Patna High Court
Steel City Beverages Pvt. Ltd. vs Union Of India (Uoi) And Ors. on 22 October, 1984
Equivalent citations: 1985(4)ECC238, 1986(23)ELT147(PAT)
JUDGMENT Satyeshwar Roy, J.
1. The petitioner, a private limited company, is a manufacturer of soft drinks in its factory at Adityapur in the district of Singhbhum. Initially it was manufacturing Coca (Cola) and Fanta Orange. It entered into an agreement on 25th December, 1977 with respondent No. 5, Modern Bakeries (India) Ltd. for manufacturing non-alcoholic beverage known as "77". The sole manufacturing, selling and distributing agent of the composition for preparation of "77" was respondent No. 5. The agreement entered into by and between the petitioner and respondent No. 5 is annexure 1 to the writ petition. According to the order dated 18th September, 1978 of respondent No. 2 contained in annexure 7, as the petitioner was manufacturing "77" for and on behalf of respondent No. 5, it was not entitled to exemption issued under Rule 8(1) of the Central Excise Rules, 1944 (the Rules) on 4th July, 1977 copy of the notification issued under that rule is annexure 2.
2. In this application, the petitioner has prayed for issuance of appropriate writ for quashing annexure 7 on the ground that in terms of annexure 1, the petitioner was itself a manufacturer of soft drink "77" and was not manufacturing it for and on behalf of respondent No. 5. It was, therefore, entitled to avail the exemption granted under annexure 2.
3. All the parties relied upon annexure 1 in support of their respective contention. The decision of this case will, therefore, depend on the correct interpretation of annexure 1 to find out whether the petitioner was a manufacturer of soft drink "77".
4. The petitioner has a factory in Adityapur and the same is registered under the Indian Factories Act, 1948, registration No. being 18540/SBM. The petitioner is solely responsible for the engagement and supervision of the employees for its factory and in every respect it has full control over the activities carried on at that factory. Before manufacturing "77" it was also manufacturing other soft drinks in that factory. The petitioner in terms of annexure 1 agreed to manufacture "77" in its factory at Adityapur. Under annexure 1 respondent No. 5 agreed to sell to the petitioner the composition which was used for manufacturing "77". Respondent No. 5 was the sole manufacturing, selling and distributing agent of that composition. For the manufacture of the soft drink "77", in addition to the said composition, other articles and chemicals like sugar, carbon dioxide, high flow super cell, caustic soda, flakes, etc., were also necessary which were purchased by the petitioner from the market. Bottles for bottling the soft drink and crown corks were also purchased by the petitioner from the market. Respondent No. 5 had no control over the petitioner or its factory at Adityapur. Since respondent No. 5 allowed the petitioner to use the trade mark "77" owned by respondent No. 5 the latter was entitled to ensure the quality of the soft drink. In annexure 1 the territory within which the petitioner was entitled to sell "77" so manufactured in its Adityapur factory, was defined, According to the petitioner it was a manufacturer as defined under the Central Excises and Salt Act, 1944 (the Act).
Respondents Nos. 1 to 3 in their counter-affidavit admitted that the soft drink "77" was manufactured by the petitioner at the Adityapur factory, but contended that the same was manufactured on behalf of respondent No. 5. The terms of annexure 1 would show that the petitioner was manufacturing "77" on behalf of respondent No. 5. In support of these assertions the respondents quoted some of the terms and conditions of Annexure 1 in the counter respondent quoted some of the terms and conditions of annexure 1 in the counter-affidavit.
Respondent No. 5 filed another counter-affidavit in which it admitted the case of the petitioner. It stated that it had no control over or supervision in the factory of the petitioner situate at Adityapur and it was in no way concerned with the manufacture of soft drink "77" marketed by the petitioner.
5. There is no dispute that the soft drink "77" was manufactured as understood under the Act in the Adityapur factory of the petitioner. The word "manufacturer" according to the Act 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. According to respondents Nos. 1 to 3 the petitioner was not a manufacturer, but was manufacturing it on behalf of respondent No. 5. According to the writ petition and the counter-affidavit of respondent No. 5, the labour employed in the Adityapur factory was by the petitioner and the petitioner was engaged in manufacture of "77" on its own account. It was not disputed by respondent Nos. 1 to 3 that if the petitioner was manufacturing the soft drink on its own account it was entitled to the exemption granted under annexure 2.
6. Annexure 2 is the notification dated 4th July, 1977. It read as follows :
"Notification No. 211/77-C.IL, dated July 4, 1977, reading as follows :
'In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts aerated waters not containing extracts of cola (kola) nuts, and falling under sub-item (2) of item No. ID of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from so much of the duty of excise leviable thereon as is in excess of twenty-live per cent ad valorem :
Provided that the exemption contained in this notification shall apply only to the first clearances for home consumption not exceeding fifty lakh bottles, by or on behalf of a manufacturer from one or more factories during any financial year subsequent to 1977-78, and for such clearances not exceeding thirty-seven lakh bottles during the period commencing on the 4th day of July, 1977, and ending on the 31st day of March, 1978.' "
7. The relevant terms of annexure 1 which were relied upon by the parties arc as follows :
"...
(A) The company is the sole manufacturing/selling/distributing agent of a compositions (hereinafter referred to as the composition) the formula which is an industrial secret of M/s. CFTRI, Mysore from which a nonalcoholic beverage syrup is prepared which is used in the preparation of a non-alcoholic beverage (hereinafter referred to as to beverage) for sale in bottles and other containers and in other forms or manners.
(B) The company is the owner of trade mark "77 Double Seven" that distinguishes the composition, the syrup and the beverage and of the trade mark consisting of a distinctive bottle in various sizes in which the beverage will be marketed, the said trade mark "77 Double Seven" and the distinctive bottle, being hereinafter referred to as the "trade marks".
(C)...
(D) The bottler desires to prepare and bottle the beverage for distribution and sale in and throughout a territory to be defined and described hereafter and when so defined by the parties under their signatures shall form integral part of this agreement.
(b) It is an express condition of this agreement that the bottler will not sell or resell nor lend, sample, gift or otherwise dispose of the composition/syrup inside or outside of his territory without the prior written consent of the company...
(e) It is an express condition of this agreement that the bottler will not sell or resell the beverage outside of his territory without the prior written consent of the company.
2. The company undertakes to sell and deliver to the bottler for destination such quantities of the composition as may be specified by the bottler. The company will ensure the quality of the composition to be supplied to the bottler in conformity with the food laws.
3. (a) The bottler will use the composition thus purchased from the company exclusively for preparation of the syrup and the preparation and bottling of the beverage as prescribed from time to time by the Company...
(b) The...
...
4. (a) The bottler shall make advance payment for each consignment of the composition by a crossed demand draft only. Cheques, cash, hundies, etc., are not acceptable. The company shall despatch the composition according to the mutual agreement between the parties as mentioned above in paragraph (2) for destination. The bottler shall be liable to pay taxes, rates, local taxes, Central or State taxes or levies and all other expenditure incidental thereto.
...
(c)...
...
5. (a) ...
(b) ...
6. (a) The company reserves to itself the right to produce and sell the beverage in the territory of the bottler either by itself or may appoint one or more bottlers for the whole or part of the territory.
(b)...
..."
In annexure 1 "company" refers here to respondent No. 5 and "bottler" refers to the petitioner.
8. According to Mr. Debi Prasad, learned counsel appearing on behalf of respondents Nos. 1 to 3, as respondent No. 5 had the exclusive right to prepare and sell the composition and the petitioner had no right to sell the beverage prepared by using that composition outside the specified territory and the petitioner is also required to maintain the standard of the beverage, it should be held that the petitioner was manufacturing the beverage on behalf of respondent No. 5.
9. Mr. Ghosh, learned Counsel appearing on behalf of the petitioner, urged that on the grounds relied upon by Mr. Prasad, the petitioner did not become an agent of respondent No. 5. He submitted that the composition which was one of the ingredients for the manufacture of beverage was outright purchase by the petitioner from respondent No. 5, and at no point of time or at no stage of the manufacture of the beverage, respondent No. 5 had any control.
10. From the terms and conditions quoted hereinabove, it is clear that the composition was purchased by the petitioner from respondent No. 5. Admittedly "77" Was registered trade mark of respondent No. 5 and it allowed the petitioner to use the same. In order to safeguard its interest and in order to keep up reputation and good-will of its trade mark, respondent No. 5 imposed certain conditions. The conditions read as a whole, clearly establish that the petitioner was not acting as an agent of respondent No. 5 in manufacturing and selling the beverage.
11. Further, in the counter-affidavit, filed on behalf of respondent No. 5 it has been asserted that they were not holding any licence under the Act for manufacturing the beverage, nor they had any factory for the same. They were not 'manufacturer' within the meaning of Section 2(f)(iv) of the Act. In my opinion, by no stretch of imagination respondent No. 5 can be said to be a manufacturer under the Act. Similar view was expressed by a Bench of the Delhi High Court in Poona Bottling Co. Ltd. v. Union of India-1981 E.L.T. 389). This view is also supported by a decision of Gujarat High Court in Cibatul Ltd. v. Union of India-1978 E.L.T. (J 68) and of Madras High Court in Spencer Co. Ltd. v. Assistant Collector of Central Excise-1983 E.L.T. 2098.
12. It is surprising that in spite of the decisions of the Government of India in Swat Bottling Co. Ltd.-1980 E.L.T. 353 (G.O.I.) and in Punjab Beverages Ltd.-1980 E.L.T. 475 (G.O.I.) which followed Cibatul's case-1978 E.L.T. (J 68) respondent Nos. 1 to 3 contested this application.
13. For the reasons, aforesaid, this application is allowed, annexure 7 is quashed and it is held that the petitioner was entitled to the exemption as contained in annexure 3. Respondent Nos. 1 to 3 must pay cost of this application to the petitioner which is assessed at Rs. 500 (Rupees five hundred).