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M/s Bilag Industries P. Ltd. & Anr. vs. Commr. of Cen. Exc. Daman & Anr.

Civil Appeal · 2023 INSC 274Decided 22 Mar 2023
Civil Appeal Nos. 9195-9196 of 2010
S. Ravindra Bhat · Dipankar Datta

Background

Bilag Industries (BIL), an Indian pesticide manufacturer, became a subsidiary of a foreign company, AgrEvo SA, after a joint-venture agreement, and AgrEvo SA separately owned 100% of another Indian company, Aventis CropScience (India) Ltd., to which BIL sold its products (like Esbiothrin) for onward sale to end customers. The excise department claimed BIL and Aventis CropScience (India) were "related persons" under Section 4(4)(c) of the Central Excise Act, since both were linked through their common foreign parent, and demanded higher excise duty by valuing BIL's goods at the price Aventis CropScience later charged end customers, rather than BIL's own sale price. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld this "related person" treatment and the resulting demand.

Decision Breakdown

The Supreme Court reviewed a long line of its own precedents on what makes two companies "related persons" for excise valuation, holding that the test requires mutual interest: each company must have a direct or indirect interest in the other's business, not just a one-way relationship through a common parent. Common shareholding by a foreign parent, without more, does not by itself show that BIL had any interest in Aventis CropScience's affairs, or vice versa; their transactions were on a principal-to-principal basis, and the department had not shown BIL's prices to Aventis CropScience were suppressed compared to market prices. The Tribunal had wrongly inferred relatedness from the overall commercial arrangement without applying this proper legal test. Decision Breakdown (continued: outcome): The appeals were allowed, and the CESTAT's order (and the excise demand based on treating the companies as related persons) was set aside, with no order as to costs.

Lesson Learnt

Two companies sharing a common parent or majority shareholder are not automatically "related persons" for tax valuation purposes. The law requires proof that each company actually has a stake in the other's business, not merely a shared corporate ownership structure.

Official source (sci.gov.in)View Judgment (PDF)

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