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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