Customs, Excise and Gold Tribunal - Calcutta
Gtc Industries And Ors. vs Commissioner Of Central Excise on 28 April, 2005
Equivalent citations: 2005(101)ECC25, 2005(192)ELT1076(TRI-KOLKATA)
JUDGMENT V.K. Jain, Member (T)
1. These appeals have been filed by the above-captioned appellants against a common Order-in-Original: CCE/Shillong No. 10/2003 dated 29.12.2003 passed by Commissioner of Central Excise, Shillong. Vide his impugned Order, the Commissioner Central Excise, Shillong confirmed the demand of duty of a sum of Rs. 15,86,736 (Rupees fifteen lakh eighty-six thousand seven hundred and thirty-six) against the main appellant company, M/s. GTC Industries Ltd., alongwith the imposition of penalty of Rs. 10.00 lakh (Rupees ten lakh) under Rule 209A of the Central Excise Rules, 1944. In addition, seized cigarettes manufactured and cleared by M/s. North Eastern Tobacco Co. Ltd. (hereinafter referred to as N.E.T.) from their factory situated at Mizoram, had been ordered to be confiscated. As the same were not available for confiscation having been sold, the Commissioner had ordered the sale proceeds to be appropriated. Further, penalties have been imposed upon the various persons.
2. A very short point is involved in the matter. The dispute, whether the cigarettes in question carrying the brand name of M/s. GTC and manufactured in the factory of M/s. NET are to" be held to be manufactured either by M/s. NET, or by M/s. GTC who entered into an agreement with M/s. NET for use of its brand name and for setting up of its factory. The main appellant company contended that the factory at Mizoram was set up by M/s. NET, though with the help of M/s. GTC. The findings of the Commissioner were that M/s. GTC were the real owner of the same. Thus, the total duty was required to be paid by M/s. GTC.
2.1. As per facts on record, M/s. NET was initially a Proprietory Concern. On 1.10.87, M/s. NET was re-constituted as a Partnership Firm of two Mizo Partner. Another company, M/s. North East Star Pvt. Ltd. also made a financial investment in M/s. NET. Power of Attorney was given to Shri A.K. Sukhani, Director of M/s. North East Star Pvt. Ltd. alongwith the earlier Proprietor of M/s. NET, Shri Richad Sailo. M/s. NET manufactured cigarettes in their factory with-effect from 19.10.87. The said unit manufactured and cleared cigarettes to one M/s. Golden Investment (Sikkim) Pvt. Ltd. (hereinafter referred to as GSIL), without payment of Central Excise duty on the understanding that the Central Excise duty was not applicable to Mizoram. The cigarettes sold by M/s. Net to M/s. GSIL, were further sold by them to various customers. However, the same were seized by the Central Excise Officers. The total value of the seized cigarettes is to the tune of Rs. 17,61,018.00 (Rupees seventeen lakh sixty-one thousand eighteen) involving a duty of Rs. 15,86,736.00 (Rupees fifteen lakh eighty-six thousand seven hundred and thirty-six).
2.2. The dispute about the applicability or otherwise of the Central Excise in regard to the Units situated in Mizoram, went up to the Hon'ble Supreme Court, and it was laid down that duty of Central Excise was required to be paid on the cigarettes manufactured in the Units situated in that area. As the dispute in this arena was finally settled, the facts relating to the same were not being reproduced so as to avoid any duplicacy. As already stated above, the dispute is as to who is required to pay duty and who is regarded as a manufacturer.
2.3. On conceiving the idea of setting up a factory in Mizoram, Shri A.K. Sukhani approached M/s. GTC for use of their brand name and to provide technical assistance and technical know-how. After initial discussions, a Collaboration Agreement between M/s. GTC and M/s. NET was executed on 1.10.87. This agreement envisaged that the manufacturer will purchase, acquire and own all machinery, plant and equipment and spares for its factory. However, in order to assist the manufacturer in establishing the factory, M/s. GTC agreed to provide to the manufacturer on loan, machinery for making cigarettes and also for packing them. It was envisaged that the loan of the machinery was a temporary arrangement and the manufacturers shall try to equip itself, with its own machinery and the machinery given on loan by M/s. GTC will be returned to them. There were also stipulations regarding quality control, use of the brand name, technical assistance in procuring the raw materials and also to provide technical staff to help in establishing the factory and in providing training to M/s. NET personnel. The consideration for all these services was a royalty, which M/s. NET was required to pay to M/s. GTC at the rate of Rs. 3 per 1000 cigarettes.
2.4. M/s. NET entered into another agreement with M/s. GISL, a subsidiary of M/s. GTC which provided that M/s. GISL will purchase the entire production of the cigarettes manufactured by M/s. NET. Subsequently, on the insistence of M/s. North Star, it was agreed that M/s North Star would purchase 25% of the stock and the remaining 75% would be purchased by M/s. GISL. M/s. North Star also took an intercorporate loan of Rs. 10.00 lakh (Rupees ten lakh) from M/s. GISL, a part of which was disbursed and used to set up the infrastructure of M/s. NET by Shri Sukhani. M/s. NET has its own factory premises and other infrastructure for establishing the factory. It also obtained the necessary registration from the Department of Industries, Mizoram. With all arrangements in place, M/s. NET started manufacturing cigarettes. It is to be noted that the whole manufacturing activity lasted for fifteen days and thereafter, the factory was closed and all the machines etc. were subsequently returned to M/s. GTC.
2.5. During the post-seizure investigations, statements of various persons were recorded, which highlighted the above agreement among the various companies. A show cause notice dated 29.4.88 was issued to the appellant alleging that M/s. GTC had conceived of setting up of a new cigarette manufacturing unit at Mizoram, with the financial arrangement of M/s. GISL, and had prepared a project report in this regard. It was also alleged that M/s. GTC had provided men and machinery and printed labels in their own press much before the date of Collaboration Agreement. It was also alleged that M/s. GTC had diverted clandestinely raw materials and other things even before signing of the Agreement. They were also instrumental in marketing the goods during the agreement with their subsidiary Unit, M/s. GISL. It was alleged that M/s. GTC was the actual manufacturer of the cigarettes and M/s. Net was only a front company.
2.6. The case was adjudicated by the Commissioner and the Adjudication Order was challenged before the Honourable Gauhati High Court. The Hon'ble High Court disposed of the Writ Petition of M/s. GTC, by observing as under:-
"The question which naturally was relevant and arose for consideration was that whether it was the NET which had wanted to set up the industry with technical collaboration of the petitioner. On careful consideration, we are inclined to take the view that in such rival contentious versions, the statements of the said three persons, who were said to be the persons who had set up the NET were undoubtedly necessary and important. It should be borne in mind that any effort to set up an industry in such areas would seldom succeed without technical collaboration and material assistance at least for some initial period. Whenever any such venture has to be established it being totally a new experience for the indigenous people necessary assistance in the shape of machineries, technical guidance, even man power with the requisite knowhow to set up the plant, to carry out and demonstrate the manufacturing proceses and to organize the entire industrial venture, has to be done and provided by persons with requisite expertise at the location where the people of the State or the area can gradually familiarize themselves with the loss, the process and gradually begin to take interest, require technical knowhow and also develop incontinently produce necessary raw material, in the instant case, tobacco leaves, etc. before it could really develop and have is own manufacturing unit. The fact, therefore, that the GTC had provided all necessary technical collaboration for only a little over a month or so, in the facts and circumstances of the case, were not the only factors to be taken into consideration to come to the conclusion that NET was a front company of the Petitioner. We think that unless at least the aforesaid persons were examined that matter could not have been properly understood and adjudicated. (emphasis supplied). We, therefore, think that the statement of the said persons were necessary for making proper objective assessment, from their statements that whether NET was a mere front company or that they had bonafide set up the manufacturing unit in collaboration with the GTC as was the petitioner's case. We have, therefore, no doubt that the statements of the said three witnesses who had set up the NET were necessary."
2.7. On an appeal against the above Order, the Hon'ble Supreme Court sustained the Order of the Hon'ble Gauhati High Court, and set aside that part of the Order directed the Commissioner to summon Shri Sailo and other two partners of M/s. NET. The Commissioner was directed to re-adjudicate the matter afresh.
2.8. On re-adjudication, the Commissioner again held that M/s. GTC was the manufacturer, and hence they are liable to pay duty. Accordingly, duty was confirmed against the said appellant company, and penalties were imposed upon the various persons. The said impugned Order is. before us in appeal.
3. We have heard Shri L.P. Asthana, learned Advocate alongwith Shri S.K. Mongia and Ms. Nisha Bagchi, both Advocates. Shri Asthana has submitted a synopsis of the case, which is taken on record. The main contention of Shri Asthana is as under:
3.1. Shri Asthana submits that the Commissioner has overlooked two very important aspects of the case. The assistance which M/s. GTC provided could be divided into two parts. Firstly, certain assistance was given only in the initial phase and was in the nature of a purely temporary arrangement. This consisted of providing machines and man-power given on loan for temporary use for a certain consideration. This aspect has come out clearly in the Collaboration Agreement dated 1.10.87. The machines provided by M/s. GTC on loan basis shall be on the condition that the "manufacturer" will not have any lien or charge on the machineries nor the manufacturer shall be entitled to make any lien or change in the said machineries except with the written permission of M/s. GTC. The loan of the machineries is a temporary arrangement and the manufacturer shall try to equip itself with its own machineries, machineries given on loan by M/s. GTC. The agreement further provides that GTC will arrange to send on a temporary basis personnel of M/s. GTC upon request by the manufacturer and at the manufacturer's cost for the purpose of training the manufacturer's employees. The manufacturer shall pay to M/s. GTC for technical and other personnel deputed by M/s. GTC with the manufacturer at the rates as are fixed or communicated by M/s. GTC to the manufacturer from time to time.
3.1.1. The second limb of the agreement provides for technical assistance as well as use of the brand name by the manufacturer on a continuing basis. It is a common practice legally recognised by various case laws of the Hon'ble Supreme Court and the Tribunal that when the owner of the brand name given permission to the manufacturer for the use of his brand name, he is entitled to certain safeguards such as the goods produced must be of certain quality and specifications commensurate to the brand name, that the manufacturer shall not sell the goods marked with such brand name to any other buyers and that the manufacturer shall maintain utmost secrecy about the technical assistance provided by the brand name. These safeguards do not make the brand name owner as the manufacturer. In this connection, M/s. GTC relies upon the decision of the Hon'ble Supreme Court in the case of Pawan Biscuit Company Pvt. Ltd., 2000 (70) ECC 653 (SC): 2000 (120) ELT 24(SC) read with the Tribunal's Order in this case reported in 1991 (53) ELT 595 (Tri).
3.2. The second most important aspect is that the agreement dated 1.10.87 repeatedly refers to M/s. NET as the manufacturer and M/s. NET has entered into the agreement with M/s. GTC as a manufacturer and not as a dummy. It is also clear from the agreement that M/s. GTC is not giving technical assistance or use of the brand name gratis. Clause 17 of the agreement clearly provides that manufacturers shall pay the royalty to M/s. GTC @ Rs. 3.00 per thousand cigarettes; the manufacturer shall pay to M/s. GTC for technical and other personnel deputed by M/s. GTC with the manufacturer at the rates as are fixed or communicated by M/s. GTC to the manufacturer from time to time. The agreement clearly envisages that the manufacturer shall purchase raw materials and packing materials. The agreement also provides for settlement of disputes and arbitration. Clearly, this is not a one-sided agreement. This is an agreement between two parties and lays down specifically the rights and obligations of each of the two parties. It is not the case of the Department that this agreement is not a real agreement or is only a facade.
3.3. GTC is not concerned with the second agreement between NET and GISL. Even though GISL is a subsidiary of GTC, nevertheless, it is a separate entity and it cannot be said that the arrangement between NET and GISL has been made to benefit GTC.
3.4. The learned Commissioner has rightly not applied the principle of lifting the corporate veil. Nevertheless, he has held that NET is a dummy. The Department has not examined either Shri Sailo or the two partners of NET who could testify whether NET belongs to them or to GTC. The Gauhati High Court has held that in the absence of any evidence of these three persons, it cannot be held that NET is a dummy. It is true, as has been held by the Hon'ble Supreme Court, that statement of these three persons could not be recorded or they could be cross-examined after they had been made co-noticees. But, they could certainly have been examined at the investigation stage, which the Department did not do. The Hon'ble Supreme Court did not accept the contention of the Union of India that even after excluding the evidence of these three persons, there was sufficient evidence to hold that GTC and not NET was the manufacturer.
3.5. The Hon'ble Supreme Court in the case of Mahindra and Mahindra reported in 2997 (57) ECC 179 (SC) : 1995 (76) ELT 481 (SC) and in the case of Mirah Exports reported in 1998 (59) ECC 219 (SC): 1998 (98) ELT 3 (SC) has held that "ordinarily the Court should proceed on the basis that the apparent tenor of the agreement reflects the real state of affairs and has to examine whether the Revenue has succeeded in showing that the apparent is not the real". Here, in the present case, the Department has not led any evidence to show that the terms of the agreement dated 1.10.1987 do not reflect the correct state of affairs and that the real position is otherwise. The burden of proving that the agreement dated 1.10.1987 does not reflect the real state of affairs was clearly on the Department which it has not discharged. On the other hand, the show cause notice and the order themselves rely upon both the aforesaid agreements to support their findings. It may be pointed out at this stage the GTC has a large number of franchise units all over the country and none of them are being regarded by the Central Excise Authorities as dummy or other than a principle in spite of the fact that they have more or less similar agreements with GTC.
3.6. There is no evidence to show that GTC had taken the initiative or conceived the idea of setting up a cigarette manufacturing until in Mizoram. The entire initiative was taken by Mr. Sukhani and Sailo who had obtained the certificate from the Government of Mizoram regarding non-applicability of Central Excise law in Mizoram. GTC on being approached, simply provided the assistance required for setting up the unit. But, it did not put itself in the position of the owner of the unit or ever regarded the unit as its dummy. Once the NET had decided to set up a cigarette manufacturing unit in Mizoram, GTC had agreed to provide assistance needed in view of the technical know-how and a reputed brand name it possesses. GTC had no administrative or accounting control over NET and there is a no commonality of any statutory registrations, bank accounts or premises. In fact, NET had 34 staff of its own. Further, North Star had asserted its right to 25% of the sales of NET in return for its investment. Thus, North Star had viable independent commercial interest in NET.
3.7. The finding of the Commissioner that partners of the NET were not involved directly or indirectly in any activities of NET except signing certain documents is based on no evidence. No such finding could be given without making any enquiries from the partners.
3.8. The learned Commissioner has held that GTC took a number of steps prior to the agreement dated 1.10.87 such as printing of labels, preparing of a technical feasibility report, diversion of certain raw materials and packing materials from NETCO, Gauhati to Vairengate. The Commissioner has overlooked that the certificate which Shri Sailo and Shri Sukhani had obtained from the Government of Mizoram is dated 7.8.87 and all the preparatory steps were started right from that date on the understanding that the Central Excise duty was not payable. This understanding may have been proved eventually incorrect. But that the issue was not free from doubt is clearly evident from the decision of the Gauhati High Court. GTC submits that they entered into a formal agreement only after all the preparatory steps had been taken and Sukhart & Sailo had decided to set up a cigarette manufacturing unit of their own. Therefore, to say that GTC was responsible for the creation of NET as a cigarette manufacturing unit, in view of the preparatory steps taken before 1.10.1987 is not correct. There is enough evidence on record to show that Shri Sukhani and Shri Sailo took the initiative in the matter and they decided to enter into cigarette manufacturing activity in Mizoram.
3.9. The Commissioner has also emphasised on the profitability aspect. In the first place, GTC was not making any profit other than the royalty because GISL was not obliged to sell the cigarettes to GTC (in fact they sold to other customers) and secondly even if GISL made more profit than NET, that did not make NET dummy unit. The learned Commissioner has lost sight of the fact that in most of the cases of manufacture on job work, the job worker who is regarded as manufacturer makes much less profit than his buyer. But for that reason, the job worker does not lose his status as a manufacturer and is not considered a dummy.
3.10. Although GTC provided various kinds of assistance to NET, it did not and could exercise any managerial or fiscal control over NET.
3.11. The Commissioner erred in holding that NET manufactured cigarettes on behalf of or on account of GTC, NET was an independent legal entity. GTC was merely providing collaboration facilities. The mere involvement of GTC as a collaborator from the initial stages is not sufficient to conclude the NET was a dummy of GTC. Sukhani was not working on the instructions of GTC but was a Director of North Star which had it own independent interests.
3.12. The Commissioner has imposed a penalty on GTC under Rule 209A of the Central Excise Rules. That rule does not refer to a manufacturer. The rule which is applicable to a manufacturer is Rules 209, 210 and 226, yet in the Order, penalty has been imposed under Rule 209A which implies that GTC is not being considered as a manufacturer.
3.13. A separate penalty has been imposed on NET which clearly demolishes the finding of the Commissioner that NETCO is a dummy. A dummy unit cannot be liable to pay a separate penalty. The Order, therefore, recognises NET as a separate identity and not a dummy unit. It is pertinent to note that even the Show Cause Notice itself raises the charge of collusion between NET and GTC.
3.14. Since GTC was not the manufacturer, it is not liable to pay excise duty.
3.15. In any event, there is no justification for imposing penalties on any of the persons. In its judgment and order dated 11.1.90, the Hon'ble Gauhati High Court has observed as follows:
"We are well aware that ignorance of law is no excuse. But we cannot shut our eyes to the peculiar Constitutional position of the North Eastern Region regarding applicability of Central and Provincial Act enacted before independence of this country. Even Hon'ble Supreme Court had difficulties to find out the applicability of the Assam Sales Tax Act, 1947 to a part of Shillong town known as 'Administered Area' [see Hardeodas Jaganath v. State of Assam, AIR 1970 SC 724 and also long title of the Meghalaya(Adoptation and Application of Laws) Act, 1971] We have also noted the controversy that arose regarding application of the Provident Fund Act, 1952 to areas falling within the Meghalaya under the Schedule to the Constitution and the matter was under the consideration before a Special Bench of this Court consisting of 5 Hon'ble Judges and we understand that the matter is still pending before the Hon'ble Supreme Court."
These observations of the Gauhati High Court clearly show that the whole question of applicability or non-applicability of the Central Excise Laws to Mizoram was a vexed question requiring interpretation of the Constitutional provisions and, therefore, consultation with the Central Excise Authorities, who are not experts in Constitutional law, could not have made anyone wiser. This is more so since even the Hon'ble High Court and the Hon'ble Supreme Court did not deem it fit to say the operation of the Certificates, which was quashed only on 11.1.90. The Hon'ble Supreme Court in the case of EID Parry (India) Ltd. reported in AIR 2000 (SC) 551 has held that where the correct position of law was in doubt and it is subsequently clarified by Court decision, no penalty ought to be levied. The Tribunal also in a number of decisions has taken the view that no penalty is warranted where the issue involves interpretation of law. Further, no penalty can be levied on the finding that GTC and its functionaries did not independently verify the applicability of the Central Excise Act to the State of Mizoram. The appellants, therefore, pray that the Order of the Commissioner be set aside both in regard to demand of duty from M/s. GTC and levy of penalties on M/s. GTC and various individuals.
4. Heard Shri R.N. Das, learned Senior Advocate alongwith Smt. Urmila Dutta (Sen), learned Advocate for the Revenue. Shri Das has read out extensively from the Annexure to the Show Cause Notice. He has submitted a Written Brief, which is taken on record. His main contentions are as follow:
4.1. On 1.10.1987, M/s. NET was formed as a partnership firm with two local Mizo people, having no financial resources and no experiences on manufacturing and sale of cigarette.
4.2. On 1.10.1987, M/s. NET, which was not in existence prior to this date, granted a General Power of Attorney in favour of Shri Ajoy Sukhani of M.G. Marg, Gangtak, Sikkim and the said Power of Attorney was witnessed by Mr. P.K. Chatterjee, who was a Director of M/s. GISL.
4.3. On 1.10.1987, an agreement was executed between M/s. GTC Industries Ltd., Mumbai and M/s. NET for manufacturing and sale of GTC brand cigarette. This agreement was signed by Mr. P.K. Chatterjee on behalf of GTC.
4.4. On 1.10.1987, another agreement was made between M/s. NET as manufacturer and GISL as the purchaser. By this agreement, M/s. NET agreed to sell 100% of GTC brand cigarette manufactured by M/s. NET to M/s. GISL. Mr. P.K. Chatterjee of M/s. GISL had signed the agreement concern.
4.5. It is submitted that the above transaction, which was made on 1.10.1987, involved many paper works and background arrangements, which must have been planned earlier. It is significant that Mr. P.K. Chatterjee of M/s. GISL/GTC submitted a report on 20.6.1987, mentioning about the setting up of a new unit at Vairenggate.
4.6. On 20.8.1987, Mr. P.K. Chatterjee submitted a project report stating the setting up of the unit under the code name of the place as "VICTORY' for Vairenggate. The project report of Mr. P.K. Chatterjee stated that the estimate of expenditure involved for the purpose of setting up of the factory would amount of Rs. 10 lac, which amount coincided with the loan sanctioned by GTC through GISL to North Star.
4.7. Further on 26.8.1987, minutes were drawn at the Board Meeting of M/s. GISL that the entire product of M/s. NET will be marketed by M/s. GISL. The records further show that on 26.8.1987, Mr. P.K. Chatterjee was given a Power of Attorney by M/s. GTC to sign the agreement with M/s. NET on their behalf.
4.8. On 23.9.1987, Mr. P.K. Chatterjee wrote a letter to Mr. J.P. Khaitan of GTC stating the godown was arranged at Silchar and Vairenggate.
4.9. On 23.9.1987, Mr. P.K. Chatterjee wrote a letter to Mr. J.P. Khaitan of GTC stating that godown was arranged at Silchar and Vairenggate.
4.10. On 25.9.87, Mr. P.K. Chatterjee intimated Shri Khaitan that Shri Sukhani had requested to support the project on war footing.
4.11. It is also submitted that the sequences of events led to the irresistible conclusion that M/s. GTC was the main force and in total control of setting up of the factory at Vairenggate and that M/s. GTC was on helm of the affairs. In view of the fact that M/s. GTC had financed and controlled the activities in the factory of M/s. NET by way of supplying plant and machinery and by engaging skilled and unskilled man power and also supplying the raw materials, technical knowhow, and brand name for the product and was the actual manufacturer of cigarette. It is also significant to note that the labels of the GTC brand cigarette manufactured at M/s. NET's factory, which were seized by the Department, contained the printed code number of M/s. GTC, Chennai factory.
4.12. Thus by applying the doctrine of "lifting the veil" as enunciated in the Hon'ble Apex Court's judgments reported in 1986 (3) SCC 230 and 1999 (99) ELT 202, it becomes clear that if the veil is removed. It will be seen that M/s. GTC was at the helm of affairs in setting up and running the unit at Vairenggate, from which it can be concluded that M/s. GTC was the actual manufacturer of cigarette at Vairenggate and M/s. NET was only a dummy.
5. We have heard both sides. We find that there was no dispute that cigarettes were manufactured and cleared without payment of duty and the same are liable to be confiscated. Since no duty has been paid, the demand of duty has to be confirmed. The question arises-- "against whom?" The Revenue's case is based upon the post-seizure investigations of the statements of the various persons to the effect that inasmuch as M/s. GTC were instrumental in setting up the unit and provided technical knowhow and were exercising complete quality control over the factory of M/s. NET, they are the real manufacturer of the goods in question. It is also a fact that the cigarettes were manufactured under the brand name of M/s. GTC for which a collaboration agreement existed and technical knowhow was provided by M/s. GTC to M/s. NET. It was also a fact that M/s. GTC gave a temporary loan, machinery, technical assistance in procuring the raw materials and even provided the technical staff with the sole purpose of setting up the unit. It has to be seen that all the above arrangement were a part of the said agreement, and were based on certain consideration. For all the services being rendered by the said appellant company, they were getting royalty @ Rs. 3.00 per thousand cigarettes from M/s. NET, as already observed by the Hon'ble High Court, as referred to above, that any effort, to set up an industry in such areas would seldom succeed without technical collaboration and material assistance at least for some initial period. Necessary assistance in the shape of machineries, technical guidance, even man-power with the requisite knowhow to set up the plant, to carry out and demonstrate the manufacturing processes and to organize the entire industrial venture, has to be done by the persons who are familiar with the things and persons. This is the exact position of M/s. GTC who seemed to have done. As M/s. NET were manufacturing cigarettes with the brand name of M/s. GTC, it was but natural for the said appellant company to be anxious about the quality of the product and as such, supervised the quality over the production. M/s. NET were a Partnership Firm. This fact has not been disputed by the Revenue. It is a well-settled rule that even in case of job-worker to whom all the raw materials are sent by the principal manufacturer, it is the job-worker who is responsible to pay duty of excise on the simple basic principle that one who actually manufactures, is a manufacturer. Shri L.P. Asthana, Advocate has submitted that in the case of Paswan Biscuit Company (P) Ltd. v. Collector of Central Excise, 1991 (53) ELT 595 (Tri), the Tribunal has held as follows:
"8. Shri Asthana appearing on behalf of the department submitted that the show cause notice alleges that the goods are manufactured by the appellants on behalf of the BIL. It is also alleged that the goods are manufactured according to the specification and quality of Britania and that the goods are only delivered to BIL who sells the goods in wholesale. It is also alleged that BIL are not buyers and they are getting the goods manufactured as per their own conditions and specification out of their own raw material with the help of labour and the machinery of the appellants. The appellants were requested to produce documents relating to overhead administrative charges and margin of profit. It is alleged that since the goods are manufactured by Pawan Biscuits on behalf of the BIL and since goods are not sold by Pawan Biscuits to BIL the assessable value should be the wholesale price of Britania. In reply to the show cause notice Mr. Asthana submitted, that the appellants did not furnish any documents as required. However, they invited attention to their so-called conversion agreement and claimed determination of the value on the basis of Supreme Court's decision in the case of Ujagar Prints. The Asstt. Collector on the basis of the terms of the agreement namely that the raw material is provided by BIL is kept in godown inside the premises of the factory of the assessee but the material remains under the charge of an officer of BIL who is posted within the factory premises of the appellants, whenever the assessee requires the material they gave a daily requisition slip to the said officer of the BIL who issued raw material; BIL exercised quality control over raw material and products and end-products; the assessee does not procure any raw material from outside; BIL has supervisory control over the manufacturing process; appellants are solely engaged in the manufacture of BIL products which are delivered on the instructions of the BIL; product plan devised by BIL; materials are received in the factory of the assessee on the challan, gate passes etc. consigned to BIL; the appellants have no discretion to alter any of the process or programme of the manufacture decided by BIL; BIL incurs insurance expenses on raw material and products and end-products; the documents on which raw materials are received remain in the custody of BIL etc., held that the judgment of the Supreme Court in Ujagar Prints is not applicable.
9. He also pointed out relying on the judgment of the Delhi High Court in Gilanders Arborthnot as Co. Ltd. v. UOI, 1989 (43) ELT 418] that the question as to who is manufacturer of the goods has to be decided taking all aspects into consideration. It would not be legally correct to take any one or two factors and then seek similarity with other cases. He further submitted that none of the cases relied on by the appellants all factors mentioned in various cases are present. He pointed out that in the case of Ujagar Prints the only factor present was supply of raw material. In cases of Food Spits., Siddho Sons, Playworld, and Cibatul, National Rubber & Playworld, the only factor present was the use of brand name, sale of entire production to the buyer and detailed quality specification. In the later cases the raw material was not supplied by the buyers. In the circumstances he submitted that much reliance cannot be placed on these decisions.
10. He further submitted that the present case involves a number of factors:
(i) Supply of raw material;
(ii) Use of brand name;
(iii) Title control over operation by the buyers;
(iv) Supply of equipments by the buyers for manufacture of goods such as cutters etc.;
(v) Vesting of profit in the buyer immediately on manufacture;
(vi) Number of restrictions and specifications subject to which the goods were manufactured; and
(vii) Obligation to BIL (Britannia Industries Ltd.) all accounts, records and other documents maintained by Pawan Biscuits."
5.1 However, on appeal, the Hon'ble Apex Court in the above case, has held that biscuits manufactured by the appellant company. M/s. Pawan Biscuits, were raw materials supplied by M/s. Britannia Industries Ltd. and after the biscuits were made, they were given back to or were delivered under the instructions of Britannia. In this connection, Hon'ble Supreme Court in the case of Pawan Biscuits Co. (Pvt.) Ltd. v. Collector of Central Excise, Patna, 2000 (120) ELT 24(SC), has held as follows:-
"16. The present case is similar to Ujagar Prints' case. In Ujagar Prints' case, it was the grey cloth which was given to the processor whereas in the present case it was the raw material for the manufacture of biscuits given to the appellant. After the biscuits are made, they are given back to or are delivered under the instructions of Britannia. The appellant was entitled to receive processing charges which include its expenses plus profits for the purpose of determining the excise value. However, the cost of the raw material supplied by Britannia will have to be included in addition to the appellant's manufacturing costs and profit. What cannot be included on the ratio of Ujagar Prints' case is any profit of Britannia or expenses which are incurred after the manufacture of the biscuits by the appellant. Despite repeated attempts made by the learned Counsel for the respondent, we are unable to distinguish this case from the raw material for the manufacture of biscuits given to the appellant. After the biscuits are made, they are given back to or are delivered under the instructions of Britannia. The appellant was entitled to receive processing charges which include its expenses plus profit for the purpose of determining the excise value. However, the cost of the raw material supplied by Britannia will have to be included in addition to the appellant's manufacturing costs and profit. What cannot be included on the ratio of Ujagar Prints' case is any profit of Britannia or expenses which are incurred after the manufacture of the biscuits by the appellant. Despite repeated attempts made by the learned Counsel for the respondent, we are unable to distinguish this case from the ratio laid down by this Court in the aforesaid two decisions of Ujagar Prints' case."
5.2. We find that in the case of Pawan Biscuits, it was held by the Hon'ble Supreme Court that M/s. Pawan Biscuits ate the manufacturer and not M/s. Britannia Industries Ltd. It may be noteworthy to mention here that the certificate from the Mizoram Government regarding the non-applicability of Central Excise duty was obtained by Shri Richard Sailo, Proprietor of M/s. NET. This clearly came out in the statements of Shri Sukhani recorded on various dates. Financial assistance was also provided by Shri Sukhani who was held responsible for marketing of 25% for the total production. Shri Sukhani was also instrumental in approaching M/s. GTC for a collaboration agreement and project report was prepared by M/s. GTC at the instance of Shri Sukhani. This fact will not tilt the case in favour of the Revenue. Similarly, supply of machinery, man-power on temporary basis and that too, against a consideration in terms of the collaboration agreement, by itself, are not sufficient to hold M/s. GTC as a manufacturer. The Hon'ble Supreme Court in the case of Mahendra and Mahendra, 1997 (57) ECC 179 (SC): 1995 (76) ELT 481 (SC) and in the case of Mirah Exports, 1998 (59) ECC 219 (SC) : 1998 (98) ELT 3 (SC), has held that "ordinarily the Court should proceed on the basis that the apparent tenor of the agreement reflects the real state of affairs and has to examine whether the Revenue has succeeded in showing that the apparent is not the real."
5.3. We find that in the present case, the Department has not brought any evidence to show that terms of the agreement dated 1.10.87 to not reflect the correct state of affairs and the real position is otherwise. The burden of proving that the agreement dated 1.10.1987 does not reflect the real state of affairs, was clearly on the Department, which has not been discharged by them. On the other hand, the show cause notice by way of relying upon the aforesaid agreement does not support the findings made in the Order passed by the Commissioner in the instant case.
5.4. We also find that in the case of Mirah Exports Pvt. Ltd. v. Collector of Customs, 1998 (59) ECC 219 (SC): 1998 (98) ELT 3 (SC), the Hon'ble Supreme Court has held as follows:
"Valuation-Undervaluation-Burden on Revenue to prove the charge-'Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real state of affairs' and what is to be examined is 'whether the Revenue has succeeded in showing that the apparent is not the real and that the price shown in the invoices does not reflect the true sale price'-Cited from 1997 (57) ECC 179 (SC) : 1995 (76) ELT 481 (SC) - Section 14 of the Customs Act, 1962 - Section 4 of Central Excise Act, 1944."
5.5. We also find that in the case of Union of India and Ors. v. Cibatul Limited, 1986 (8) ECC 45 (SC) : 1985 (22) ELT 302 (SC), the Hon'ble Supreme Court has held as follows:
"Manufacturer -- Brand Name/Trade Mark -- Manufacture on behalf - Goods produced under tripartite agreement with buyer's brand name - Buyer entitle to test sample of each batch and can reject sub-standard goods - Buyer company also holding 5% shares in selling company - Brand name originally belonging to third company permitting the buyer to use the same - Third company owning 30% shares in selling company - Buyer cannot be treated as manufacturer nor seller can be said to have produced the goods on behalf of buyer - Scope of expression, 'any person who engages in their production or manufacture on his own account' -- Section 2 (f) of Central Excises and Salt Act, 1944."
5.6. Further, we find that in the case of Vazir Sultan Tobacco Industries Ltd. v. Collector of Central Excise, Madras, 1996 (82) ELT 260 (Tri), the Tribunal has held as follows:
"Job worker whether Manufacturer - Exemption from duty and licensing - Goods produced as per customer's specifications on machines given on hire by customers - Raw material supplied by customer - Unit undertaking manufacture is an independent unit having licence for manufacture of slides under Central Excises and Salt Act, 1944 - Agreement between customers and job workers on principal basis - Job worker to be the actual manufacturer entitled to exemption under Notification. 77/83 and earlier Notification No. 105/80-CE - Customers not required to take out a licence in job worker's premises or authorise job worker to follow all central excise formalities as per Notification 305/77-CE., goods not being manufactured on behalf of customer - Section 2(f) of Central Excises and Salt Act, 1944."
5.7 For all the above discussions, we find that the finding of the Commissioner that M/s. GTC was the real manufacturer, is erroneous. It may also be seen here that penalty on M/s. GTC has been imposed under Rule 209A which does not apply to the manufacturer. Further, in spite of holding M/s. NET as a dummy unit, penalty has been imposed on it, thus recognising its existence and separate entity. Therefore, the penalty imposed on M/s. NET is hereby sustained.
5.8. In view of the above, we hold that M/s. GTC were not a manufacturer of the cigarettes in question, and hence not liable to pay any duty and therefore, they cannot be fastened with any penalty liability. As such penalty on M/s. GTC is held as unsustainable and no penalty can be upheld on any of its officers. We accordingly partly modify the impugned Order passed by the Commissioner.