Customs, Excise and Gold Tribunal - Delhi
Cothas K. Prakash And Ors. vs Collector Of Central Excise on 8 October, 1987
Equivalent citations: 1987(14)ECC387, 1987(13)ECR985(TRI.-DELHI), 1987(32)ELT790(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. These four appeals arise out of a common order and were therefore heard together. For purpose of convenience the appellants in these four appeals respectively shall be referred to as appellant Nos. 1 to k. The case for the Department stated in short is that the appellants, either under the name of 4th appellant, or in the name of the Trust of which the major beneficiaries were the partners of the 4th appellant firm or the members of their families, carried out the manufacturing activity of manufacture of blended coffee-chicory mixture but that no licence had been taken therefor and that the manufactured product was being removed and sold without payment of Central Excise duty and that no exemption benefit was available in respect of such a manufacturing activity, the show cause notice dated 17-6-1986 demanding from the appellants, in respect of such activity, duty amounting to Rs. 67,38,881.70p. Under the notice they were further called upon to show cause why the plant and machinery used in such manufacture ought not to be confiscated and why penalty should not be levied. Replies were sent by the appellants contending that no duty was payable in respect of the coffee-chicory blend and that, in any event, the quantum of such manufacture and clearance each year was far less than the quantum prescribed under notifications in force and therefore there had been no contravention of the Central Excise provisions and that in any event the major portion of the demand would be time barred as the larger period of limitation was not available to the Department, these defences were over-ruled and the Collector of Central Excise, Bangalore, under his order dated 22-9-1986, confirmed the duty demand, confiscated the plant and machinery subject to redemption on payment of Rs. 5 lakhs and imposed a penalty of Rs. 5 lakhs on the 4th appellant and Rs. 1 lakh each on appellants 1 to 3. It is against the said order that these 4 appeals have been preferred.
2. We have heard Shri V. Sridharan, C.A. for the appellants and Shri K.C. Sachar for the Department.
3. Admittedly the 4th appellant owns and runs a factory at the Sarakki Industrial layout in which the roasting of coffee seeds is done. The 4th appellant owns, and ran, 4 outlets in different parts of Bangalore city wherein either coffee seeds or ground coffee powder were being sold, the seeds or the coffee powder being obtained from the factory. Each of these 4 sales units also ground the roasted coffee seeds and sold such freshly ground powder also to customers who required such freshly ground powder. For some time these 4 sale units were being managed and run by a private trust called shree Venkateshwara Trust, the management being again later handed over to the 4th appellant company. The case for the appellants is that during that period also the Trust used to receive the roasted seeds or ground coffee powder from the factory, 'mere is no dispute that in respect of such roasting of coffee seeds, or grinding thereof for conversion into powder, no excise duty is attracted. But it is admitted for the appellants that coffee-chicory mixture also used to be sold in these 4 units. Shri Sridharan does not dispute that in view of the decision in the case of Brooke Bond (1984 Vol. 15 ELT 32 A.P.) coffee-chicory blend would be an excisable product under Item 68 GET. But his contention is that such a coffee-chicory blend was being manufactured in each of the 4 sales depots which used to receive the chicory powder and, as when required by any particular customer, mix suitable quantities of the coffee powder and chicory powder for sale of such a blend to the customer and that since each of these 4 units was not a factory by itself the activity of blending did not result in manufacture of any excisable product. It is his contention that no such blending of the coffee powder and chicory powder took place in the factory and that even the said factory was not a factory as defined in Section 2(m) of the Factories Act. It is his further contention that, in any event, even taking the 4 units and the factory together as a single entity, the quantum of coffee chicory blend manufactured in each of the years in issue was less than the limit prescribed in the respective notifications governing each year and therefore no duty was payable.
4. As earlier stated, the case for the Department appears to be that coffee-chicory blend is manufactured in the factory and then sent to the 4 units while the case for the appellants is that the chicory powder would be sent direct from the seller to the four sales unit and blending was being done in the said units only. In any event, from the records relied on by the Department itself, the strength of workers in the factory and the four sales units appears to have been 8, 5, 2, 5 and 4 only and had, at no time equalled or exceeded 10 in any one of them. As earlier mentioned the contention of Shri Sridharan is that the factory and four sale units were independent places of manufacture and therefore the number of workers in all of them ought not to be clubbed but must be considered independently and, if they are so considered, none of them would be a factory as defined in the Act. The Collector had rejected this contention and had held that clubbing the workers in all the five the number of workers exceeded 10 and therefore the manufacture was in a factory, taking all the 5 establishments together as one for that purpose. The question therefore would be whether each of the 5 units will have to be considered independently for the purpose of deciding whether, for purpose of levy of Central Excise duty on the manufacturing activity of blended coffee-chicory mixture, each of them would be separate and the number of workers therein will have to be considered independently of each other or whether all of them have to be considered together as a single factory and number of workers in all of them should be clubbed to decide whether they were all engaged in the manufacturing activity in a single factory.
5. The Central Excises and Salt Act read with the relevant notification makes the manufacturing activity of goods falling under Item 68 GET an excisable activity if the same is carried out in a factory and duty therefore becomes liable to be paid on the manufacture of such goods. The factory for the said purpose is mentioned to be a factory as defined in the Factories Act. Section 2(m) of the Factories Act reads that factory means any premises, including the precincts thereof, whereon 10 or more workers were working on any day of the preceding 12 months and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on. The question would therefore be whether the words "any premises including the precincts thereof" would take within its purview the factory in the industrial estate as also the *f sale units at different parts of the city in order to constitute all of them into a single factory. Shri Sridharan contends that it would not be so since, according to him, a factory will have to have an identifiable geographic location within limited boundaries though it would not merely be the building within that boundary but precincts of the building also that would constitute the factory. Therefore, according to him, the 5 distinct units, separated by several Kms. from each other, would not constitute a single factory.
6. This issue, in the said form, has not been specifically considered in the order of the Collector since, evidently, this was not put in this form in the submissions before him. His order mainly deals with the issue whether the 4th appellant firm is distinct from Shri Venkateshwara Trust or the two are but one, the trust having been created merely as a tax avoidance device. On this issue, whether two premises separated from each other could or could not constitute a factory, there are some decisions though they are not under the Factories Act but under the Employees State Insurance Act. But that may not be a very relevant circumstance for distinction since the question under consideration in the said decisions was also as to what would be a factory, as defined in that Act and the Factories Act. For instance it was held by the Madras High Court in N.V. Radhiah and Bros. v. E.S.I. Corporation (AIR 1967 Madras 111) that where the manufacture of iron safes was carried on in one place and the painting work of such safes was done in a different place, both would form an integral part of the same factory, though they were separated by quite a distance. That was on the basis that the painting work is part of the manufacturing work of the safes or incidental thereto, since the manufactured iron safe would not be a finished product until it is painted. That is to say, the High Court held that if the work carried out at the two different places are so interconnected that the work of manufacture would not be complete without the activity at both places, the two places would together constitute a factory for the purpose of that manufacturing activity, though the places may be at some distance from each other. Similarly the Punjab High Court held in the case of Dharampal Agarwal v. E.S.I. Corporation (31 FJR 82) that it is not necessary that all the buildings including the precincts in which the manufacturing process of a factory is being carried out should be contiguous or should be located in the same compound and that it is only necessary that the work carried on in different buildings, including the precincts, should be interconnected and conducted by the same person. It was held by the Allahabad High Court in the case reported 1972 Allahabad Weekly Reporter 498 that where table lamps are manufactured at one workshop and polished in another workshop in a different place both places together constituted a factory. The principle of these decisions is that a factory would be normally in one premises, including the precincts, or in different places within one compound, but that there may ,be cases where the owner may run the factory in units located at different places provided it is found that the work carried on in all these different buildings at different places is interconnected and conducted by the same person and the manufacture would not be complete in the absence of work in any of the units.
7. In the present instance there is no dispute that the excisable activity is the product of mixing coffee and chicory powder. It is only if the said activity is carried out in a factory as defined in the Factories Act that the resultant product (Chicory-Coffee powder blend) would become liable for excise duty. If it is held that the entire mixing is done in the factory in the Industrial Estate and it is merely sold in the other 4 depots, the manufacturing activity should be held to have been carried on in that place in the Industrial Estate which is a place where the number of workers has always been less than 10. In that event, the product manufactured therein i.e. coffee-chicory powder, would not be liable to excise duty. Similarly even if the blending of coffee powder and chicory is carried out in each of the sales units it has to be considered whether anyone or more of them would be a factory. It has been seen that the number of workers in any of them never equalled or exceeded ten. This is not a case where one part of the manufacturing activity is carried out in one place and the other part or parts is carried out in one or more other places so as to constitute all the said places together into a factory in the light of the decisions cited earlier. To repeat, the only manufacturing activity is the mixing or blending of coffee powder with chicory powder and this does, and could, take place in a single place only, as there would be no occasion for the said single activity of blending being commenced at one place and completed at another place. As earlier mentioned, the number of workers in the factory in the Industrial Estate, as well as each of the 4 sales units, had never equalled or exceeded ten. Therefore, none of them would be a factory even if a manufacturing activity is carried on therein with the aid of powder. In the circumstances though the manufacturing activity of blending of coffee and chicory powder carried out at each of the said places would be an excisable activity (in view of the decision in the Brooke Bond case) attracting Item 68 CET, the resultant blended product would not be liable to duty since each of the places of production would not be a "factory" for the purpose of the levy.
8. The fact that in proceedings under the Employees Provident Fund Act the number of workers had been shown to be the total of the workers in the five places is not relevant to the present issue since the coverage under that Act... 6 is with reference to the employer and not with reference to the place of work as a factory by itself. The coverage under the E.P.F. Act would be with reference to workers vis-a-vis the employer and hence all the workers in the different places would together by covered under that Act. But the dutiability of the product in issue depends on the number of workers vis-a-vis the place of work, as to whether that particular place of work would be a factory. As earlier seen neither the place in the Industrial Estate nor any of the sales units would be a factory as defined in the Factories Act.
9. In the above view it would be unnecessary to consider the other contentions of the appellants though some of them appear to be of real substance. For instance, the Collector has held that the entire product manufactured and sold by these four appellants was coffee-chicory blended mixture. Shri Sridharan contends that this finding is manifestly wrong since the major product manufactured and sold was plain coffee powder, the manufacture and sale of the blended mixture being of a small percentage of the entire sales. In this connection he relies on records relating to the purchase of chicory during the entire period and points out that as the chicory-coffee mixture is in the ratio of 10% or 20% of chicory and the balance of coffee powder, the entire quantity of chicory consumed each year could not have produced chicory-coffee blend that would have exceeded the maximum limits laid-down under notifications governing exemption of such products. As already mentioned while this argument is certainly of some force it is unnecessary to go into the same in view of the earlier finding.
10. In the result these appeals are allowed and the order of the Collector is set aside.