Customs, Excise and Gold Tribunal - Delhi
B.S. Rajasekar vs Collector Of Central Excise on 21 August, 1991
Equivalent citations: 1992(40)ECC20, 1992ECR197(TRI.-DELHI), 1993(63)ELT369(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. This appeal arises out of and is directed against the Order-in-Original No. 43/83 dated 26-12-1983 passed by the Collector of Central Excise, Bangalore.
2. The point to be considered in the present case is whether mere supply of raw materials to other units for the manufacture of the goods will make the raw material supplier as manufacturer.
3. The facts of the case, in brief, relating to this issue are that the appellant is a sole proprietor of M/s. Vidyuth Engineering Company and also a partner in M/s. Trishul Enterprises and M/s. Gayathri Equipments, carrying on business of supplying steel furniture to the Health Department of Government of Karnataka. Initially it was charged that all the three concerns have manufactured steel furniture and parts thereof and supplied to the Department and got manufactured through other small scale units, viz., M/s. Manchu Industries, M/s. Kripal Industries, M/s. Balamurugan Steel Furniture Works, and M/s. Karnataka Small Industries out of raw materials supplied by these three concerns. After considering the defence and in view of the finding of the High Court of Karnataka that these three concerns are independent legal entities. It was accepted by the Department that they are separate and independent legal entities so far it relates to supply of goods to the Department of Government of Karnataka. But on point of manufacture of the goods it was observed that there is no evidence to show that M/s. Trishul Enterprises and M/s. Gayathri Equipments had got manufactured steel furniture on their behalf, but there is sufficient evidence to show that M/s. Vidyuth Engineering Company (appellant) only had supplied raw materials to four units and got steel furniture manufactured on their behalf. The Collector who adjudicated the proceedings held that the appellant is the manufacturer of Steel furniture and parts of steel furniture without a Central Excise licence and removed the said goods without issue of gate passes and also without payment of central excise duty. Accordingly, he ordered for confiscation of the seized goods subject to redemption fine of Rs. 3,00,000/- under Rule 173Q(1) of the Central Excise Rules, 1944. He also imposed personal penalty of Rs. 1,00,000/-. The other units were also imposed penalty of Rs. 1,000/- each, for having manufactured the steel furniture in their premises without central excise licence and evaded duty on behalf of the appellant.
4. Shri B.B. Gujral, learned Advocate, for the appellant, submitted that since there is a charge against the appellant and other units for having manufactured the same commodity, the order is not sustainable as both the parties cannot be considered to be the manufacturers of the very commodity. He said that the four units are small scale Industries which are situated in distinct places owned by different persons having their own establishments. Since they are independent contractors and mere supply of raw materials by the appellant and got it manufactured on payment of job charges will not make supplier of raw material as manufacturer as it was held by the Tribunal in similar cases. He said that the view of the Tribunal in the case of Kerala State Electricity Board v. Collector of Central Excise 1990 (47) E.L.T. 62 was affirmed by the Supreme Court as reported in Court Room Highlights in Page A-161 of the very issue. He referred to the decision in the case of Union of India and Ors. v. Cibatul Ltd., 1985 (22) E.L.T. 302 where Supreme Court expressed the similar view and said that latest decision on this point is that of Karnataka High Court in the case of Applied Industrial Products Private Ltd. and Anr. v. Collector of Central Excise, Bangalore 1991 (32) ECC 104 within whose jurisdiction the appellant unit is situated. He also cited following decisions in support of his contention :-
(1) Super Printers v. Collector of Central Excise, Hyderabad - 1987 (30) E.L.T. 745 (Tribunal).
(2) Bhagwan Das Kanodia and Ors., Bombay v. Collector of Central Excise, Bombay -1987 (32) E.L.T. 204.
(3) Metal Box India Limited, Calcutta v. Collector of Central Excise, Calcutta -1986 (23) E.L.T. 187.
(4) Collector of Central Excise, Madras v. Modoplast (P) Ltd., Coimbatore - 1985 (21) E.L.T. 187 (Tribunal).
5. Shri M.S. Arora, learned JDR, appearing for the Revenue, justified the action of the Department in treating the appellant as a manufacturer in view of the statement given by the appellant that the goods were manufactured by the four units on behalf of M/s. Vidyuth Engineering Company only and the statement of concerned persons of other units also revealed that they have manufactured at the instance of B.S. Rajasekar, Proprietor of M/s. Vidyuth Engineering Company on labour contract. They have also admitted that the steel furniture and parts of steel furniture manufactured by them were from the raw materials supplied by M/s. Vidyuth Engineering Company and that they have returned the goods to M/s. Vidyuth Engineering Company only under their delivery challans. He said since the units worked as hired labourers on job work basis the definition of manufacturer is comprehensive enough to include the appellant in its scope relying upon the decisions of the Supreme Court in the case of Shree Agency AIR 1972 SC 780 and Bajrang Capital Gajabi 1986 (10) ECC 160 SC.
6. We have carefully considered the arguments advanced on both sides and perused the records including citations. On going through the case law we find that the issue involved in this case is well covered and considered in the decisions cited on behalf of the appellant. In the present case the appellant was charged as a manufacturer of the excisable goods and fixed the liability on him in respect of the goods manufactured by four units viz., M/s. Manchu Industries, M/s. Kripal Industries, M/s. Balamurugan Steel Furniture Works and M/s. Karnataka Small Industries on the ground that all the four units have manufactured the goods on behalf of the appellant out of the raw materials supplied by him. Section 2(f) of the Act deals with this situation as it was defined that the word 'manufacture' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his Own account. Accordingly, a person can be deemed to be manufacturing for or on behalf of another in two contingencies, namely, when they are employees of the another or their Agents. In the instant case, sufficient evidence was brought on record to show that raw materials was supplied by the appellant to other units for the manufacture of the goods. But that itself is not sufficient to hold that appellant was a manufacturer. Mere supplying the raw materials to other manufacturing unit or units for the manufacture of the goods will not make the raw material supplier as manufacturer if dealings are on Principal to Principal basis and the units are not faked or dummy. Since all the four units are independent and have distinct identity having different management, having no control or supervision upon the other, they cannot be said to be the employees or Agents of the appellant. To hold that they have manufactured on behalf of the appellant the Department must prove that the job workers were not manufacturers on their own account and that such arrangement was entered into between the assessee and the job workers to evade payment of duty. We do not find such evidence and Department did not establish that any or all the job workers who supplied the goods to the assessee after the process of manufacturing were not manufacturers on their own account and that they were mere dummies or were bogus concerns. The decisions cited by the Departmental Representative are not applicable to the facts of this case as there was sufficient evidence in the case of Shree Agency AIR 1972 SC 780 that it was the actual manufacturer of cotton fabrics through the agency of powerloom weavers and got manufactured on their behalf and in the latter case of Bajrang Gopilal Gajabi 1986 (25) E.L.T. 609 (SC) it was a case of manufacture of cloth by power-loom owners who were employed by Assessee to weave the cloth and return it to the Assessee. The earlier view of the Supreme Court that the definition of the word 'manufacture' in Section 2(f) do not equate 'processing' to manufacture and mere processing of goods is not liable to excise duty in the case of Delhi Cloth & Gen. Mills Co. Ltd., 1977 (1) E.L.T. (J 199) has also been distinguished in the latter case Cibatul Ltd., (Supra) holding that any person who engages in their production or manufacture on his own account cannot be said to have manufactured on behalf of other. It also observed that according to Section 2(f) of the Act, "any person who engages in their production or manufacture on his own account" is a manufacturer. Further, this issue was well considered by the Tribunal in the case of Super Printers v. Collector of C. Excise, Hyderabad 1987 (30) E.L.T. 745. The facts of that case in brief and findings therein are as follows :-
"The appellants were functioning as printers even before the contract with ITC was entered into which establishes that the appellants are functioning independently of ITC, the relationship between the two being only of raw material supplier and manufacturer of the final product, each dealing with the other as principal to principal. Except to the extent that the printing of cigarette slides for ITC was to be done by the appellants to the specifications and printing details laid down by the ITC, with a right of rejection in the ITC for sub-standard material, M/s. ITC has no right of control and supervision over day to day work of the appellants. The supply of the board, ink and slide bromides, as well as the first set of cutting and creasing rollers and printing gluts, by the ITC was for the reason that the work to be done by the appellants on that material was to manufacture a product suitable for the ITC only. Hence supply of these materials would not amount to ITC having control over the manufacturing activities of the appellants. The absence of sale of raw material to the processor and the sale of the manufactured product by the processor does not mean that the raw material supplier viz. ITC would be the actual manufacturer and not the processor."
7. Following the ratio of the earlier decisions and in view of the facts and circumstances of the case, we hold that appellant was not the manufacturer in respect of goods manufactured by the other independent units and, accordingly, he was not liable to pay duty, fine or penalty in respect of the same. This appeal is allowed accordingly.