1. These four Writ Petitions involve a common question relating to the interpretation of a franchise agreement in regard to sale of essences. They can be disposed of by a common judgment. We heard the Writ Petition together. The brief facts are that the petitioners in Writ Petition No. 94/B of 1978 are Goa Bottling Company (Private) Ltd., a company incorporated under the Companies Act, 1956, and having its registered office at Erasmo Carvalho Street, Margao. They carry on business as manufactures of soft drinks and they have factory situated at Arlem, Salcete Goa.
2. The first respondent to the petition is Union of India and the second respondent is Assistant Collector of Customs and Central Excise, Goa, having his office at Goa.
3. The petitioners have for the past several years been carrying on the business of bottling soft drinks such as 'Gold Spot', 'Limca' and 'Thums Up' which are marketed under the registered trade mark of a concern known as Parle (Exports) Pvt. Ltd. In this particular petition there is no written franchise agreement. However, in the other connected petitions we find that there is a written franchise agreement. The terms of the agreement were orally agreed and which are reproduced in this petition at page 3.
4. It is said that the petitioners being the manufacturers of the soft drinks in the process of finalising they have agreed to accept the buying of essence from Parle (Exports) Pvt. Ltd., on certain conditions. The conditions are set out which need not be narrated here. It is undisputed that the conditions related to the movement of the sale of articles in assigned areas. The other condition imposed is restriction of selling of essence which is purchased. The further condition is that they are permitted to use the trade mark in the name of the product and for that purpose they have to conform certain formula and a further condition is also there in regard to the quality standards which are prescribed by the Parle (Exports) Pvt. Ltd.
5. It is the case of the petitioners that they are buyers of these essences and they use these essences and utilise the same while manufacturing their own product. Their product is produced from their own factory. Their investment is independent. There is no financial obligation imposed on the Parle (Exports) at all and they have independent import release order as actual user of their products. They are paying independent taxes for their products according to the enactments which impose several taxes on certain goods covered by those enactments. The petitioners further case is that except the quality control which they are to ensure under agreement and the essence which is purchased from Parle (Exports) as outright trade transactions and the Parle (Exports) has absolutely no control either in the finance or supervision or laboremployed by the petitioners. The petitioners say that the company is at liberty to have its own customers, employees and the entire property in goods which is manufactured by the petitioners absolutely and solely belongs to them. The petitioners say that they are entitled to the profits as well as losses.
6. The cause for the petition arose because the respondent No. 2 while exercising his powers under a notification, exhibit 'B', dated 4-7-1977 had an occasion to consider the relationship of the petitioners with the company i.e. Parle (Exports) on the basis of the franchise agreement. In substance the agreements in writing are found in other petitions which we ourselves see the terms which are narrated above are in substance in the same agreement. This agreement came for interpretation for the respondent No. 2, and, it appears, that by his order dated 17th August, 1978, the respondent No. 2, the Assistant Collector of Customs & Central Excise, Goa, held that the various terms which we have set out above relating to the use of the trade mark, control of the quality, the restrictions the sale of the essence purchased under this agreement show that there are restrictions on the buyer company in regard to the sale in specified territories. The company purchases the essence and mixes it with their product which increases its markable utility. The Collector found that Parle (Exports) Pvt. Ltd., who supply this essence although they charge the price, must be held to be the real manufacturer. The petitioner-company are mere bottlers. They cannot be said to be independent manufacturers. On this finding, the Collector held that they are not entitled to exemption provided by the notification.
7. The dispute arises in regard to the exemption in the following manner. The notification, exhibit 'B', is found at page 51. It provides :-
'..... that the exemption contained in this notification shall apply only to the First Clearances for Home Consumption not exceeding fifty lakh bottles, by or on behalf of a manufacturer from one or more factories during the any Financial Year subsequent to 1977-78, and for such clearances not exceeding thirty-seven lakh bottles during the period commencing on the 4th day of July 1977 and ending on the 31st day of March 1978.'
The petitioner-company if it exceeds the target as provided in the notification did not get any exemption. The Collector having found that the petitioner-company was not an independent manufacturer included their product in the quantity of product produced by Parle (Exports). If these products are combined then the petitioner-company become liable for levy of duty.
8. As the Collector found that the petitioner-company was liable to pay the duty as it has exceeded the target, he accordingly decided the matter by a judgment dated 17th August, 1978, exhibit 'I' which is challenged in this petition before us.
9. We have heard the learned counsel for the petitioners. The learned counsel for the petitioners contended before us that the franchise agreement does involve any financial liability or obligation on the Parle (Exports) Pvt. Ltd. It was contended that this agreement only permits the company to use the trade mark under certain conditions. It also imposes a condition in regard to the quality of goods. But, the Parle (Exports) Pvt. Ltd. company has no control or any say in the matter of manufacture of the product made by the petitioner-company. The management, supervision and the finances are totally controlled independently by the petitioner-company. The petitioner-company cannot be said to be agents. They are not servants of the Parle (Exports) Pvt. Ltd. They cannot be said to be employees. They are not also partners. The agreement is of a specific nature giving right to the petitioner-company to sell the product through using the essence produced by the Parle (Exports) Pvt. Ltd. The product is quite new one, once the essence is mixed. It was further contended by the learned counsel that the transaction embodied in the agreement is out and out sale. It cannot be said that the petitioner-company is an agent or a just an extended arm of the Parle (Exports) Pvt. Ltd., to manufacture the product in question.
10. The learned counsel relied on two judgments in support of his contention. The learned counsel relied on two judgments of the High Court. One judgment is of our High Court reported in 1982 E.L.T. 142. The question determined by the learned single Judge in his judgment was quite similar to the one with which we are concerned in this case. The agreement in substance before the learned single judge and the agreements which are the subject matter of controversy before us are the same. Their terms are substantially identical. The learned single Judge held that the manufactures who only purchase essence and produce their own product cannot be said to be agents of the company selling them the essence. The learned single Judge also held that this agreement does not involve any relationship of agency. Therefore, the product which is produced will have to be treated as an independent product manufactured by an independent unit having its independent financial and managerial obligations. The view of the learned Judge is based on another judgment which was cited before us by the learned counsel for the petitioners. The other judgment which is relied on the by the learned single Judge is of the Delhi High Court which is reported in 1981 ELT 389. We may here refer to the judgment firstly of our Court delivered by the learned single Judge wherein there is an intrinsic evidence to show that even in some case which had reached in Revisional jurisdiction before the Central authority in the matter like this, the learned counsel for the Union had to concede the position that companies which are only governed by the instant agreements cannot be said to be agents of the principal company which supplies them some essence and permits using of trade mark. We are indicating this fact only to emphasise that the stand taken by the counsel for the respondents does not appear to be justified.
11. The learned counsel for the respondent addressed the same argument before us which finds place in the judgment of the learned single Judge and following the same line of argument he contended before us that the terms regarding quality control found in the franchise agreement and the other terms regarding restriction of the territory in regard to the sale of product and permission to use the trade mark are sufficient insignia to show that the Parle (Exports) Pvt. Ltd., has sufficient control over the articles so as to make the petitioner-company liable to account for the detect of the quality and default in respect of sales.
12. We are afraid that this contention is not well founded. It the petitioner-company has got independent finances and the product is produced by it independently though with the help of the Parle (Exports) Pvt. Ltd., in the absence of any managerial or financial control or liability taken by Parle (Exports) we do not think that the product which is manufactured by the petitioner-company can form part of the products of the Parle (Exports) Pvt. Ltd. It is impossible to treat the petitioner-company as an agent or even in other capacity as the manager for the product for the manufacture or sale of the product of the Parle (Exports) Pvt. Ltd. In the absence of a specific relationship it is difficult to say that the Parle (Exports) Pvt. Ltd. is in any way concerned with the profit or loss of the petitioner-company. The transaction embodied in the franchise agreement is out and out sale. It is impossible to conceive that Parle (Exports) Pvt. Ltd., will have any link after the sale of the essence, in the subsequent processing of the product by the petitioner-company.
13. As we have stated earlier we have gone through the judgment of the Delhi High Court which has been followed by the learned single Judge of our Court and we are in respectful agreement with the view taken by the Delhi High Court. No distinguishing feature was pointed out to us to take any other view. In our opinion, the Asstt. Collector of Customs was in error in holding that the petitioner-company is only a bottler and not an independent manufacturer. In this view of the matter it is unnecessary to deal in detail with further discussion on this issue. In the result, it is declared that the petitioners are independent manufacturers and they cannot be said to be mere agents of Parle (Exports) Pvt. Ltd., and the notification which permitted them some benefits cannot be said to be otherwise offending their right subject to the conditions laid down therein. In the result, the order of the Collector dated 17th August, 1978 is hereby set aside. It is declared that the petitioner-company is entitled to the exemption under the notification. This judgment will govern all the other three Writ Petitions. Rule made absolute with costs. Leave refused vide order in Writ Petition No. 91/B of 1979.