M/S. NICHOLAS PIRAMAL INDIA LTD, MUMBAI V. THE ITO (TDS) 2-(4), MUMBAI

ITA 4001/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1349 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: M D INAMDAR
• Keywords: TDS
• Section: 133A; 194C; 201(1); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI. BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER I.T.A. NO. 4001/MUM/2007. ASSESSMENT YEAR : 2006-07. NICHOLDAS PIRAMAL INDIA LTD., THE INCOME TAX OFFICER,(TDS), NICHOLDAS PIRAMAL TOWER, VS. 2-(4), MUMBAI. GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI 400 013. PAN AAACN4538P APPELLANT RESPONDENT APPELLANT BY : SHRI M.D. INAMDAR. RESPONDENT BY : S HRI S.S. RANA. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE CIT(APPEALS)-XXX, MUMBAI DATED 28-03-2 007 FOR THE ASSESSMENT YEAR 2006-07 WHEREIN THE LEARNED FIRST A PPELLATE AUTHORITY HAS CONFIRMED THE ORDER PASSED U/S 201(1) READ WITH SEC TION 194C OF THE INCOME-TAX ACT BY THE ITO (TDS), 2-(4), MUMBAI ON 2 2-03-2006. 2. FACTS IN BRIEF : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFA CTURE AND SALE OF WIDE RANGE OF PHARMACEUTICAL PRODUCTS. IT ENTERED INTO AGREEMENT WITH THIRD PARTY MANUFACTURERS FOR PURCHASE OF CERT AIN PRODUCTS BEARING BRAND NAME AND LOGO OF THE ASSESSEE. WHILE PURCHASI NG THE GOODS THE 2 ASSESSEE LAYS DOWN TERMS AND CONDITIONS ON DRUGS F ORMULATION, TECHNIQUE, USE OF KNOW-HOW, LOGO, TRADE MARK, DESIG N ETC. AND THESE PHARMACEUTICAL PRODUCTS ARE MANUFACTURED AS PER THE QUALITY CONTROL INSPECTION AND SUPERVISION OF THE ASSESSEE. A SURVE Y U/S 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 14 -03-2006 FOR VERIFICATION OF TDS COMPLIANCE. SUBSEQUENT TO THE S URVEY, THE AO PASSED AN ORDER U/S 201 READ WITH SECTION 194C OF THE ACT, HOLDING THE ASSESSEE AS AN ASSESSEE IN DEFAULT, FOR NON DEDUCTION OF TAX . ON APPEAL, THE FIRST APPELLATE AUTHORITY UPHELD THIS FINDING OF THE AO. FURTHER AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL ON THE GROUND THAT T HE REVENUE HAS ERRED IN TREATING THE ASSESSEE AS AN ASSESSEE IN DEFAULT U/S 201 OF THE ACT BY TREATING THE CONTRACT FOR PURCHASE OF FINISHED GOOD S, AS A WORKS CONTRACT FALLING U/S 194C OF THE ACT. 3. MR. M.D. INAMDAR, LEARNED COUNSEL FOR THE ASSES SEE, FILED A PAPER BOOK RUNNING INTO 302 PAGES AND ALSO FILED AN OTHER PAPER BOOK CONSISTING OF CBDT CIRCULARS AND COPIES OF CASE LAW S RUNNING INTO 100 PAGES. HE SUBMITTED THAT THE ISSUE WHETHER THE CONT RACT IN QUESTION WAS A SALES CONTRACT OR WORKS CONTRACT IS COVERED IN FAVO UR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT, TDS VS. M/S GLENMARK PHARMACEUTICALS LTD., INCOME TAX APPEA LNO. 2256 OF 2009, JUDGMENT DATED 12 TH MARCH, 2010 OF THE HONBLE BOMBAY HIGH COURT. MR. INAMDAR SUBMITTED THAT THERE ARE 14 PAR TIES AND THAT THE ASSESSEE HAS ENTERED INTO 14 AGREEMENTS. HE SUBMITT ED THAT THE TERMS OF ALL THESE 14 AGREEMENTS ARE PARA MATERIA. HE TOOK THIS BENCH THROUGH SOME OF THE CLAUSES OF ONE AGREEMENT, TO DEMONSTRAT E HIS CLAIM THAT THIS IS A MERE CASE OF PURCHASE OF GOODS AND NOT THE CASE OF WORKS CONTRACT. HE FURTHER DREW THE ATTENTION OF THE BENCH TO PHOTO CO PIES OF THE INVOICES IN THE PAPER BOOK, TO DEMONSTRATE HIS CLAIM OF SALE OF FINISHED GOODS. THE 3 COPIES OF BILLS WERE ALSO SHOWN. HE FURTHER RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S NO VARTIS HEALTH CARE PVT. LTD. VS. ITO, 209-TIOL-219-ITT-MUM. HE SUBMITT ED THAT THE GROUNDS IN THIS CASE ARE SIMILAR AND THE BENCH AFT ER EXAMINING THE WORDINGS IN THE VARIOUS CONTRACTS HAS COME TO A CON CLUSION THAT THE TRANSACTION IN QUESTION IS ESSENTIALLY A CONTRACT F OR SALE OF GOODS AND THAT SECTION 194C DOES NOT APPLY. HE ALSO POINTED OUT TH AT THE BENCH TOOK A VIEW THAT THE TRANSACTION IS NOT COVERED UNDER THE AMBIT OF CBDT CIRCULAR NO. 715. HE DREW THE ATTENTION OF THE BENC H TO PAGE 15 OF THE ASSESSMENT ORDER PARA 23 AND READ THE SAME ALONG WI TH PAGE 8 OF THE ORDER OF THE CIT(APPEALS) AND POINTED OUT THAT A QU ANTITY OF RS.71,51,67,305/- WAS PURCHASED FROM THIRD PARTY WI TH WHOM THE ASSESSEE HAD EXECUTED AGREEMENT AND THAT A FURTHER AMOUNT OF RS.5,96,68,409/- WERE FOR PURCHASES FROM PARTIES WI TH WHOM THE ASSESSEE HAD NO WRITTEN CONTRACT. HE SUBMITTED THAT THESE PU RCHASES WERE SUPPORTED BY INVOICES AND PURCHASE BILLS. AS FAR AS AN AMOUNT OF RS.29,44,83,559/- IS CONCERNED, MR. INAMDAR SUBMITT ED THAT THESE WERE UNDER MARKETING AGREEMENTS AND THE LEARNED FIRST AP PELLATE AUTHORITY GRANTED RELIEF ON THE SAME AND THE ISSUE IS NOT BE FORE THE TRIBUNAL. HE ONCE AGAIN TOOK THIS BENCH THROUGH OTHER CONTRACT AGREEMENTS AND THE ORDERS OF THE TRIBUNAL ON SIMILAR ISSUES AND THE JU DGMENT OF THE JURISDICTIONAL HIGH COURT AND SOUGHT RELIEF. 4. THE LEARNED DR, MR. S.S. RANA, ON THE OTHER HAN D, VEHEMENTLY CONTROVERTED THE ARGUMENTS OF THE LEARN ED COUNSEL FOR THE ASSESSEE AND SUBMITTED THAT ALL THESE ARE PATENTED MEDICINES AND HENCE CANNOT BE PURCHASED FROM ANY MANUFACTURER AS SUBMIT TED BY THE ASSESSEE. HE DREW THE ATTENTION OF THE BENCH TO PAGE 8 OF THE ASSESSMENT ORDER WHEREIN, THE MODEL AGREEMENT HAS BEEN EXTRACTED BY THE AO AND DREW THE 4 ATTENTION OF THE BENCH TO PARA 2 OF THE AGREEMENT W HICH STATES THAT SIPRA AGREES TO ALLOW NPIL TO INSPECT THE MANUF ACTURING LOCATIONS FROM TIME TO TIME TO CONFIRM THAT THE SAID PRODUCTS ARE BEING MANUFACTURED AS PER THE GOOD MANUFACTURING PRACTICE S AND ACCORDING TO THE STANDARDS PRESCRIBED UNDER THE DRUGS AND COSMET ICS RULES, 1945. HE FURTHER REFERRED TO CLAUSE 9 AND 11 EXTRACTED AT PA GE 9 OF THE ASSESSMENT ORDER. HE READ PARA 9 OF THE AOS ORDER WHICH IS AT PAGE 10 AND SUBMITTED THAT THIS GIVES THE SUMMARY OF THE CONTRACT. HE CON TENDED THAT WHAT IS TO BE SEEN AND GATHERED FROM THE TERMS OF THE CONTRACT , IS THE INTENT OF THE PARTIES AND NOT WORDING USED. HE DREW THE ATTENTIO N OF THE BENCH TO PAGE 9 OF THE CIT(APPEALS) ORDER PARA 5.2, PAGE 12 PARA 6.3 AND ULTIMATELY PAGE 16 PARA 6.9 AND SUBMITTED THAT THE PREDOMINANT INTENTION OF THE ASSESSEE IS EVIDENTLY TO GET THE MANUFACTURING OF T HE REQUIRED DRUGS AND PHARMACEUTICAL PRODUCTS DONE FROM THE THIRD PARTY M ANUFACTURERS, FOR WHICH THE COMPOSITE AGREEMENT STYLED AS MANUFACTUR ING AGREEMENT, IS ENTERED INTO, WHICH NOT MERELY PROVIDES FOR MANUFAC TURING OF THE PRODUCT BUT ALSO PROVIDES FOR LABOUR AND ANCILLARY FACILITI ES FOR PACKING, STORAGE ETC. HE RELIED ON THE DECISION OF THE MUMBAI B-BENC H OF THE TRIBUNAL IN ITA NO. 1046/MUM/2007 IN THE CASE OF M/S MACLEDOS P HARMACEUTICALS LTD., ORDER DATED 11 TH MAY, 2009 AND SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE REVENUE. HE POINTED OUT THAT THE L EARNED COUNSEL FOR THE ASSESSEE HAS NOT ARGUED ON GROUND NO. 3 OF THE APPE AL WHICH IS THE LEVY OF INTEREST U/S 201(1A). 5. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJ OINDER, SUBMITTED THAT THE DECISION IN THE CASE RELIED UPON BY THE LEARNED DR IS DISTINGUISHABLE ON FACTS AS, IN THAT CASE THE ASSES SEE SUPPLIED RAW MATERIAL AND ALSO PAID BOTH SALES TAX AND EXCISE DUTY. HE SU BMITTED THAT THE ISSUE 5 THAT THE DRUGS ARE PATENTED DRUGS ETC. WAS DEALT BY THE JURISDICTIONAL HIGH COURT. 6. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUS AL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS W ELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 7. THERE IS NO DISPUTE ON THE FACT THAT ALL THE 14 AGREEMENTS IN QUESTION ARE IDENTICAL. IT IS ALSO NOT DISPUTED THA T THERE ARE THREE MODE OF PROCURING FINISHED GOODS, I.E. A) GOODS MANUFACTURI NG AT OWN FACTORY PREMISES, B) GOODS MANUFACTURED BY OTHER PARTY ON J OB WORK BASIS/LOAN BASIS AND C) FINISHED GOODS PURCHASED DIRECTLY FROM THIRD PARTIES UNDER THE BRAND NAME AND TRADE MARK OF NPIL. 8. NOW WE EXAMINE SOME OF THE CLAUSES OF THE CONTR ACT. THE AO HAS EXTRACTED SOME OF THE CLAUSES OF THE CONTRAC T AT PAGES 8 TO 10 OF HIS ORDER, WE REPRODUCE SOME OF THEM AS BELOW : 1. NIPL SHALL PURCHASE THE SAID PRODUCTS FROM SIPRA ON A PRINCIPAL TO PRINCIPAL BASIS AT PRICES TO BE MUTUAL LY AGREED FROM TIME TO TIME. EXCISE DUTY AND SALES TAX, AT TH E THEN PREVAILING RATE WILL BE SEPARATELY CHARGED BY SIPR A IN THE INVOICES WHILE SUPPLYING THE SAID PRODUCTS TO NIPL 2. SIPRA SHALL SUPPLY TO NPIL, THE SAID PRODUCTS A S SET OUT IN SCHEDULE I ANNEXED HERETO SIPRA GUARANTEES THA T THE SAID PRODUCTS SHALL BE IN ACCORDANCE WITH THE FORMU LATION, STANDARDS, SPECIFICATIONS AND LABEL CLAIMS AS INTIM ATED TO AND ACCEPTED BY NPIL. SIPRA AGREES TO ALLOW NPIL TO INSPECT THE MANUFACTURING LOCATIONS FROM TIME TO T IME TO CONFIRM THAT THE SAID PRODUCTS ARE BEING MANUFACTUR ED AS PER THE GOOD MANUFACTURING PRACTICES AND ACCORDING TO THE STANDARDS PRESCRIBED UNDER THE DRUGS AND COSMETICS RULES, 1945. 6 9. IN THE EVENT OF NIPL, HAVING ACCEPTED THE SAID PR ODUCTS AND IT BEING SUBSEQUENTLY FOUND THAT THEY DO NOT CONFORM T O THE FORMULATION, STANDARDS, SPECIFICATIONS OR LABEL CLA IMS REFERRED TO IN CLAUSE 2 ABOVE OR WITH THE STATUTORY REQUIREMENT S PERTAINING TO THE SAID PRODUCTS, OR IF FOR ANY REASONS THE SAI D PRODUCTS ARE RECALLED FROM ANY OF ITS ESTABLISHMENTS OR DEALERS, SIPRA SHALL BE LIABLE TO REIMBURSE NPIL FOR THE PRICES OF THE SAID PRODUCTS PAID/PAYABLE BY NPIL 11. THE SAID PRODUCTS SHALL BE SOLD TO NPIL, UNDE R ITS LOGO AND TRADE MARKS OWNED BY OR LICENSED TO NPIL AS SET O UT IN SCHEDULE I HERETO (THE SAID NON-EXCLUSIVE RIGHT AND PERMISSION TO APPLY AND AFFIX THE SAID MARKS ON OR IN RELATION TO ITS ORDERS FOR THE SAID PRODUCTS. SIPRA SHALL AFFIX ON THE S AID PRODUCTS AND/OR THE LABELS AND OR THE PACKAGES THEREOF, SUCH OF THE SAID MARKS AS INTIMATED TO SIPRA. SAVE AS AFORESAID, SIPRA SHALL NOT USE, NOR SHALL BE DEEMED TO HAVE THE RIGH T TO USE THE SAID MARKS IN CONNECTION WITH OR IN RELATION TO ANY PRODUCT OF WHATSOEVER NATURE MADE OR DEALT WITH BY SIPRA. S IPRA HEREBY COVENANTS THAT IT SHALL NOT USE THE SAID MAR KS IN ANY MANNER WHATSOEVER WHICH MAY JEOPARDISE THE SIGNIFIC ANCE, DISTINCTIVENESS OR VALIDITY OF THE SAID MARKS AND S HALL APPLY AND AFFIX THE SAID MARKS ONLY IN PURSUANCE OF ITS OBLIG ATIONS UNDER THIS AGREEMENT. 9. WE EXTRACT FURTHER SOME OTHER CLAUSES FROM THE AGREEMENT, FROM THE COPIES PROVIDED BY THE ASSESSEE IN THE PAP ER BOOK . CLAUSES 7, 14, 15, 16, 22 AND 25 OF THE AGREEMENT BETWEEN SAR ABHAI PIRAMAL PHARMACEUTICALS LIMITED AND MEPRO PHARMACEUTICALS L TD. AT PAGES 84 TO 88 OF THE PAPER BOOK READ AS FOLLOWS : 7.(A) MEPRO PHARMA SHALL, AS ITS OWN COST, PURCHAS E LOCALLY IN INDIA OR IMPORT FROM ABROAD SUCH RAW MATERIAL, I NGREDIENTS, INTERMEDIATES, PACKS AND PACKAGING AND FINISHING MA TERIAL AND THE LIKE OF SUCH STANDARD, QUALITY OR SPECIFICATIONS AN D GRADE REQUIRED FOR THE MANUFACTURE OF THE SAID PRODUCTS, AS MAY BE PRESCRIBED FROM TIME TO TIME BY SPPL. (B) MEPRO PHARMA SHALL KEEP AND MAINTAIN IN DUPL ICATE FOR SUCH PERIOD AND IN SUCH MANNER AS MAY FROM TIME TO TIME BE 7 PRESCRIBED BY SPPL, CONTROL SAMPLES OF ALL THE RAW MATERIALS, INGREDIENTS, INTERMEDIATES, PACKS AND PACKAGING AND FINISHING MATERIALS AND THE SAID PRODUCTS NONE SETOFF THE SAI D SAMPLES SHALL BE SENT TO SPPL AND THE OTHER SHALL BE RETAINED BY MEPRO PHARMA. 14. ALL INVENTORIES OF THE SAID PRODUCTS MANUFACTUR ES BY MEPRO PHARMA FOR THE SALE AND SUPPLY TO SPPL AND BE ARING SPPLS TRADE MARKS SHALL, AT ALL TIMES, BE KEPT AND STOCKED SEPARATELY FROM ANY ALL OTHER INVENTORIES OF MEPRO PHARMA AND MEPRO PHARMA SHALL KEEP AND STOCK THE SAME IN A SEPARATE PART OF MEPRO PHARMAS FACTORY, WAREHOUSE OR PREMISES, AS THE CASE MAY BE, AND A SIGNBOARD OR NO TICE SHALL BE PLACED UPON OR ON THE PREMISES OR ON THE SAID PRODU CTS, CLEARLY TO INDICATE THAT THE SAID PRODUCTS BEARING SPPLS TRDE MARKS ARE TO BE SOLD EXCLUSIVELY TO SPPL AND MEPRO PHARMA HAS NO RI GHT TO DEAL WITH THEM OTHERWISE OR HYPOTHECATE, PLEDGE OR OTHERWISE CHARGE OR CREATE ANY LIEN OR ENCUMBRANCE ON THE SAI D PRODUCTS. 15. SUBJECT TO APPLICABLE LAWS, RULES AND REGULATIO NS, DURING THE PERIOD OF THIS AGREEMENT, MRPRO PHARMA SHALL SELL A ND SPPL SHALL PURCHASE THE SAID PRODUCTS BEARING THE SAID T RADE MARKS AT SUCH PRICES AS MAY BE MUTUALLY AGREED UPON BETWEEN THE PARTIES HERETO FROM TIME TO TIME AND SUCH PRICES SHALL BE E XCLUSIVE OF EXCISE DUTY, SALES-TAX AND OTHER TAXES OR LEVIES, L OCAL OR OTHERWISE AND ALSO THE AGREED COST OF FREIGHT AND TRANSPORTAT ION IN CASE OF OUTSTATION DELIVERIES. THE MODE AND DURATION OF ALL PAYMENTS TO BE MADE BY SPPL TO METRO PHARMA UNDER THIS AGREEMENT SHALL BE AS PER THE SCHEDULE OF PAYMENT TO BE MUTUALLY AGREED UPON BY THE PARTIES FROM TIME TO TIME. 16.(A) AS THE PRODUCTS TO BE MANUFACTURED BY METRO PHARMA AND SOLD TO SPPL HEREUNDER SHALL BEAR THE TRADE MAR K/S OF SPPL, UNLESS AND UNTIL SPPL SHALL HAVE GIVEN ITS PRIOR CO NSENT IN WRITING IN THAT BEHALF, NONE OF THE SAID PRODUCTS MANUFACTU RED BY MEPRO PHAEMA SHALL BE RELEASED BY IT FROM THE WAREHOUSE O R STORAGE PLACES, FOR DELIVERY OR DESPATCH EXCEPT AS HEREIN P ROVIDED. (B) SO LONG AS THE SAID PRODUCTS ARE IN THE POSS ESSION, CUSTODY OR CONTROL OF MEPRO PHARMA THE SAME SHALL BE DULY AND ADEQUATELY INSURED AND KEPT SO INSURED BY MEPRO PHA RMA AS ITS OWN COST AND EXPENSES AGAINST ALL RISKS AND IN PARTICULAR, THIRD PARTY LIABILITIES WHICH AN INSURANCE COMPANY APPROV ED BY SPPL. 8 (C) MEPRO PHARMA SHALL, WITHIN SEVEN (7) DAYS, OR SUCH OTHER NUMBER OF DAYS AS MAY BE AGREED UPON BETWEEN THE PARTIES HERETO FROM TIME TO TIME, FROM RECEIPT OF WRITTEN I NSTRUCTIONS FROM SPPL IN THAT BEHALF FORWARD DIRECTLY BY SUCH MODE O F TRANSPORT, THAT IS, ROAD OR RAIL OR AIR AS THE CASE MAY BE, AG REED UPON IN THAT BEHALF, STOCKS OF THE AID PRODUCTS TO SPPLS BRANCH ES OR SALES OFFICES OR AS OTHERWISE DIRECTED BY SPPL AND MEPRO PHARMA SHALL INVOICE SPPLS RESPECTIVE BRANCH AND / OR OFF ICE DIRECTLY FOR THE RESPECTIVE CONSIGNMENTS. (D) THE RISK, RIGHT, TITLE AND INTEREST IN AND T O THE SAID PRODUCTS DELIVERED FROM TIME TO TIME BY MEPRO PHARMA TO SPP L SHALL PASS ON TO SPPL AT THE AID BRANCHES OF SPPL AND/OR AT THE SAID OFFICES OF C & F AGENTS OF SPPL AS THE CASE MAY BE. (E) TIME SHALL DEEMED TO BE THE ESSENCE OF THE C ONTRACT REGARDING THE DELIVERY OF THE SAID PRODUCTS BY MEPR O PHARMA TO SPPL. 22. MEPRO PHARMA SHALL BE SOLELY AND EXCLUSIVELY LI ABLE FOR PAYMENT OF ALL TAXES, DUTIES AND LEVIES INCLUDING E XCISE DUTY AND SALES TAX, IF ANY ON OR IN CONNECTION WITH THE MANU FACTURE AND ALE OF THE SAID PRODUCTS/ BY MEPRO PHARMA TO SPPL UNDER AND IN ACCORDANCE WITH THIS AGREEMENT. 25. EXCEPT FOR THE AFFIXING AND APPLICATION OF THE SAID TRADE MARKS ON THE SAID PRODUCTS, NOTHING HEREIN CONTAINE D SHALL CONSTITUTE OR BE DEEMED TO OR IS INTENDED TO CONSTI TUTE METRO PHARMA AS AN AGENT OF SPPL OR SPPL AS AN AGENT OF M EPRO PHARMA AND NEITHER PARTY SHALL AT ANY TIME - (A) ENTER INTO A CONTRACT IN THE NAME OF OR PURPOR TING TO BE MADE ON BEHALF OF THE OTHER PARTY. (B) BY ANY ACT PLEDGE THE CREDIT OF THE OTHER PART Y OR IMPOSE OR ATTEMPT TO IMPOSE ANY CONTRACTUAL OBLIGATIONS ON THE OTHER PARTY. AND (C) EITHER IN ITS OWN OFFICES, FACTORIES OR DEPOT S OR INVOICES, BILLS, LETTER HEADS OR LETTERS, PAPERS OR AT ANY OT HER PLACE OR BY ANY OTHER MEANS, ORAL, WRITTEN OR OTHERWISE, MAKE ANY STATEMENT OR REPRESENTATION TO THE EFFECT CALCULATED OR LIABLE T O INDUCE OTHERS TO BELIEVE THAT IT IS THE AGENT OF THE OTHER PARTY. 9 10. THE ASSESSEE HAS ALSO FILED COPIES OF INVOICES RAISED BY 3 RD PARTY MANUFACTURERS. A PERUSAL OF THE INVOICES DEMO NSTRATE THAT THE TRANSACTION IS TERMED AS A SALE AND THAT THE SELLER HAS COLLECTED NOT ONLY THE EXCISE DUTY BUT ALSO THE SALES-TAX ON THE PRODU CT. 11. A PERUSAL OF THE AGREEMENTS CLAUSES SHOW THAT THE ASSESSEE HAD PURCHASED GOODS ON A PRINCIPAL TO PRINCIPAL BAS IS. THE RAW MATERIAL IS PURCHASED BY THE THIRD PARTY MANUFACTURER ONLY AT I TS OWN COST, EITHER LOCALLY OR FROM ABROAD. THE ASSESSEE DOES NOT SUPPL Y THE RAW MATERIAL, INGREDIENTS, PACKS OR PACKAGE OR THE FINISHED PRODU CTS. THE AGREEMENTS ALSO PROVIDE THAT THE ASSESSEE SHALL PURCHASE THE P RODUCTS BEARING THE SAID TRADEMARK AT SUCH PRICES AS MAY BE MUTUALLY AGREED UPON BETWEEN THE PARTIES THERETO IN WRITING AND THAT THE PRICES SHAL L BE EXCLUSIVE OF EXCISE DUTY, SALES-TAX AND OTHER TAXES OR LEVIES AND ALSO COST OF RAW MATERIAL AND TRANSPORTATION. THE ASSESSEE IS ALSO NOT BOUND TO A CCEPT ANY OF THE PRODUCTS IF THEY DO NOT STRICTLY COMPLIED WITH THE STANDARD, SPECIFICATIONS, INSTRUCTIONS AND DIRECTIONS GIVEN. THE PAYMENT OF T AXES AND DUTIES INCLUDING EXCISE DUTY AND SALES-TAX IS THAT OF THE MANUFACTURER AND NOT THE ASSESSEE. THE INVOICES ALSO INDICATE THAT THE SALE S-TAX AND EXCISE DUTY HAS BEEN PAID BY THE MANUFACTURER AND NOT THE ASSESSEE. THE AO AT PAR 9 PAGE 10 OF HIS ORDER HAS, IN HIS PERSPECTIVE, ANALYSED T HE TERMS AND CONDITIONS AND RECORDED AS FOLLOWS : I) THE FINISHED GOODS ARE MANUFACTURED BY THE SUPPLIER S STRICTLY IN CONFORMITY WITH THE SPECIFICATIONS, STANDARDS, FORMULATION AND LABEL CLAIMS AS INTIMATE D TO AND ACCEPTED BY NPIL. II) THE FINISHED GOODS BEAR THE LOGOS AND TRADEMARKS WHICH ARE EXCLUSIVELY OWNED BY OR LICENSED TO NPIL. III) NPIL IS ENTITLED TO INSPECT THE MANUFACTURING LOCAT IONS FROM TIME TO TIME TO CONFIRM THAT THE SAID PRODUCTS ARE 10 BEING MANUFACTURED AS PER THE REQUIREMENTS OF DRUGS CONTROLLING AUTHORITIES CONCERNED. FURTHER, ANY LIABILITY THAT MAY ARISE IN RESPECT OF THE SAID PRO DUCTS ON ACCOUNT OF A MANUFACTURING DEFECT SHALL BE THAT OF SIPRA ALONE AND SIPRA SHALL INDEMNIFY NPIL FO R ANY COST, EXPENSE OR DAMAGES INCURRED BY NPIL BY REASON OF THE QUALITY OF THE SAID PRODUCTS. THE OBLIGATION SET FORTH ON THE RELEVANT CLAUSE SHALL S URVIVE TERMINATION OR EXPIRATION OF THE AGREEMENT. IV) THE SUPPLIERS ARE DEBARRED FROM SUPPLY OR SELLING T HE FINISHED PRODUCTS MANUFACTURED UNDER THE BRAND NAME AND TRADEMARK OF NPIL TO ANY OTHER PARTY IN THE MARKET. V) SUCH SUPPLIERS ARE ALSO DEBARRED FROM USING THE LOG O, TRADEMARK, DESIGN, GETUP, COLOUR SCHEME, ETC. FOR I TS OWN PRODUCTS OR PRODUCTS MANUFACTURED FOR PARTIES OTHER THAN NPIL. FURTHER, THEY ARE ALSO DEBARRED FR OM SUB-CONTRACTING ANY PART OF THE MANUFACTURING PROCE SS. 12. IN OUR CONSIDERED OPINION, THE RECORDINGS OF T HE AO DO NOT LEAD TO CONCLUSION THAT THE CONTRACT IN QUESTION IS A WORKS CONTRACT AND NOT A PURCHASE OF GOODS, WHEN THE TERMS AND CONDITIONS OF THE CONTRACT, ARE READ IN THEIR ENTIRETY 13. ON SIMILAR FACTS, THE MUMBAI A-BENCH OF THE TR IBUNAL IN THE CASE OF M/S NOVARTIES HEALTH CARE PVT. LTD. VS. ITO 2009-TIOL-219- ITAT, MUM, HELD AS FOLLOWS : INCOME TAX TDS SEC 194C ASSESSEE IS INTO TR ADING OF CONSUMER HEALTH PRODUCT ENTERS INTO CONTRACT WITH THIRD PARTIES FOR MANUFACTURE OF PRODUCTS AS PER THEIR TECHNICAL SPEC IFICATIONS SURVEY U/S 133A REVENUE TREATS THE CONTRACT AS WO RKS CONTRACT LIABLE TO TDS ASSESSEE PLEADS THAT THEY HAVE PRIN CIPAL TO PRINCIPAL RELATIONS WITH INDEPENDENT MANUFACTURERS WHO HAVE T HEIR OWN FACTORIES, LABOUR FORCE AND INFRASTRUCTURE TO PROCE SS THE GOODS AS PER THEIR SPECIFICATION AND QUALITY STANDARDS CIT (A) TAKES THE VIEW THAT SINCE THE TAX IS PAID ON THE INCOME BY IN DEPENDENT MANUFACTURERS, ONLY INTEREST U/S 201(1A) IS TO BE R ECOVERED HELD, SINCE IT IS ESSENTIALLY A CONTRACT FOR SALE OF GOOD S AND NO WORKS 11 CONTRACT IS INVOLVED AS INDEPENDENT MANUFACTURERS B UY RAW MATERIALS ON THEIR OWN, HAVE THEIR OWN STAFF AND IN CUR RISK OF BUSINESS TO MEET THE SPECIFICATIONS GIVEN TO THEM A ND ALSO PAY EXCISE DUTY AND SALES TAX ON THE FINISHED PRODUCTS, IT IS NOT COVERED UNDER THE AMBIT OF CBDT CIRCULAR 715 NO TDS U/S 1 94C ASSESSEES APPEAL ALLOWED. 14. MUMBAI G-BENCH OF THE TRIBUNAL IN THE CASE OF GLENMARK PHARMACEUTICALS LTD. [2009] 30 SOT 19 (MUM.) HELD A S FOLLOWS : SECTION 194C OF THE INCOME-TAX ACT, 1961 DEDUCT ION OF TAX AT SOURCE CONTRACTORS/SUB-CONTRACTORS, PAYMEN TS TO ASSESSMENT YEAR 2006-07 WHETHER OBLIGATION TO DED UCT TAX AT SOURCE UNDER SECTION 194C ARISES WHEN A PAYMENT IS MADE FOR CARRYING OUT ANY WORK HELD, YES ASSESSEE WAS DE ALING IN PHARMACEUTICAL PRODUCT IT MANUFACTURED SAID PRODU CTS IN ITS OWN UNIT AS WELL AS GOT PRODUCTS MANUFACTURED FROM THIR D PARTY MANUFACTURERS FOR WHICH IT HAD ENTERED INTO AGREEME NT WITH SUCH MANUFACTURERS ASSESSING OFFICER TREATED AGREEMENT S ENTERED WITH THIRD PARTY MANUFACTURERS AS WORKS CONTRACT AND HEL D THAT ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE UNDER SECTION 194C FROM PAYMENTS MADE TO SUCH ALLEGED CONTRACTORS WHETHER SINCE ASSESSEE USED TO SIMPLY PLACE ORDERS FOR MANUFACTUR E OF MEDICINES ACCORDING TO ITS OWN SPECIFICATIONS AND ALL OTHER R ELEVANT DECISIONS FOR MANUFACTURING HAD BEEN LEFT TO WISDOM OF MANUFA CTURERS AND MOREOVER GOODS WERE MANUFACTURED BY MANUFACTURERS I N THEIR OWN ESTABLISHMENT BY PURCHASING RAW MATERIAL ON THEIR O WN AND EXCISE DUTY WAS ALSO PAID BY THEM DIRECTLY AND PROPERTY IN GOODS PASSED OVER TO ASSESSEE ONLY WHEN SUCH GOODS WERE MANUFACT URED AND DELIVERED TO IT, IN SUCH CIRCUMSTANCES AGREEMENTS E NTERED INTO BY ASSESSEE WITH MANUFACTURERS COULD NOT BE TREATED AS WORKS CONTRACT AND WERE ONLY CONTRACT FOR SALE OF GOODS HELD YES WHETHER, THEREFORE, PROVISIONS OF SECTION 194C WERE NOT APPL ICABLE ON PAYMENT MADE TO MANUFACTURERS HELD, YES. 15. THE JURISDICTIONAL HIGH COURT AFFIRMED THIS DE CISION OF THE TRIBUNAL IN THE CASE OF M/S GLENMARK PHARMACEUTICAL S LTD. IN INCOME TAX APPEAL NO. 2256 OF 2009, ORDER DATED 12 TH MARCH, 2010, 324 ITR 199 (BOM.). AFTER CONSIDERING THE VARIOUS CIRCULARS ISSUED BY THE CBDT AND AFTER ANALYSING THE VARIOUS JUDGMENTS OF THE SU PREME COURT AS WELL 12 AS THE HIGH COURTS AT PARA 21 PAGE 23, THE HONBLE HIGH COURT OBSERVED AS FOLLOWS : BROADLY SPEAKING, THREE SITUATIONS ARE INVOLVED I N THE MANUFACTURE OF PHARMACEUTICAL PRODUCTS. IN THE FIRS T SITUATION, THE PHARMACEUTICAL COMPANY ITSELF MANUFACTURES PHARMACE UTICAL PREPARATIONS WHICH ARE SOLD UNDER ITS BRAND NAME. T HE SECOND SITUATION INVOLVES LOAN LICENSING WHERE THE RAW MAT ERIALS ARE SUPPLIED BY THE PHARMACEUTICAL COMPANY TO THE LICEN SEE MANUFACTURER WHO IN TURN MANUFACTURES A PHARMACEUTI CAL PRODUCT ON BEHALF OF THE COMPANY. THE THIRD SITUATION IS ON E WHERE BY AN AGREEMENT BETWEEN A PHARMACEUTICAL COMPANY AND A MA NUFACTURER, IT IS THE MANUFACTURER WHO PROCURES THE RAW MATERIA LS AND MANUFACTURES THE PRODUCT UNDER THE SPECIFICATIONS O F THE COMPANY AND SELLS THE END PRODUCT TO THE COMPANY. IN THE TH IRD SITUATION, THE MANUFACTURER MAY ALSO AFFIX THE TRADE MARK OR BRAND NAME OF THE COMPANY, WHICH IN TURN MARKETS THE PRODUCT. THE PRE SENT CASE RELATES TO THE THIRD CATEGORY WHERE ADMITTEDLY, THE ENTIRE PROCESS OF MANUFACTURING IS CARRIED OUT BY A THIRD PARTY WITH WHOM THE ASSESSEE HAS CONTRACT. THE WORK OF MANUFACTURE IS C ARRIED OUT AT THE ESTABLISHMENT OF THE THIRD PARTY MANUFACTURER. THE RAW MATERIALS ARE PURCHASED BY THE THIRD PARTY MANUFACTURER. THE CONTRACT ENVISAGES THAT THE TRADE-MARK OF THE ASSESSEE IS TO BE AFFIXED TO THE GOODS MANUFACTURED BY THE THIRD PARTY. AFTER ANALYSING THE TERMS, THE HONBLE COURT AT PAR A 24 CONCLUDED THAT THE CONTRACT IN QUESTION WAS A CONTRACT OF SALE AND NOT A CONTRACT OF WORK. IT HELD THAT THE TEST IS WHETHER THE PROPERTY IN TH E GOODS PASSES UPON DELIVERY OR NOT. IT OBSERVED THAT THE PROPERTY PASS ES TO THE PURCHASER UPON DELIVERY OF THE GOODS AND THE RAW MATERIAL WAS SOUR CED BY THE MANUFACTURER AND WAS NOT SUPPLIED BY THE PURCHASERS . IT ALSO CONSIDERED THE EXPLANATION TO SECTION 194C AND HELD THAT THE S AME WAS CLARIFICATORY. AT PARA 31 PAGE 38 OF THE ORDER, THE ISSUE OF TRADE MARKS AND SPECIFICATIONS HAVE BEEN CONSIDERED. IT HELD THAT T HE FACT THAT THE SPECIFICATIONS ARE PROVIDED BY THE ASSESSEE TO THE MANUFACTURER/SUPPLIER WOULD MAKE NO DIFFERENCE TO THE LEGAL POSITION. AT PAR 32, IT CONCLUDED 13 THAT THE LAW IS, THEREFORE, CONSISTENT WITH THE T RANSACTION BEING REGARDED AS TRANSACTION OF SALE, PROVIDED THAT THE REQUIREM ENTS OF A CONTRACT OF SALE ARE MET. THIS DECISION OF THE JURISDICTIONAL HIGH COURT APPLIES ON FOURS TO THE FACTS OF THIS CASE. 16. COMING TO THE DECISION IN THE CASE OF M/S MACL EODS PHARMACEUTICALS LTD. (SUPRA) RELIED UPON BY THE LEA RNED DR, WE FIND THAT THE FACTS ARE ENTIRELY DIFFERENT. THE ASSESSEE IN T HAT CASE NOT ONLY SUPPLIED THE RAW MATERIAL BUT ALSO PAID THE EXCISE DUTY AND OTHER TAXES. THE MANUFACTURER HAD TO SUPPLY LABOUR AND UTILIZE HIS M ACHINERY FOR MANUFACTURING ACTIVITIES. THUS THE DECISION IN THAT CASE DOES NOT APPLY TO THE FACTS OF THE CASE IN HAND. 17. THE DECISION OF THE MADRAS A-BENCH OF THE TRIB UNAL IN THE CASE OF FLORIND SHOES LTD. VS. ITO (1992) 40 ITD (M AD) 28 RELIED UPON BY THE LEARNED DR ALSO DOES NOT APPLY TO THE FACTS OF THE CASE. IN THAT CASE, JOB WORK OF MANUFACTURING SHOES AND SHOES UPP ER WERE ENTRUSTED AND IT WAS NOT THE CASE OF PURCHASE OF GOODS.. 18. THUS IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE ISSUE ON HAND IS COVERED BY THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF M/S GLENMARK PHARMACEUTICALS LTD. (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THIS GROUND OF THE ASS ESSEE. 14 19. COMING TO THE OTHER GROUNDS OF APPEAL, AS WE H AVE HELD THAT THE ASSESSEE IS NOT AN ASSESSEE IN DEFAULT U/S 201 READ WITH SECTION 194C OF THE ACT, THE OTHER GROUNDS NEED NOT BE DISPOSED AS IT WOULD BE AN ACADEMIC EXERCISE ONLY. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE, 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 30 TH JUNE, 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, B-BENCH (TRUE COPY) BY ORDER AS STT.REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.