[Order per : V.K. Agrawal, Member (T)]. - These three appeals have been filed as under :-

(i)      Appeal Nos. 3089-90/02-NB(A) have been filed by M/s. Charminar Bottling Co. Pvt. Ltd. (M/s. Charminar in short) against Order-in-Original No. 9/2001, dated 4-4-2002 and Order-in-Original No. 35/2002 dated 6-9-2002.

(ii)      Appeal No. 4123/03-NB(A) has been filed by the Revenue against Order-in-Original No. 35/2002, dated 6-9-2002 by which the Commissioner has confirmed the duty and penalty after treating the sale price as cum-duty price.

2.1Shri K.K.  Anand, learned Advocate, mentioned that M/s. Charminar manufacture aerated waters as a franchise of M/s. Pepsi Foods Ltd.; that they get concentrate from M/s. Pepsi Foods Ltd. for the manufacture of aerated waters in bottles and in Bag-in-Box; that Bag-in-Boxes are sold on ex-factory basis to M/s. Hyderabad Beverages for further distribution to the vendors in the State of Andhra Pradesh whereas outside Andhra Pradesh the goods are sold to M/s. Nagpur Frozen Foods P. Ltd., Nagpur; that the demand of duty has been confirmed and penalty has been imposed vide Order-in-Original No. 9/2001 on the ground that M/s. Hyderabad Beverages were preparing and submitting monthly PMX reports showing the particulars of primary sales, secondary sales and other services particulars and on comparison of those reports, the Department has alleged that the quantity purchased as shown in the reports was higher than the quantity received as per Invoices by M/s. Hyderabad Beverages and has alleged clandestine clearance of 5241 bags-in-box without payment of duty for the period 1994-95 to July, 1996; that the second ground is that the sales made to Hyderabad Beverages was not in the ordinary course of trade and the price was not the sole consideration inasmuch as Hyderabad Beverages were undertaking all activities such as collection of rental charges, cost of transportation and other market discount and schemes on behalf of M/s. Charminar and thus assessable value can not be determined under Section 4(1)(a) of the Central Excise Act. He further mentioned that it has also been alleged that Hyderabad Beverages was a frontal organization and, therefore, their sale price has to be adopted for arriving at the assessable value.

2.2In respect  of second appeal against Order-in-Original No. 35/2002, the learned Advocate mentioned that the demand has been confirmed for the period from November, 1998 to February, 2001 on the ground that M/s. Hyderabad Beverages was a frontal agency of M/s. Charminar and has given abatements only of sales tax and central excise duty; that the Commissioner has not given the deduction on account of transportation charges, which was given in Order-in-Original No. 9/2001, in view of amendment of Section 4 of the Central Excise Act with effect from 28-9-96.

3.1The learned  Advocate submitted that there is absolutely no evidence on record to show that M/s. Charminar had cleared 5241 Bags-in-Box without payment of duty which has been confirmed merely on presumption and assumption on the basis of PMX Reports which were prepared by M/s. Hyderabad Beverages; that it has clearly come on record through the various statements that the figures mentioned in the PMX reports were inflated to achieve the target sales figures and were being submitted to M/s. Pepsi Foods Ltd. by M/s. Hyderabad Beverages; that Shri P.R. Rama Rao, General Manager, has deposed that he had directed the Hyderabad Beverage staff to inflate figures so as to show M/s. Pepsi Foods that Charminar had reached targeted sales figures; that Managing Director of M/s. Charminar was not questioned about these reports; that PMX Reports on the basis of which duty is being demanded were not prepared by M/s. Charminar and, therefore, duty can not be demanded on the alleged figures shown in PMX Reports which had been prepared by another person. He also contended that the Department has wrongly calculated the percentage of yield; that for the year 1995-96, the variation of production of Pepsi brand had been shown to be 24% in the show cause notice which is actually 0.24% and therefore, the entire case of the Department falls to the ground; that there is absolutely no corroborative and independent evidence on record to show that they had cleared 5241 bags without payment of duty. He relied upon the judgment in the case of Oudh Sugar Mills Ltd. v. U.O.I., 1978 (2) E.L.T. (J 172) wherein the Supreme Court has held that average production cannot be made basis for issue of show cause notice and the findings based on such show cause notice are without any tangible evidence and are based on inferences involving unwarranted assumptions and are vitiated by an error of law. He relied upon the decision in the case of CCE, Meerut v. Moon Beverages Ltd., (T) wherein it has been held by the Tribunal that corroborative evidence such as evidence of other inputs required for manufacture of aerated water, namely, sugar, carbon dioxide being purchased and utilized in the manufacture of final product during the period in disputes is required and as there is no such corroborative evidence, the charge of clandestine removal is not sustainable. Reliance has also been placed on the following decisions :-

(i)      Parle Beverages Ltd. v. CCE, Mumbai-1 - (T)

(ii)      CCE, Hyderabad v. Annapurna Industries Ltd. - (T)

3.2The learned  Advocate contended that even if M/s. Hyderabad Beverages had inflated the figures of sale, no liability can be fastened on the Appellants; that M/s. Hyderabad Beverages have not been made party to the show cause notice in spite of the allegation levelled against them in show cause notice dated 23-6-98 to the effect that “HB is abetting CBC in the duty evasion inasmuch as they received BIBs without payment of duty....”. He relied upon the decision in the case of Rama Shyama Papers Ltd. v. CCE, Lucknow, (T) wherein it has been held that the onus of proof that the goods were removed by the Appellants without payment of duty is upon Revenue which cannot be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the premises of the Appellants.

4.1The learned  Advocate, further, submitted that the undervaluation has been alleged on the ground that Shri Amit Mor, proprietor of Hyderabad Beverages, is distantly related to Shri S.K. Jaipuria, Chairman of M/s. Charminar; that, however, the Commissioner has himself held in Para 51 of the impugned Order that Hyderabad Beverages and M/s. Charminar, being two firms, cannot be relatives as defined in Companies Act; that when the Commissioner himself has held so, he cannot take the price at which Hyderabad Beverages had sold the Bag-in-Box to customers; that there is no concept of “mere extension” of a manufacturer in the Central Excise Act; that the only concept where the price of another person can be taken for assessment is only when that person is held as related person; that as the Commissioner has held that Charminar and Hyderabad Beverages were not related person, he could not have treated their prices for arriving at the assessable value; that in the case of another purchaser M/s. Nagpur Frozen Foods P. Ltd., there is no adverse finding on this aspect; that even there was no allegation in the show cause notice that Nagpur Frozen Foods were related of M/s. Charminar; that, therefore, there is no question of adopting the price at which Nagpur Frozen Foods sold the goods could be treated for arriving at the assessable value. He, further, mentioned that in any case the parameters laid down in Section 4 of the Central Excise Act for treating another person as ‘related person’ are missing in the present matters since there is no mutuality of interest directly or indirectly. He relied upon the decision in the case of Union of India v. Atic Industries Ltd., (S.C.) and Indian Oxygen Ltd. v. CCE, (S.C.). The learned Advocate has also submitted that even if the prices of Hyderabad Beverages are to be taken for arriving at the assessable value, abatement on account of various expenses which form part of the price at which they sell the goods to their customers should be granted; that these expenses include rental charges of PMX machines, cost of cups, carbon dioxide advertisement charges etc. He relied upon the decision in the case of Pepsico India Holdings (P) Ltd. v. CCE, Mumbai, (T) wherein the Tribunal has held that lease charges on dispensing machine is not includible in the assessable value of syrup. Reliance has also been placed on the decision in Dhillon Kool Drinks & Beverages v. CCE, Jalandhar, Final Order No. 794 to 801/04-A dated 26-7-2004 [ (Tribunal)].

4.2The learned  Advocate mentioned that in Appeal No. E/3092/02-A, the only issue is that the duty has been confirmed on the prices at which M/s. Hyderabad Beverages sold the goods after allowing the deduction on account of excise duty and sales tax; that further the Adjudicating Authority has not allowed the deduction on account of transportation charges for the period of demand pertaining to the period 28-9-96 onwards. He finally mentioned that the Revenue’s Appeal E/4123/03-NB(A) is only against treating the sale price of Hyderabad Beverages as cum-duty price on the plea that the Revenue’s review petition has been pending with the Supreme Court against the judgment in the case of CCE v. Maruti Udyog Ltd. - (S.C.). He contended that the mere fact that the Revenue has filed Review Application is not a ground to unsettle the findings of the Commissioner.

5.Countering  the arguments, Shri S.M. Tata, learned SDR, submitted that PMX reports covers every aspect of the activities of M/s. Hyderabad Beverages regarding sale of BIBs; that these reports have never been disowned by M/s. Hyderabad Beverages and the difference in the number of BIBs between the two sets of figures truly represents the suppressed quantity of Bag-in-Boxes cleared by the Appellants to M/s. Hyderabad Beverages; that Shri R.R. Rama Rao, General Manager of Behari Lai Beni Prasad Exports and Imports Pvt. Ltd. had explained that an asterick mark was appended against the names of the vendors in the PMX Reports in whose case alone the fudging was done; that in many months there was no asterick marks against any vendor though there is a difference between two sets of figures which proves that the defence of inflating figure is only an attempt to save the Appellants from tax liability. He, further, submitted that M/s. Hyderabad Beverages are a front company of the Appellant as their activities were not limited to buying BIBs from the Appellants as these included installation and maintenance of Beverage vending machine at the premises of each vendor, paying rental charges for machines to the Appellants, supplying cups and carbon dioxide cylinders to vendors and undertaking advertisement, sale promotion and discount schemes on behalf of the Appellants; that M/s. Hyderabad Beverages were meeting all these expenses out of the amount charged as price for the bag-in-boxes; that almost the entire amount realized through the sale price was spent on these activities which by no stretch of imagination one could accept an independent firm to spend; that thus clearly M/s. Hyderbad Beverages were a total dummy of the Appellants and is an extension of the Appellant.

6.We have  considered the submissions of both the sides. The charge of clandestine removal of bags-in-boxes by the Appellants has not been established by Revenue which has mainly relied upon the difference in figures of sale of the impugned product reflected in PMX Reports. It is not disputed by Revenue that these reports are prepared by M/s. Hyderabad Beverages and not by the Appellants. No evidence has been brought on record to show any excess production of the impugned product by the Appellants by way of procuring necessary raw materials. In a similar situation in the case of Moon Beverages wherein the charges of clandestine removal was made on the basis of computerized sheets of sales figures maintained by M/s. Parle Exports Ltd. whom the figures were sent by the assessee, the Tribunal has held that “the charge of clandestine removal cannot be established on the basis of one single factor.....Other corroborative evidence such as evidence of other inputs required for manufacture of aerated waters namely sugar, carbon dioxide being purchased and utilized in the manufacture of the final product during the period in dispute is required. There is no such corroborative evidence in the present case. There is also no evidence of higher electricity consumption.” In the present appeal before us also there is no corroborative evidence except the PMX Reports. Revenue has also not contradicted the submission of the learned Advocate that the Managing Director of the Appellants was not even questioned about these reports. In the case of Rama Shyama Papers Ltd, supra, wherein the records were seized from the premises of one of the customer of the assessee, the Tribunal did not uphold the charge of clandestine removal as “the Revenue has not been able to adduce any corroborative evidence to show the movement of goods from the premises of the Appellant’s company to the premises of M/s. Chitra Traders or the Customers when the goods were sent directly to as per the directions of Chitra Traders... The onus of proof that the goods were removed by the Appellants without payment of duty and without entering the same in their records is upon the Revenue which cannot be discharged merely on the strength of the entries made in the records of a third party without linking the removal of goods from the premises of the Appellant Company.” In the present matter also the Revenue has not brought any material on record to show that the excess bag-in-boxes said to have been sold by M/s. Hyderabad Beverages were removed from the premises of the Appellants. As show cause notice alleging clandestine removal cannot be issued based on assumption and presumption and as held by the Supreme Court in Oudh Sugar Mills Ltd. v. U.O.I., 1978 (2) E.L.T. (J 172), the findings based on assumption and presumption without any tangible evidence will be vitiated by an error of law. We, therefore, set aside the demand on charge of clandestine removal.

7.The finding  of the Commissioner that M/s. Hyderabad Beverages are a frontal organization of the Appellant is not tenable. No show cause notice has been issued to M/s. Hyderabad Beverages who are being held to be a dummy unit of the Appellants. Before the very existence of a firm, which has later been changed into a private limited company, is questioned, an opportunity has to be provided to it to prove that it exists in its own right and is not dummy unit of another limited company. We also observe that in one of the impugned Order-in-Original No. 9/2001, dated 4-4-2002, the Commissioner has given a specific finding, that “the facts of the case do indicate that H.B. and CBC being two firms cannot be relative as defined in the Companies Act, 1956.... Thus the allegation in the show cause notice that CBC and HB were related persons in terms of Section 4(4)(c) of the Central Excise Act, 1944 is not proved.”: There is no appeal filed by Revenue challenging the said finding recorded by the Commissioner. Thus the finding of the Commissioner in the second impugned Order-in-Original No. 35/2002, dated 6-9-2002 to the effect hat “HB is related to CBC within the meaning of “related person” as per Section 4 of Central Excise Act, 1944 is contrary to the unchallenged findings in the first Order-in-Original dated 4-4-2002. The Revenue cannot hold in one Order that Hyderabad Beverages is not related person and then held in second Order that they are related person of the Appellants. No new evidence or material has also been brought on record to arrive at a different finding. We observe that the Commissioner, in the first Order, has also given a specific finding, after noting that there is no report that the Appellants and Hyderabad Beverages “had invested in the stock and shares of each other,” that “therefore it cannot be alleged that CBC and HB have interests in business of each other. Furthermore though HB was a distributor of CBC for Andhra Pradesh yet HB was not a relative of CBC. As per the definition of ‘related person’ appearing in Section 4(4)(c) of the Central Excise Act, 1944 only a relative and a distributor of an assessee can be treated as a ‘related person’. In view of these specific findings which have not been challenged by Revenue M/s. Hyderabad Beverages cannot be treated as related person in subsequent proceedings and accordingly impugned Order No. 35/2002, dated 6-9-2002 cannot be sustained.

8.The  submission of the learned Advocate that once the Hyderabad Beverages are not considered as ‘related person’ of the Appellant, the price charged by Hyderabad Beverages cannot be taken for the purpose of arriving at the assessable value of the impugned goods. Provisions of Proviso (iii) to Section 4(1)(a) of the Central Excise Act, at the relevant time, are very clear in this regard. As per the said Proviso where the goods are sold through a related person, the normal price of the goods sold by the assessee to or through related person shall be deemed to be the price at which they are ordinarily sold by the related person. As Hyderabad Beverages are not related person of the Appellants, the prices at which the goods are sold by them cannot the assessable value of the goods cleared by the Appellants. There is no substance also in treating M/s. Hyderabad Beverages as not an independent firm merely because they undertake the works of installation and maintenance of Beverage Vending Machine or on account of payment of rental charges or for reason of supplying cups, advertising, etc. These are normal business transactions. It has been held by the Tribunal in Pepsico India Holdings (P) Ltd., supra, that sale of syrup and leasing of dispensing machine are two separate activities and “there is no warrant in law for the inclusion of the consideration for different activity in the assessable value of excisable goods.” Recently, the Tribunal in the case of Dhillon Kool Drinks & Beverages v. CCE, Jalandhar, supra, has held that repair and maintenance charges for PMX machine and rental charges for the same are to be deducted from the assessable value. In view of this the price at which M/s. Hyderabad Beverages sell the impugned goods cannot be taken as assessable value for the purpose of charging Central Excise duty from M/s. Charminar. We, therefore, set aside the impugned Orders and allow the appeal. As the appeals filed by M/s. Charminar Bottling Company (P) Ltd. have been allowed, the appeal filed by Revenue does not survive.

Accordingly we allow both the appeals filed by M/s. Charminar Bottling Company (P) Ltd. and set aside the appeal filed by Revenue.