REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1160 OF 2006

Parle Bisleri Pvt. LTD. ....Appellants

Versus

Commr. of Customs & Central Ex.,

Ahmedabad …. Respondents

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 Central

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Excise, 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.

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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

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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

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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

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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 1/93

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. 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

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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 88-89

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 (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

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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 aforestated Notifications?

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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.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

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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

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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.

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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

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

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

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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

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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 code

names 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

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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]

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New Delhi,

December 15, 2010.

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