COMMISSIONER, CENTRAL EXCISE,  MEERUT VS.

M/S. MONSANTO MANUFACTURE PVT. LTD. (Civil Appeal Nos. 5216-17 of 2003)

NOVEMBER 26, 2010 [B. Sudershan Reddy and Surinder Singh Nijjar, JJ.]

[2010] 14 (ADDL.) SCR 403

The Judgment of the Court was delivered by

B.  SUDERSHAN  REDDY,  J.  1.  M/s.  Monsanto  Manufactures  Pvt.  Ltd.  was  the  

manufacturer of ice-cream falling under sub-heading no. 2105.00. During the period for 1994-

95 to 1998-99 (upto 2/99) manufactured item was leviable to Central Excise Duty at advalorem  

rates.  On  14.10.1994,  M/s.  Monsanto  along  with  other  companies  (which  are  collectively  

referred to as “K-NORTH”) entered into an agreement with Brooke Bond Lipton India Ltd. (for  

short ‘BBLIL’) and Unilever Industry Pvt. Ltd. known as the sourcing agreement. Under the  

said agreement BBLIL was to place an order on K-NORTH which including M/s. Monsanto for  

manufacture  of  the ice-cream.  The products  were  to  be sold  by M/s.  Monsanto  as  per  a  

formula  agreed  between  the  parties  expressly  incorporated  in  the  said  agreement.  The  

agreement came into force w.e.f. 1st January, 1995. Ever since the agreement came into force  

M/s. Monsanto stopped marketing their products through their dealers and started selling their  

production of ice-cream to BBLIL subsequently merged with M/s. Hindustan Lever Ltd. (for  

short ‘HLL’). The ice-cream so manufactured was marked with the brand name “Kwality Walls”.  

On the basis of the said agreement, M/s. Monsanto filed price list w.e.f. 1.1.1995 in respect of  

the  manufactured  product  with  the  Department.  Price  declared  was  on  the  basis  of  its  

manufacturing  cost  plus  manufacturing  profits.  Duty  was  paid  on  the  basis  of  price  so  

declared.

2. The Department vide show cause notice dated 27.3.2000 required M/s. Monsanto as to  

why differential duty should not be demanded under Rule 9(A) of Central Excise Rules 1944  

read with Section 11A of the Central Excise Act, 1944 ( for short ‘the Rules and Act’) together

with penalty and interest. The allegation in the show cause notice was that M/s. Monsanto  

received additional  consideration over and above the assessable value declared by it  and  

additional  consideration  flowing  to  it  from  BBLIL  and/or  HLL  in  several  forms  like  non-

competition  reserve,  interest  free deposit,  consideration  for  sale  of  marketing undertaking,  

interest on deposits as security advances received by it, value of the brand name etcetera.  

M/s. Monsanto raised its objections to the allegations and averments made in the show cause  

notice both on the merits and as well as on the ground of limitation inter alia contending that  

the transaction between M/s. Monsanto and BBLIL/HLL was on a principal to principal basis  

with  price  as  a  sole  consideration  for  the sale  of  the manufactured  products.  It  was also  

contended  that  the  sourcing  agreement  dated  14th  October,  1994,  on  which  the  entire  

transaction was being carried on, was made available to the Department in March-April, 1995.  

There was no suppression of facts on the part of the assessee. The contention was the show  

cause notice issued in respect of a period from February, 1995 to February, 1999 was barred  

by limitation.

3. The Commissioner rejected all the contentions raised by M/s. Monsanto on the issue of  

limitation. The Commissioner took the view that full details of settlement between the parties to  

the source agreement was not made available to the Department and merely furnishing a copy  

of  the  agreement  was  not  enough.  The  Commissioner  thus  concluded  that  there  was  

suppression of material facts.

4.  M/s. Monsanto carried the matter  in  appeal  inter alia  contending that  the issue on  

merits was covered by the Tribunal’s decision in Kwality Ice Cream Co. vs. CCE, Chandigarh  

[2002(145) ELT 584] in its favour. The Tribunal in the said case after considering the terms of  

the very same agreement dated 14.10.1998 held that the pricing in terms of the agreement  

may not lead to conclusion that the transaction was not one between a principal to another  

principal.  It  was  however,  contended  by  the  Department  that  the  price  declared  by  the  

assessee was not rejected on the ground that parties were related persons and its case was  

that there was direct and indirect consideration flowing to the assessee from BBLIL/HLL.

5. The Tribunal after elaborate consideration of the matter, relying on its own decision  

referred to (supra), held that there was no direct and indirect considerations received by M/s.  

Monsanto as alleged by the Department. Each of the items was the subject matter of debate in  

the  decision  referred to  (supra)  and  the  same was applicable  to  the  facts  on  hand.  The  

Tribunal,  accordingly,  proceeded to  consider  whether  the Department  was justified,  in  the  

given facts and circumstances, in invoking the extended period of limitation under Section 11A  

of the Act. The Tribunal found that the show cause notice issued on 27.3.2000 was hopelessly  

barred by limitation. The Tribunal found that the agreement entered into by and between the  

parties was made available to the Department and all transactions between the parties thereto  

were on the basis of the agreement which were within the knowledge of the Department from  

March-April, 1995. The Tribunal found that there was no material available on record that the  

assessee has received either directly or indirectly any consideration from any source outside  

the agreement. Hence, these appeals under Section 35-L(b) of the Act.

6. The learned counsel for the appellant submitted that mere filing of the agreement by  

the assessee was not enough as it had failed to disclose the full and complete particulars of its  

receiving  direct  and  indirect  consideration  in  several  forms  such  as  interest  free  deposit,  

consideration for  sale of  marketing undertaking,  interest  on deposits  as security  advances  

received by it, value of the brand name etcetera. Therefore, show cause notice issued was not  

barred by limitation. This was the main thrust of the submission of the learned counsel for the  

appellant. Learned counsel for the respondent supported the impugned judgment.

7. We have carefully considered the submissions made by the learned counsel for the  

parties.

8. That so far as the question of receiving direct or indirect consideration, it is squarely  

covered by the Tribunal’s decision in Kwality Ice Cream Co. (supra) as has been held by the  

Tribunal itself. We have by a separate order upheld the view taken by the Tribunal, therefore,  

this issue need not detain us any further.

9. We do not find any merit in the submission of the learned counsel for the appellant that  

the Department was justified in invoking the extended period under Section 11A of the Act.  

The entire transaction between the parties was on the basis of  the agreement which was  

within the knowledge of the Department from March-April, 1995. It is not the allegation in the  

show cause notice that the assessee has received any direct and indirect consideration over  

and  above  as  to  what  has  been  agreed  under  the  agreement.  We  have  noticed  in  the  

connected matter (M/s. Kwality Ice Cream) that the price fixation was in accordance with the  

formula agreed to between the parties which has been specifically incorporated in the source  

agreement. The factum that source agreement was filed by the assessee and was within the  

knowledge of the Department from March-April,  1995 is not in dispute. In such view of the  

matter, we find no difficulty, whatsoever, to accept the contention of the assessee and the view  

taken by the Tribunal that the show cause notice issued on 27.3.2000 was barred by limitation.  

On the facts of this case, we are satisfied that the Tribunal has taken the correct view in the  

matter.

10. For the aforesaid reasons, we do not find any merit, whatsoever, in these appeals preferred by  

the Department. The appeals are, accordingly, dismissed.