CCE, AHMEDABAD Vs. VADILAL INDUSTRIES LTD.

JUDGEMENT

(1.) THIS is an appeal filed by the department against the decision of the Commissioner of Central Excise & Customs (Appeals), Ahmedabad, holding that there was no factual or legal basis in the department's contention that the manufacturer, i.e. the respondent and the distributor, i.e. Vadilal Enterprises Ltd. were related persons. In deciding so, the appellate authority in the impugned order has held that the advertisement expenses incurred by the distributor should not be included for purpose of valuation. The appellant is a manufacturer of well know ice cream in Gujarat. In dealing with the said product in the course of ordinary commercial way, on 15th January 1990 they had entered into a distribution agreement with another company called Vadilal Enterprises Ltd. where -under both parties agreed that the manufacturer shall sell and the distributor shall purchase all the milk products manufactured by the manufacturer at the prices determined by the manufacturer on principal to principal basis. It is further agreed between the parties that the distributor shall make arrangement to sell and/or resell the said milk products manufactured and sold by the manufacturer to the distributor at its own cost. It was also provided in the said agreement that the distributor shall be entitled to appoint dealers or sub -dealers throughout the country for sale of the milk products. There are also other clauses in the agreement with which we are not concerned. The case of the department is that both the parties, namely the manufacturer Vadilal Industries Ltd. and the distributor Vadilal Enterprises Ltd. are related persons and the other point involved in this appeal is about advertisement expenses incurred by Vadilal Enterprises Ltd. which should be Included for purposes of valuation of the ice cream. The Order -in -Original as well as the Order -in -Appeal have been decide in favour of the respondent manufacturer before us. The appeal is by the department.

(2.) It is stated in the grounds of appeal relying on the judgment of the Supreme Court in Snow White Industrial Corporation v. CCE : 1989 (41) ELT 360 :, 1989 (23) (ECR) 169 (SC) that whether the agreement in any case was for sale or one for sole selling agency to find out whether the buyer was a related person within the meaning of section 4(4)(c) of the Central Excise Act. It is contended in the grounds of appeal that in the instant case in the agreement dated 15.1.1990 the same criteria which have been found in the said case by the Supreme Court are present. As far as the other point is concerned, namely advertisement expenses, several case laws have been cited in the grounds of appeal as indicated below: - -

(3.) AS against this, learned Senior Counsel Shri Kamal Trivedi appearing along with Shri Uday Joshi, Advocate, argued that as far as the question relating to related person is concerned, he has filed an affidavit of the manufacturer company stating that the shareholding profile shows that one group of Gandhi family at 7.89% and the relatives of the said directors have held at 9.83%. As far as the purchaser company is concerned, the same Gandhi family has 13.43% and the relatives of directors have 7.88% shareholding and others have 78.69%. He has also filed a certificate from the Company Secretaries stating that as on 31.3.1990 shareholding of directors 8.57%, 15.93% as on 1.2.1997 and 14.36% as on 31.3.2002. He would therefore argue that they do not come within the parameters provided under section 4(4)(c) of the Central Excise Act. As far as the advertisement expenses are concerned, he took us through the said agreement dated 15th January 1990 entered into between the manufacturer respondent and the distributor, i.e. Vadilal Enterprises Ltd. to show that the goods have been purchased by the distributor and the agreement was entered into on principal to principal basis. Therefore only if the advertisement expenses have been incurred by the manufacturer, it will go as one of the components of the marketability of the product in terms of paragraph 49 of Bombay Tyre International, 1983 (14) ELT 1896 :, 1983 ECR 1627D (SC) :, ECR C 663 SC case decided by the Supreme Court. He also argued that the judgments cited by the department in the grounds of appeal would not be applicable to the facts of the case especially in respect of Snow White Industrial Corporation case (supra). He said that in that case in paragraph 5 thereof the Supreme Court has specifically mentioned that the Tribunal also referred to the clause which provided that on termination of the agreement by either party, unsold stock lying with the Gillanders were to be returned to the appellants. This type of existence of fact is absent in the instant case. As far as the advertisement charges are concerned, he argued that after the goods have been sold, the advertisement expenses has been incurred only by the purchaser, namely Vadilal Enterprises Ltd. He also relied on the judgment of the Tribunal in CCE v. Mercedes Benz (I) Ltd. : 2001 (137) ELT 93 :, 2001 (99) (ECR) 93 (T) and the judgment of the Supreme Court in Alembic Glass Industries Ltd. v. CCE Civil Appeal No. 969 of 1995 where the Supreme Court has reversed the judgment of the Tribunal in the case of Alembic Gloss Industries Ltd. v. CCE : 1997 (95) ELT 292 :, 1997 (72) (ECR) 330 (T) referred to in the said Mercedes Benz (I) Ltd. case.