Customs, Excise and Gold Tribunal - Mumbai
Jayant K. Furnishers, Jayantilal K. ... vs Commissioner Of Central Excise, ... on 25 September, 2001
JUDGMENT Jyoti Balasundaram, Member (J)
1. The above appeals arise out of the order of the Commissioner of Central Excise who has confirmed the total duty demand of Rs. 2,25,68,666/- on various items of furniture falling under Chapters 44, 70, 76 and 94 of the Schedule to the Central Excise Tariff Act, 1985 manufactured and cleared by the appellant No. 1 during the period from 1993-94 upto January, 1999 and imposed penalty of Rs. 2,53,26,860/- on appellant No. 1, in addition to a penalty of Rs. 50 lakhs each on the other two appellants, who are partners of appellant No. 1.
2. The brief facts of the case are that the M/s. Jayant K. Furnishers (herein after referred to as JKF) are engaged in the manufacture of various furniture items which are manufactured either at their factory or at the site of their clients. On 22/08/1996 Central Excise officers searched their premises and they seized certain records/documents relating to manufacture and removal of furniture items and also recorded statement of both the partners, on subsequent date. Scrutiny of the records showed that the goods had been removed by JKF without obtaining Central Excise registration and without payment of duty. JKF were also found to have mis-declared/suppressed the value of clearances of furniture items in their annual declarations filed in terms of notification 13/92 dated 14/05/1992 thus resulting in contravention of the Central Excise Act and Rules. Therefore the show cause notice dated 25/02/1997 was issued proposing recovery of duty of Rs. 2,60,92,242/- and proposing imposition of penalty under Section 11AC of the Act and under Rules 9(2), 173Q, 210 and 226 of the Rules. The notice was contested by the appellant on various grounds. The notice was adjudicated by the order-in-original No. 20/98 dated 29/09/1998 by the Commissioner of Central Excise holding that JKF was the manufacturer of the goods, that it accepted contracts for manufacture of the furniture and supplied raw material and specifications to sub-contractors who have no direct relation with the clients for payment and hence the sub-contractors were held as hired labourers and JKF as the manufacturer. After extending the benefit of small scale exemption duty of Rs. 2,31,94,734.51 was confirmed together with interest and penalty under Section 11AC and Rule 209A was imposed. All three appellants filed appeals before the Tribunal bearing numbers E/4056 to 4058-R&V/98-Bom. By the final order No. 2391 to 2397/WZB/99 dated 21/09/1999 the Tribunal remanded the matter for fresh decision after looking into the written contracts, if any, entered into by JKF with sub-contractors for manufacture of furniture and also considering the claim of the appellant that some of the items of furniture came into existence piece by piece on the floor, wall, etc. of the site of their client. Prior to the passing of the remand order, ten more show cause notices wee issued covering the period from December, 1996 to April, 1997, July 1997 to January, 1999. The appellant requested that all 11 show cause notices be taken up together for hearing.
3. The adjudicating authority held that M/s. JKF was the actual manufacturer of the furniture items. The relevant findings are as under:
"In the present case, JKF has entered into contract with various clients for manufacture various items of work including furniture. JKF were held responsible for completion of work as per contract. JKF had given these works to various other labourers by supplying the raw material to them at the site of the client. JKF were supplying raw materials to labourers irrespective of the fact whether he client has supplied the raw materials to JKF or not. These labourers or group of labourers are raising the labour bills to JKF, which are based on daily wages; this fact itself proves that these independent job worker, as termed by JKF, are only the hired labourers who would work for anyone on daily wages and were not responsible for any mistakes/error in manufacturer. The responsibility of correct completion of the work was on JKF and JKF were supervising the work carried out by daily waged labourers. hence, these labourers cannot be termed as independent sub-contractors even though these labourers have fixed place as their office. Therefore, I hold that M/s. J.K. Furnishers is the Manufacturer."
4. He held that articles of furniture such as various tables, wall to wall unit, storage unit, wardrobes and workstations were marketable goods and therefore excisable, rejecting the contention of the appellant that these were immovable property and not liable to duty. He accepted the contention of the appellant that certain items were bought out items, after scrutiny of their purchase bills for the same. He held that aluminium sliding, windows were dutiable under Chapter heading 76.15, that doors, windows and partition having wooden frame are classifiable under CET sub-heading 4410.90 attracting nil rate of duty, that duty demand on flush doors is not tenable since they are items purchased from market on which duty had been paid. After extending the benefit of SSI exemption the duty demand was re-calculated at Rs. 1,68,26,860/- in respect of the first show cause notice dated 25/07/1997 which was the subject matter of the Tribunal's remand order, and Rs. 57,41,806/- in respect of the remaining ten show cause notices. He also imposed penalties as set out above. Hence these appeals.
5. We have heard Shri Rohan Shah, learned counsel and Shri B.B. Sarkar, learned DR. We find that on the question of who is the manufacturer the appellants had contended that since the actual work of manufacturing of furniture was carried out by independent contractors, who had their own labourers those contractors should be held to be the manufacturers and duty, if any, should be recovered from them. They submitted agreements entered into between themselves and the contractors which according to them shows that the relationship of the appellants with those contractors was on principal to principal basis. They submitted that those contractors had independent status accepting similar jobs on contract from different persons either from persons like the appellants or sometimes directly from clients. The appellants submitted that those contractors carried out the work of manufacture of furniture independently investing their own money, paying wages to their carpenters or workers and the appellants did not have any control over the workers of those contractors. We find that the Commissioner has not considered all these aspects and has held JKF to be the manufacturer on the ground that they were responsible for completion of work as per the contract and that since the labourers were raising the labour bills to JKF they were only hired labourers and that since the responsibility of the correct completion of work was on JKF, who was also supervising the work carried out by the labourers. M/s. JKF were the manufacturers and the labourers cannot be termed as independent sub-contractors.
6. The Commissioner has not addressed herself to the agreements entered into between the appellants and the sub-contractors although she was required to do so in terms of the Tribunal's remand order dated 21/09/1999. In para 5 of that order the Tribunal has held examination of the "agreements for the labour contract" was to be done for deciding who is the manufacturer and if there is a clear relationship as of principal to principal perceivable between M/s. JKF and the person at whose hands the furniture came into existence, it would have to be held that it was those persons and not M/s. JKF who brought into existence the actual items and hence was the manufacturer.
7. We also note that in the case of M/s. Ekbote Interior Pvt. Ltd. and Ors. v. CCE, Pune (Order No. C-II/862-66/WZB/2001 dated 04/04/2001) the Tribunal has held that the distinguishing feature between "hired labour" and "independent job worker" necessarily depends upon the nature of relationship between the persons who entrusted the job of manufacture of furniture and the person who actually executed the job and has held that if it is in the nature of principal to principal then the executor becomes the manufacturer. In that case also the plea raised by the appellants who were held to be manufacturers of furniture was that carpenters and contractors who actually manufactured the furniture at the site of the customers wee the manufacturers on whom duty liability rested, and that they were not the manufacturer. A claim was also made that individual units deal with their contractors a also among themselves on a principal to principal basis. The appellants submitted that there was only oral contract or implied contract between them and the contactors who performed the work entrusted to them, namely manufacture of furniture, and the Tribunal held that in the absence of a written contract it was extremely difficult to accept the statement that the relationship between the appellants and their contractors was on a principal to principal basis. On the failure of the appellant to show that there existed principal to principal relationship between themselves and the carpenters and polishers, etc., and on the finding that the final processes of converting the rough furniture into fully finished furniture was undertaken by the appellant themselves the bench held that the appellant units were the manufactures of the furniture.
8. Thus, it is seen that the emphasis is on the nature of the relationship between the appellants and sub-contractors. Since the nature of this relationship has not been examined by the Commissioner and since the examination is absolutely vital for the purpose of determining the basic issue as t who is the manufacturer of the goods on which duty has been demanded, we direct that this issue be examined afresh by the Commissioner to whom we remand the (SIC).
9. It is the further submissions of the appellants that certain articles such as workstations, conference tables, wall to wall units, storage units and wardrobes were came into existence only when they were fixed to the wall or ground. They were neither assembled prior to erection/installation nor were they brought in CKD condition and then re-assembled before fixing to the wall or ceiling but they were fabricated and embedded to the walls/ceiling simultaneously. They contend that photographs of these items were shown to the Commissioner and they explained in detail as to how these articles came into existence as immovable property and therefore not excisable goods on which duty demand could be raised.
10. We find that the Commissioner has relied upon the decision of the Supreme Court in the case of Sirpur Paper Mills Ltd. v. CCE Hyderabad 1998 (97) ELT 3 (SC) to hold that the above furniture items cannot be treated as immovable articles merely because they are fixed to the walls or grounds by using bolts or nails and are therefore excisable goods. The appellants contended that the case before the apex Court the machine had came into existence even prior to begin fixed to the ground and its fixation to the ground was for the purpose of efficient working, while the items in dispute do not came into existence prior to being fixed to the ground and came into existence only when they were embedded on the ground and fixed to the wall/ceiling. We find that in the remand order dated 21/09/1999 the Tribunal directed the Commissioner to examine "whether unscrewing the parts alone would be sufficient to remove complete items of wood furniture. Such furniture may come into existence by joining or by attaching such incomplete furniture to an immovable structure such as the wall, such items of furniture of wood already attached to immovable property are excisable. It has to be examined whether in such as situation the items itself can be removable while preserving its integrity without causing it any significant damage and also whether such an item when so removed is capable of being marketable begin as furniture". We also find that in the case of Ekbote Interiors Pvt. Ltd. and Ors. v. CCE, (cited supra), the bench has held that the excitability of items such as partition, false ceiling, etc., depends upon the degree of their attachment to the earth and if they are permanently placed and are parts of the structure then excitability would not attract and the parts thereof before fitment, may attract duty if they fit in the description in the tariff entry. In these circumstances we direct re-examination of this issue also by the Commissioner.
11. The plea on limitation in respect of demand in show cause notice dated 25/07/1997 - the appellants' claim that the demand is partly barred is also to be considered by the Commissioner who shall also consider the plea of the appellant that while arriving at the assessable value abetment of duty payable was required to be allowed since the appellant had not recovered any duty from their clients. The Commissioner shall also consider the claim for modvat credit if ultimately duty is found payable by the appellants.
12. In the result the impugned order is set aside and the appeals are allowed by remand to the Commissioner, who shall pass fresh orders after extending a reasonable opportunity to the appellants of being heard and putting forth their defence.