PARLE BISLERI PVT. LTD.versusCOMMR. OF CUSTOMS & CENTRAL EX., AHMEDABAD

              [2010] 14 (ADDL.) S.C.R. 851

                PARLE BISLERI PVT. LTD.                         A
                             v.
COMMR. OF CUSTOMS & CENTRAL EX., AHMEDABAD
          (Civil Appeal No. 1160 of 2006)
                  DECEMBER 15, 2010
                                                                B
  [DR. MUKUNDAKAM SHARMA AND ANIL R. DAVE,
                    JJ.]

     Central excise Act, 1944 - Excise duty - Appellant,
holding company of PEL, manufacturing flavour, assigned         c
code name by PEL - Appellant selling flavours to PEL
company, PIL company and franchise bottlers - PEL using
product sold by appellant - PEL also manufacturing flavours
as appellant - SS! Exemption under Notifications No. 1751
86 and No. 1193 CE dated 28.02.93 - Claim by the appellant      oI
- PEL also availed the exemption benefit during the same
period as claimed by appellant - Held: Appellant not entitled
to the benefit of the Notification for the products with code
names which belonged to PEL since appellant was not the
owner of the brand names - As regards, clubbing of valuation    E
of production/clearance of the companies, three companies
were intertwined in their operation and management -
Purported fragmentation of manufacturing process was to
avail SS/ exemption - Evidence proved the connection in the
course of trade between the flavours and the entity using the   F
flavours through code names - Flavours were earlier
manufactured by PEL and supplied to franchise holders, but
were subsequently allowed to be made by the appellant -
Flavours were developed, researched and concocted by PEL
- PEL were in fact, the owner of the code/brand names.
                                                                G
    The appellant is the holding company of PEL. It was
engaged in the manufacturing of soft drink flavours
which were assigned certain 'code names' given by PEL.
The appellant was selling its product to PEL, PIL and
                            851                                 H
    852    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R


A franchise bottlers of M/s. PEL and M/s. PEL was using the
  same. Mis. PEL also manufactured flavours as the
  appellant. The appellant availed of the benefit of
  Notifications 175/86 and 1/93 for the years 1989-1990 to
  1993-1994 and M/s PEL for year 1992-1993 and 1993-1994
8 (Oct 1993). The Revenue Officers found that M/s PEL and
  their group companies had indulged in evasion of excise
  duty. The Revenue Officers demanded excise duty and
  imposed penalty. The Commissioner set aside the
  demand raised. On appeal, the Tribunal held that the
  undervaluation of flavor by appellant was not
C sustainable; that M/s. PEL owned the brand name and it
  could not be said that the flavours of the appellant were
  marked only by virtue of a code and not identified as a
  brand; that for the years 1989-1990, 1990-1991 1991-1992
  and 1993-1994 (till Oct 1993) the appellant would not be
D entitled to the benefit of Notification No. 175/86 and 1/93
  for the products with code names which belonged to M/
  s. PEL; and that the effective financial control and
  management emanated from a common core and,
  therefore, the companies could well be said to be inter-
E dependent and even inter-related. The Tribunal partly
  allowed the appeal. Therefore, the appellant filed the
  instant appeal.
      The question which arose for consideration in the
F instant appeal was whether the value of production/
  clearances of the three companies, namely the appellant,
  Mis PEL Ltd. and M/s PIL Ltd. could be clubbed for the
  purposes of ascertaining the eligibility to exemption under
  Notification No. 1/93 CE dated 28.02.93; and whether the
G Tribunal was correct in denying the benefit of the
  Notification by treating the product code name as a
  'brand name' within the meaning of Explanation VIII to the
  Notifications.
          Dismissing the appeal, the Court
H
  PARLE BISLERI PVT. LTD. v. COMMNR. OF CUSTOMS &    853
              CENTRAL EX., AHMEDABAD

     HELD: 1.1. The Directors of the appellant are among    A
those who also serve on the Board of Directors in M/s
PEL Ltd. and M/s PIL Ltd. Mis. PEL advanced an interest-
free loan of Rs. 1 crore to the appellant, which was used
for the purchase of raw material by the latter, as
evidenced from the balance sheet. The flavours being        B
manufactured by the appellant were developed by Mis
PEL at their R & D Lab at Bombay, whose services were
at the disposal of the appellant. They were at one point
of time manufactured by Mis. PEL and admittedly, owned
by them. The three companies were intertwined in their      c
operation and management. Therefore, a careful scrutiny
of the· records establish that the two basic features,
pervasive financial control and management control,
were present in the instant case. It would be likely that
the purported fragmentation of the manufacturing
                                                            D
process was but a mere ploy to avail the SSI exemption.
Piercing the corporate veil, the notions of beneficial
ownership and inter-dependency come into the picture.
Therefore, the order of the tribunal is upheld. [Para 13]
(861-B-F]
                                                            E
    1.2. It cannot be said that the Explanation VIII to
Notifications No. 175186 and 1193 refers only to 'brand
names' and cannot be used to determine whether code
names, as used by the appellant, fall within the said
category. The mere difference in nomenclature cannot        F
take away the substance of the Explanation from its
applicability to the instant case. The appellant
manufactures flavours which fall within the ambit of the
'code names' and it is a fact on the record that these
codes are key to identifying the flavours which are         G
commercially transferable. 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 which
were earlier manufactured by Mis PEL Ltd. and supplied      H
    854    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


  A 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.
  B The users of the flavours, i.e. Mis PEL Ltd., M/s PIL Ltd.
    and specified bottlers are all interconnected since the
    latter group comprises franchisees of PEL and, thus,
    there is evidence to prove the connection in the course
    of trade between the flavours and the entity using the
  c flavours through code names. The ownership of the code
    names by M/s PEL Ltd. is clearly evidenced from the fact
    that these flavours were developed, researched and
    concocted by M/s. P.EL Ltd in its research laboratories.
    Mis. PEL Ltd. gave the brand names to the flavours and
    allowed them to be manufactured by the appellant and
  0
    their holding company cannot hide the fact that Mis 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.
  E Since the appellant was not the owner of the brand
    names, the tribunal was justified in holding that the
    appellant would 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-llPC, T-llP, R-66M and K-
  F SST which belonged to M/s. PEL Ltd. [Para 14 and 15]
    [862-C-H; 863-A-C]
         Commissioner of Central Excise, New Delhi v. Modi
    Alkalies and Chemicals Ltd. and Ors. 2004 (171) E.L.T. 155
    (S.C.) - referred to.
                         Case Law Reference:
          2004 (171) E.L.T. 155 (S.C.) Referred to.   Para 11
          CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    1160 of 2006.
  PARLE BISLERI PVf. LTD. v. COMMNR. OF CUSTOMS &            855
              CENTRAL EX., AHMEDABAD

    From the Judgment & Order dated 27 .10.2005 of the              A
Customs, Excise & Service Tax Appellate Tribunal, WZB,
Mumbai in Appeal No. E/1735-R/1997.

      S. Ganesh, V.A. Rana, Mrinal Mazumdar, Gagrat & Co.,
for the Appellant.                                                  B

     Parag Tripathi, ASG, Rahul Kaushik, Kunal Bahri, B.
Krishna Prasad for the Respondent.

     The Judgment of the Court was delivered by

     DR. MUKUNDAKAM SHARMA, J. 1. This appeal is
                                                                    c
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           D
aside the order of Commissioner of Central Excise,
Ahmedabad. The Commissioner vide order-in-original No.11 I
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                 E
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, man11factures soft drink flavours which are F
assigned 'code names',\ amely G-44T, L-33A, T-11 PC, T-11 P,
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 · G
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.
                                                                     H
     856   SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


 A       3. Mis. 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
 B 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.
 c      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 Mis PEL and their Group
 D 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
 E 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.
  F 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,
. G 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 Mis 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
  H
PARLE BISLERI PVf. LTD. v. COMMNR. OF CUSTOMS & 857
CENTRAL EX., AHMEDABAD [DR. MUKUNDAKAM SHARMA, J.]
name belonging to another person (M/s PEL) who was not               A
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.
                                                                     B
     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           C
issue of misuse of brand name by the appellant, the Tribunal
came to the conclusion that Mis. 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: -
                                                                     D
     "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          E
     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          F
     thereupo11 were buying the very same flavours from LFFL
     and were placing their orders by mentioning the same
     code name, as is evident from their purchase orders. The
     users of the flavours i.e. PEL PIL and specified bottlers
     are all interconnected. The specified bottlers are              G
     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
                                                                     H
    858    SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.

A         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
  1/93 for the products with code names G-44T, L-33A, T-llPC,
8
  T-llP, 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
C 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
D   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
E   Revenue in so far as it held that the appellant herein was indeed
    entitled to SSI exemption between the period from 88-89 to 92-
    93 (upto 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 at 2004
F   (171) E.L.T. 155 (S.C.) which purportedly took notice of Circular
    6192 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,
G   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.
H
PARLE BISLERI PVT. LTD. v. COMMNR. OF CUSTOMS & 859
CENTRAL EX., AHMEDABAD [DR. MUKUNDAKAM SHARMA, J.]
     8. The appeal was listed for hearing and we heard the A
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.
                                                              B
     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          C
            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         0
            benefit of the said Notification by treating the
            product code name as a 'brand name' within the
            meaning of Explanation '.'Ill to the aforestated
            Notifications?

Since the parties to this appeal have raised arguments that         E
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.
                                                                    F
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 G
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.
                                                                   H
    860     SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A         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 &
B   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
c         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
D         the shadow and not any substance about the existence of
          the three companies independently. The circular no.6192
          dated 29.5.1992 has no relevance because it related to
          notification no.175186-CE dated 1.3.1986 and did not
          relate to notification no. 1193.
E
          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
F
    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
G   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
H
PARLE BISLERI PVT. LTD. v. COMMNR. OF CUSTOMS & 861
CENTRAL EX., AHMEDABAD [DR. MUKUNDAKAM SHARMA, J.]

that two basic features which prima facie show                     A
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. B
Motani, who are the directors of the appellant herein are among
those who also serve on the Board of Directors in Mis 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 C
evidenced from the balance sheet). Furthermore, the flavours
being manufactured by the appellant were developed by M/
SPEL at their R & 0 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 D
three companies in question were intertwined in their operation
and management. A careful scrutiny of the records therefore
establish 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 E
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 counc therefore, we have no
hesitation whatsoever in affirming t~e order of the Tribunal, F
which was justified entirely through the precedent set by this
Court.

Issue II

      14. The second issue concerns the question whether the       G
'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
                                                                   H
    862    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A   Notifications No. 175/86 and No. 1/93 and reads as:

          Explanation Vlll-"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
B
          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.
c
  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
D 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
E 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
F 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
G 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
H the entity using the flavours through code names. Furthermore,
PARLE BISLERI PVT. LTD. v. COMMNR. OF CUSTOMS & 863
CENTRAL EX., AHMEDABAD [DR. MUKUNDAKAM SHARMA, J.]

the ownership of the code names by M/s PEL Ltd. is clearly           A
evidenced from the fact that these flavours were developed,
researched and concocted by Mis. PEL Ltd in its research
labs. That Mis. 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 Mis PEL Ltd          B
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 Mis.
Coca Cola Company in November, 1993. Since the appellant
was not the owner of the said brand names in question, the           c
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-llPC, T-llP, R-
66M and K-55T which belonged to M/s PEL Ltd.

     16. After careful consideration of the issues in question and
                                                               I
                                                                     D
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.

N.J.                                         Appeal dismissed.