Customs, Excise and Gold Tribunal - Delhi
Taggas Industrial Development Ltd. vs Collector Of C.E. on 31 October, 1988
Equivalent citations: 1989(20)ECC59, 1989(20)ECR139(TRI.-DELHI), 1989(39)ELT151(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. The facts of the case, in brief are that the appellants manufactured Organic Surface Active Agent under the brand name of 'Mig detergent bar' and 'Spa Detergent Cake' classifiable under Tariff item 15AA of the First Schedule to the Central Excises and Salt Act, 1944, under an agreement with M/s. Kusum Products Ltd. and availed duty exemption under Notification No. 83/83-C.E., dated 1.3.1983 and removed the goods without payment of Central Excise duty. The agreement between M/s. Kusum Products Limited and the appellants, under which the goods were manufactured, contained, inter alia, the following stipulations :
(i) that the party should manufacture 'the goods' and should use the raw materials according to the specification laid down by M/s. Kusum Products Ltd. from time to time;
(ii) that the party should affix the Brand name of the goods and also pack the same in wrappers and boxes as per specification laid down by M/s. Kusum Products Ltd.;
(iii) that the party should ensure that the goods supplied to M/s. Kusum Products Ltd., conform to the qualities and specifications prescribed by them. M/s. Kusum Products Ltd. may arrange technicians to be deputed to the manufacturing premises of the party for quality control at any stage of processing or packing to maintain quality control;
(iv) that the party shall not claim any right or ownership, goodwill over the Trade Mark, Trade Name, Marking on label, Wrapper or packages or any of them which the party will be applying or use on the goods; and
(v) that the selling price of spa cakes (125 grams) should be Rs. 7,400/- per ton and Mig (150 grams) at Rs. 7,020/- per ton plus excise duty, sale tax and any other taxes or levies as applicable from time to time etc.
2. Notification No. 83/83-C.E., dated 1.3.1983 exempted the goods described in the table below the Notification and falling under Tariff items mentioned against each description of the goods from the whole of central excise duty in respect of first clearances of the specified goods upto an aggregate value not exceeding Rs. five lakhs during a financial year by or on behalf of a manufacturer from one or more factories. For clearances exceeding the first clearances upto Rupees five lakhs duty was payable at the rate of 75% of the duty otherwise leviable if the aggregate value of the clearances did not exceed Rs. 25 lakhs. Paragraph 2 of the Notification stipulated that the exemption under that Notification would not be available if the aggregate value of clearances of all excisable goods for home consumption :
(i) by or on behalf of a manufacturer, from one or more factories; or
(ii) from any factory, by or on behalf of one or more manufacturers.
had exceeded rupees twenty-five lakhs in the preceding financial year. In the impugned order, the Additional Collector has held that the conditions imposed as per the agreement and checks as laid down by M/s. Kusum Products Ltd. from time to time and other binding limitations regarding right of ownership over the trade names, marking on the labels, wrappers and packages clearly establish that M/s. Kusum Products Ltd., are dejure manufacturer of the Synthetic Detergent under Rule 174 and the appellants manufacture these Synthetic Detergent on account of M/s. Kusum Products Ltd. He has also held that since the aggregate value of clearances on behalf of M/s. Kusum Products Ltd. was higher than Rs. 25 lakhs in the preceding financial year 1982-83, the appellants were liable to pay duty on their entire production and they were not eligible for exemption under Notification No. 83/83-C.E., dated 1.3.1983. The Additional Collector has further held that the appellants did not disclose the fact that they were manufacturing the goods under the brand name of M/s. Kusum Products Limited under an agreement and this was done with an intention to avail of partial exemption under Notification No. 83/83-C.E. He has held the view that the appellants suppressed the fact by not mentioning it clearly in the classification list that the goods were manufactured on account of M/s. Kusum Products Limited. He has held that under Rule 9(1) of the Central Excise Rules, the goods were required to be removed after payment of duty leviable thereon. As the benefit of exemption Notification was not available to the appellants, the goods actually attracted full duty and since these were cleared at Nil rate of duty, the appellants did not discharge all the obligations and liabilities cast upon them under Rule 9(1) read with Rule 52A and Ors.. He has, therefore, held that the goods were removed in contravention of Rule 9(1) inviting the mischief of Rule 9(2) of the Central Excise Rules both for demanding duty and for imposition of penalty. Although Rule 9(2) has been invoked by the Additional Collector, he has not imposed any penalty under Rule 9(2) and 173-Q of the Central Excise Rules. He has only demanded duty for 6 months under Rule 9(2).
3. Arguing for the appellants, Shri N.C. Chakraborty, learned Consultant has contended that the appellants are independent manufacturers. The goods, though manufactured according to the specification laid down by M/s. Kusum Products Limited and in terms of the agreement signed between the two parties, were sold by the appellants to the latter on principal to principal basis. As such, the goods manufactured and cleared by the appellants should not be added to the goods cleared by M/s. Kusum Products Limited. If the products of M/s. Kusum Products Limited are not clubbed together with the products of the appellants, the value of the clearances of the appellants remains within the limit of Rs. 5 lakhs and hence benefit of exemption under Notification No. 83/83-C.E. was admissible to them. In support of his contention, the learned Consultant has relied on the following decisions :
(i) 1985 (22) ELT - 302 (S.C.), Union of India and Ors. v. Cibatul Limited.
(ii) 1984 (16) ELT 415 (Tribunal) Mis. Lucas Indian Service Limited. v. Collector of Central Excise, Madras.
(iii) 1985 (22) ELT 758 (Madras) P.M. Abdul Latif Proprietor, Paragon Industries and Ors. v. Assistant Collector of Central Excise and Ors..
(iv) 1986 (25) ELT 423 (Tribunal), Shakti Udyog, Jallandharv. Collector of Central Excise, Chandigarh.
4. The second contention of the learned Consultant is that duty has been demanded by the Additional Collector under Rule 9(2) of the Central Excise Rules. Clandestine removal was not alleged in the show cause notice, but in the adjudication order, the Additional Collector has brought in the charge of clandestine removal. He has further stated that the goods were cleared under gate passes. Classification lists were filed and approved by the Central Excise Officers. Therefore, Rule 9(2) was not applicable in this case. In support of this contention, learned Consultant has relied on the following decisions :
(i) 1977 ELT (J-193) (Madras), Murugan & Company, Pudukottai v. Deputy Collector of Central Excise, Tiruchirapalli and Ors.
(ii) 1978 ELT (J-180) (Cal), Union Carbide Co. Ltd. v. Assistant Collector of Central Excise and Ors..
(iii) 1986 (24) ELT 671 (Cegat), Bridge and Roof Co. (I) Limited, v. Collector of Central Excise, Calcutta.
5. Shri Doiphode, for the respondent, has argued that clause (ii) of paragraph 2 of the Notification No. 83/83-C.E. was not there in the decisions cited by the learned Consultant. Five clauses of the agreement enumerated in paragraph 2 of the Order-in-Original clearly show that the goods were manufactured by the appellants on behalf of M/s. Kusum Products Limited. As the aggregate value of clearances of Kusum Products Limited and the appellants taken together exceeded Rupees twenty-five lakhs in the preceding financial year, the exemption from duty under Notification No. 83/83-C.E. was not available. Duty has, therefore, been correctly demanded by the Additional Collector in pursuance with the show cause notice dated 9.5. 1984. He has also argued that as stated by the learned Consultant the period covered by the show cause notice was 23.11.1983 to 31.3.1984, i.e. within the normal period of six months as for demanding duty. The learned S.D.R. has, therefore, argued that duty demanded by the Additional Collector is perfectly in order.
6. We have considered the records of the case and the arguments of Shri Chakraborty and Shri Doiphode. Shri Chakraborty has cited several decisions in support of his contention that the appellants did not manufacture the goods for and on behalf of M/s. Kusum Products Limited and that they manufactured the goods on their own behalf and sold the same to the latter on principal to principal basis. In Cibatul Limited (Supra) -1985 (22) ELT 302 (S.C.) decided on 27.9. 1985, Hon'ble Supreme Court has held that the goods produced with buyer's trade mark cannot be said to be belonging to buyer nor the seller can be said to have manufactured goods on behalf of the buyer. In that case, according to the agreement between the buyer/customer and the seller/manufacturer the goods were to be produced by seller in accordance with a manufacturing programme drawn up jointly and goods were to be manufactured in accordance with the restrictions and specifications constituting the buyer's standard. The goods were to be supplied at prices agreed upon between the seller and the buyer from time to time. Further, the buyer was entitled to test sample of each batch of the goods, and goods were to be supplied only after approval. Seller was authorised to affix buyers' trade mark on the goods produced under the agreement. The Supreme Court has held that the buyer in that case could not be treated as manufacturer of the goods nor could it be said that seller was producing the goods not on his own account but on account of the buyer. In the case of M/s. Lucas Indian Service Ltd., this Tribunal held that second Company which manufactured the goods was an independent unit and was not a dummy company, The supplier of raw materials to the company was not the manufacturer. In the case of P.M. Abdul Latif Proprietor, Paragon Industries and Ors. 1985 (22) E.L.T. 758 (Madras) the petitioners were small scale industrial units manufacturing goods falling under Tariff Item 68 of the Central Excise Tariff. The raw materials were supplied by large consumers, and the goods were made according to the specifications of those large consumers on the payment of conversion charges. Notification No. 176/77-C.E. was involved in that case. Notification exempted T.I. 68 goods, the clearances of which did not exceed specified limits, under specified conditions. The Hon'ble High Court allowed the benefit of the Notification to the petitioner. The learned Consultant, in the present case, has argued that the wording of Notification No. 176/77-C.E. was similar in language to the Notification No. 83/83-C.E. In Shakti Udyog, Jallandhar v. Collector of Central Excise Chandigarh, reported in 1986 (25) ELT 423 (Tribunal), the appellants brought utensils manufactured by four outside units out of the stainless steel sheets supplied by the appellants. Tribunal held that the utensils were manufactured by the four independent units and they were the manufacturers of the utensils as envisaged by Section 2(f) of the Central Excises and Salt Act, even though the appellants therein were the owners of the goods.
7. On the question of clandestine removal, learned Consultant for the appellants has relied on three decisions in support of his contention that there was no clandestine removal by the applicant. In Murugan & Company, Pudukottai v. Deputy Collector of Central Excise, Tiruchirapalli and Ors., reported in 1977 ELT (J 193), it is held that In cases where a particular manufacturer goes on producing certain articles under the bona fide impression that the goods are not excisable goods and the departmental authorities also do not take any steps for bringing the goods under the excise levy as per Rule 9(1), the authorities cannot invoke Rule 9(2) on the ground that the goods have been cleared without payment of excise duty. The contention of the learned consultant is that the appellants, in the present case, were under the bona fide belief that they were the manufacturers of the goods and since their clearances did not exceed Rs. 5 lakhs they were not liable to pay any central excise duty under the notification cited earlier in this order. In 1978 ELT (J 180) in the case of Union Carbide Co. Ltd. v. Assistant Collector of Central Excise and Ors., it was held by the Calcutta High Court that unless there was an element of evasion meaning deliberate non-payment with the knowledge of the fact that duty was payable, Rule 9(2) could not be attracted. The learned Consultant has argued that there was no deliberate evasion of duty in the present case and hence according to the ratio of this judgment of Calcutta High Court, Rule 9(2) could not be applied. The third decision on this point relied on by the learned consultant is reported in 1986 (24) ELT 671 (Tribunal) in the case of Bridge & Roof Co. (I) Limited v. Collector of Central Excise, Calcutta. In that case, the assessees filed classification lists and the same were approved by the Department. There was no allegation of clandestine removal or mis-declaration in the show cause notice. Tribunal held that there was no clandestine removal to attract Rule 9(1) of the Central Excise Rules as the excise authorities were not kept totally in dark about the manufacture and removal of the goods. The learned consultant for the appellants has stated that in the present case there was no allegation of clandestine removal in the show cause notice, the goods were cleared under gate passes and classification list was filed by the appellants and approved by the Department. Therefore, following the aforesaid decisions of the Tribunal, the findings of the Additional Collector in the present case that there was clandestine removal of the goods by the appellants, should be struck down.
8. The agreement between the appellants and the buyers of the goods which appears to be the basis of the Additional Collector's order does not say that the appellants were manufacturing the goods in question on behalf of the buyers M/s. Kusum Products Limited. The five points mentioned in paragraph 2 of the impugned order show that the raw materials used by the appellants were according to the specifications laid down by buyers M/s. Kusum Products Limited and the goods were to conform to the quantity and specification prescribed by the buyers. The appellants were to affix brand name on the goods and, the packing materials and boxes as per specification laid down by the buyers. There was also a stipulation about the selling price of the goods. None of these points prove that the appellants manufactured goods on behalf of M/s. Kusum Products Limited. On similar facts in the case of Cibatul Limited (Supra), reported in 1985 (22) ELT 302 (S.C.), Hon'ble Supreme Court held that the buyer could not be treated as manufacturer nor the seller could be said to have produced the goods on behalf of the buyer. It was held the Hon'ble Supreme Court that the seller manufactured the goods on his own and not on behalf of the buyer. The same ratio should apply in the present case also. Following this ratio, we, therefore, hold that in the present case the appellants were the manufacturers of 'Mig detergent bar' and 'Spa detergent Cake' and they were not manufacturing these products on behalf of M/s. Kusum Products Limited. In the result, the clearances of the appellants cannot be added to the clearances from the factory of M/s. Kusum Products Limited. Admittedly, the clearances of the appellants were less than Rs. 5 lakhs as stipulated in the Notification No. 83/83-C.E., dated 1.3.1983. Consequently, the appellants were entitled to the benefit of that notification.
9. As regards the second point, viz., clandestine removal, it has been argued before us that the classification list was filed by the appellants and the same was approved by the Department. The goods were also cleared under gate passes. The Additional Collector has held that the appellants were guilty of suppression of fact on the ground that in the classification list, they did not mention that they were manufacturing the goods on behalf of M/s. Kusum Products Limited under an agreement. The appellants have contended that they were manufacturing the goods on their own and not on behalf of M/s. Kusum Products Limited. In the light of our findings on the first point as in the preceding paragraph, there is nothing to hold that the appellants were to mention in the classification list that they were manufacturing the goods on behalf of M/s. Kusum Products Limited. The decisions relied on by the learned counsel, as discussed herein earlier, also support the appellants' contention that there was no clandestine removal of the goods by them. In view of these discussions, we hold that there was no clandestine removal of the goods in this case. Since the appellants were not liable to pay duty because of exemption Notification No. 83/83-C.E., the demand for duty is not sustainable and hence, the same is to be set aside on the merit of the case. We order accordingly.
10. In view of the above discussions, we set aside the impugned order and allow this appeal.