duty demands on undervaluation charges can be upheld on merits and bar of limitation, there is no case or cause to invoke the liability of penalty, interest as arrived by the Commissioner. The order is required to be set aside.