IN RE: P NO 28 OF 1999 Vs. STATE

JUDGEMENT

(1.) "A" an Indian company and "B" of USA formed a joint venture company in India called "AB" for the production and sale of motor cars and automotive products. "A" and "B" each own 50 per cent, of "AB". "AB" was incorporated on April 16, 1994. The joint venture was approved by the Central Government. "AB" also entered into a technical information and assistance agreement on November 24, 1994, with a German company, to enable it to produce certain motor vehicles under a technology licence with the latter. It also had a project management service contract with a foreign company. The applicant, "XYZ" is a company incorporated in the USA. The applicant is also a wholly owned subsidiary of "B". "B" is engaged in the business of manufacture and sale of motor cars worldwide. The first among the objects of incorporation of "XYZ" (as amended in 1969) is "to provide services of all descriptions to any person, firm or corporation and to generally co -ordinate the affairs of and to represent any other person, firm or corporation". According to the statement of facts filed by the applicant, its business is principally to provide management and consulting services to "B'"s subsidiaries or affiliated companies worldwide. It does not provide such services to any unrelated parties.

(2.) ON April 16, 1994, "AB" entered into a management provision agreement with "XYZ" under which "XYZ" offered, and "AB" received, managerial services for the establishment, development and operation of its business in the manufacture and sale of cars under the joint venture agreement. The provision for management services was approved by the Ministry of Industry while approving the proposal for the setting up of the joint venture. The letter of approval said : "D. Management services : It is noted that 'XYZ', a wholly owned subsidiary of 'B', USA, would be providing management services on a cost -as -incurred basis by deputing maximum of five of their employees to the joint venture, for a period up to three years, for providing management and technical service to the joint venture and would also train the personnel of the joint venture so that the service of the employees of the foreign collaborators could eventually be replaced by the Indian personnel. ..."

(3.) UNDER the management provision agreement, the applicant is to make available executive personnel for development of general management, finance and purchasing, service, marketing and assembly/manufacturing activities. The agreement indicates the responsibilities and duties of each of the five resident expatriates under the said agreement as under : (i) President and managing director. - -Will be the chief executive and operating officer of "AB" and will be responsible for overall management and direction of "AB" operations. The president and managing director will be formally appointed to such office by "AB" and will discharge his or her powers and duties from that office. (ii) Vice -president of marketing - -Will be responsible for development and administration of AB's dealer network, sales and marketing of "AB" products and service. (iii) Vice -president of finance. - -Will be responsible for managing all the financial operations of "AB". (iv) Vice -president of manufacturing engineering. - -Will be responsible for overall management of "AB" facilities to manufacture and assemble products of "AB" according to required standards and for production of such products according to those standards ; (v) Vice -president of supplier development and materials management - -Will be responsible for managing the purchasing and "AB" materials, including development of local suppliers.