Case: Parle Bisleri Pvt. Ltd Vs. Commr.Of Customs & Central Ex.,Ahmedabad

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 Central Excise, Ahmedabad. The Commissionervide 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 24.2.1994. 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 20.3.93 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 theCommissioner 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 Nos. 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 theRevenue’s claim of undervaluation in favour of the appellantprimarily on the ground that the Department did not come outwith quantifiable data to indicate the extent to which the pricewas suppressed by the appellant. However, on the issue ofmisuse of brand name by the appellant, the Tribunal came tothe conclusion that M/s. PEL did in fact, own the brand nameand held that the defence of the appellant that the flavours weremarked 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 Notification Nos. 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 theirpurchase 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 willnot be entitled to the benefit of Notification Nos. 175/86 and 1/93for the products with code names G-44T, L-33A, T-I IPC, 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 theyears 89-90, 90-91 91-92 and 93-94 (till Oct., 93) and not for theyear 92-93 because in 92-93, as ruled by the Tribunalsubsequently in the same judgment, the brand owner (M/s. PEL)of these flavours himself was entitled to the benefit of NotificationNo. 175/86.7. On the primary issue of whether the clearances of the saidcompanies 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 companiescould well be said to be interdependent and even interrelated.However, the Tribunal only partly allowed the appeal of theRevenue in so far as it held that the appellant herein wasindeed entitled to SSI exemption between the period from 88-89 to 92-93 (upto 31.3.93]. Such a conclusion was based on theruling of this Court in Commissioner of Central Excise, New Delhi v. Modi Alkalies & Chemicals Ltd. & Ors., reported at V (2004) SLT 263=2004 (171) ELT 155 (SC) which purportedly took notice ofCircular 6/92 issued by the Ministry of Finance, Government ofIndia which stated that the clearance of Limited Companies arenot be clubbed together, and held that the Circular wasconcurrent in operation with that of Notification No. 175/86.However, since this Court, according to the Tribunal, also heldthat the same Circular was not applicable after the issue ofNotification No. 1/93, the appellant could not claim SSIexemption from 1.4.1993 to October, 1993. To this effect, theappeal 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 learnedCounsel appearing for the parties who have ably taken usthrough all the relevant documents on record and also placedbefore us the various decisions which may have a bearing onthe issues raised in the present appeal. 9. The issues in contention between the parties have been filteredthrough the stages of appeal, and before this Court we areprimarily 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 ascertainingthe eligibility to exemption under Notification No. 1/93 CE dated 28.2.93?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 aforestated Notifications? Since the parties to this appeal have raised arguments that are almost 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. Insofar as the issue of clubbing the value of production/clearances is concerned, it is significant to note that it is nowbeyond dispute that Circular 6/92 operated concomitantly withNotification No. 175/86. The Revenue has admitted to this in itsCounter-Affidavit to this appeal, and thus the only point ofquestion is whether the operation of Circular 6/92, andconsequently, the benefit of SSI exemption may be halted fromthe commencement of Notification No 1/93. 11. The Tribunal, in deciding this question in the affirmative, reliedsolely 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 thecorrectness 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 notedabove. 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 uponcommencement of Notification No. 1/93, but also the fact thatthe distinct legal nature of Companies cannot be used aseye-wash to portray its independent nature. Where thecompanies are indeed interdependent and possibly even related through financial control and management, the value ofclearances has to be clubbed together in the interests of justice.The operation of Circular 6/92 admittedly protected entities likethe 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 suggestthat the companies are related not only in terms of financialcontrol, but also through management personnel. In Modi Alkalies & Chemicals Ltd. & Ors. (supra) this Court has heldthat two basic features which prima facie show interdependenceare 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, whoare 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/s. PEL 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 operationand management. A careful scrutiny of the records thereforeestablish that both the aforesaid two basic features areoverwhelmingly present in this case. Therefore it would likelyseem that the purported fragmentation of the manufacturingprocess was but a mere ploy to avail of the SSI exemption.Piercing the corporate veil, when the notions of beneficialownership and interdependency come into the picture, are nolonger 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 ‘codenames’ used to denote soft drink flavours manufactured by theappellant 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 bothNotifications 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 thisExplanation refers only to ‘brand names’ and cannot be used todetermine whether code names, as used by the appellant in thepresent case, fall within the said category. The mere difference innomenclature cannot take away the import of the Explanationfrom its applicability to the present case. The appellant hereinmanufactures flavours which fall within the ambit of the ‘codenames’ and it is a fact on record that these codes are key toidentifying 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 byM/s. PEL Ltd. and supplied to the franchise holders, weresubsequently allowed to be made by the appellant. Thefranchise holders were in effect buying the very same flavoursfrom the appellant and were placing orders by referring to thesame code name, as is evident from the respective purchaseorders. The users of the flavours, i.e. M/s. PEL Ltd., M/s. PILLtd. and specified bottlers are all interconnected since the lattergroup comprises franchisees of PEL and thus there is morethan an iota of evidence to prove the connection in the course oftrade between the flavours and the entity using the flavoursthrough code names. Furthermore, the ownership of the codenames by M/s. PEL Ltd. is clearly evidenced from the fact thatthese flavours were developed, researched and concocted byM/s. PEL Ltd in its research labs. That M/s. PEL Ltd. havegiven the brand names to the flavours and allowed them to bemanufactured by the appellant, their holding company cannothide the fact that M/s. PEL Ltd were in fact, the owner of thecode/brand names. This conclusion is fortified by the fact that it was M/s. PEL Ltd who transferred the right of the codes whenthey were sold to M/s. Coca Cola Company in November, 1993.Since the appellant was not the owner of the said brand namesin question, the Tribunal was justified in holding that theappellant will not be entitled to the benefit of Notification Nos. 175/86 and 1/93 for the products with code names G-44T, L-33A, T-I IPC, T-IIP, R-66M and K-55T which belonged to M/s.PEL Ltd.

Decision reasoning: 0[ds]13. R. Chauhan, P. Chauhan, R.N. Mungale and S.K. Motani, whoare 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/s. PEL 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 operationand management. A careful scrutiny of the records thereforeestablish that both the aforesaid two basic features areoverwhelmingly present in this case. Therefore it would likelyseem that the purported fragmentation of the manufacturingprocess was but a mere ploy to avail of the SSI exemption.Piercing the corporate veil, when the notions of beneficialownership and interdependency come into the picture, are nolonger 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 thisare not convinced by the argument of the appellant that thisExplanation refers only to ‘brandand cannot be used todetermine whether code names, as used by the appellant in thepresent case, fall within the said category. The mere difference innomenclature cannot take away the import of the Explanationfrom its applicability to the present case. The appellant hereinmanufactures flavours which fall within the ambit of theand it is a fact on record that these codes are key toidentifying 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 byM/s. PEL Ltd. and supplied to the franchise holders, weresubsequently allowed to be made by the appellant. Thefranchise holders were in effect buying the very same flavoursfrom the appellant and were placing orders by referring to thesame code name, as is evident from the respective purchaseorders. The users of the flavours, i.e. M/s. PEL Ltd., M/s. PILLtd. and specified bottlers are all interconnected since the lattergroup comprises franchisees of PEL and thus there is morethan an iota of evidence to prove the connection in the course oftrade between the flavours and the entity using the flavoursthrough code names. Furthermore, the ownership of the codenames by M/s. PEL Ltd. is clearly evidenced from the fact thatthese flavours were developed, researched and concocted byM/s. PEL Ltd in its research labs. That M/s. PEL Ltd. havegiven the brand names to the flavours and allowed them to bemanufactured by the appellant, their holding company cannothide the fact that M/s. PEL Ltd were in fact, the owner of thecode/brand names. This conclusion is fortified by the fact that it was M/s. PEL Ltd who transferred the right of the codes whenthey were sold to M/s. Coca Cola Company in November, 1993.Since the appellant was not the owner of the said brand namesin question, the Tribunal was justified in holding that theappellant will not be entitled to the benefit of Notification Nos. 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.