Customs, Excise and Gold Tribunal - Delhi
Jay Engineering Works Ltd. vs Collector Of Central Excise on 22 November, 1984
Equivalent citations: 1985ECR570(TRI.-DELHI), 1985(21)ELT299(TRI-DEL)
ORDER S.D. Jha, Member (J)
1. The appellants have filed this appeal against Order-in-Original dated 8-2 1983 passed by the Collector of Central Excise, Calcutta. By the said order the Collector of Central Excise- hereinafter called Collector demanded duty of Rs. 17,00,647.16 P. and also imposed a penalty of Rs. 25,000/- against the appellants.
2. The appellants are engaged in the manufacture of electric fans falling under Tariff Item No. 33 of the Central Excise Tariff in their factory situated at Roynagar, Banadroni, West Bengal and they hold a licence for the purpose. Sometime in 1982 the Central Excise Department learnt that during the period 1977 to 31-3-1981 the appellants had supplied raw materials for manufacture of component parts namely fan blade planks, down rods to different job workers on job charge basis and in turn received back finished products without discharging any Central Excise duty on the full value of the goods. The Department's case is that these products resulting from job work fell under Tariff Item 68. After the usual investigation the Assistant Collector of Central Excise, Calcutta, 15th Division, served show cause notice dated 26-8-1982 on the appellants calling upon them to show cause why duty amounting to Rs. 17,00,647.16 P. be not realised from them and why penalty be not imposed. The appellants in their reply dated 4-12-1982 to the show cause notice submitted that they were not manufacturers of the products and that by merely supplying the raw material and getting some goods manufactured they had not become manufacturers of these products. It was further submitted that the job workers were totally independent units having no relation-financial, managerial or through employment of labour-with the appellants. It was also urged that j what was called aluminium blades was not fully manufactured product capable of use and sale in the market but were really blade planks punched from aluminium sheets which is neither a manufactured product nor goods falling under the Tariff Item 68. As regards the Down Rods, it was urged that even if they be considered as manufactured products the appellants were not liable to pay duty and the liability for such duty was on the parties who manufactured the Down rods in their factories if they were required to do so. The appellants were not responsible to explain the conduct of these parties. The appellants in short submitted that they were neither the manufacturers nor required to pay duty and comply with the formalities in respect of these products. They had not contravened any of the rules.
3. The appellants had specifically raised the plea of time-bar. They had urged that show cause notice issued on 26-8-1982 after expiry of more than one year from the period of demand -1977 to 31-3-1981 beyond the period of six months as stipulated under Section 11-A was time-barred and without jurisdiction and no action could be taken on the strength of such an invalid show cause notice. It was further urged that no allegation was made in the show cause notice to extend the period of six months to period of five years stipulated in Section 11-A of the Central Excises and Salt Act, 1944. After following the usual procedure the CCE Calcutta passed order dated 8-2-1983 demanding differential duty and penalty as set out above. Aggrieved, the appellants filed appeal to the Tribunal.
4. At the hearing of the appeal Shri Ravindra. Narain, Advocate for the Appellants, invited our attention to the allegation in the show cause notice. He submitted that the only material allegation against the appellants in the show cause notice was that they had during the period 1977 to 31-3-1981 supplied raw materials for manufacture of component parts namely aluminium blade, Dowa rods, etc. to different jobbers on job charge basis and in turn received back the said finished product without discharging any Central Excise duty on the full value of goods falling under Item 68. On this allegation the appellants were charged for having contravened a number of provisions of the Act and Rules and called upon to show cause why duty be not demanded from them and penalty imposed. Shri Ravindra Narain submitted that the show cause notice did not contain any allegation or ingredient so as to attract the longer time-limit of five years. He argued that if six months' time limit was applied to the demand, the whole demand was time-barred.
5. Shri Ravindra Narain submitted that the appellants held a licence for manufacture of fans and that the entire activity was within the knowledge of the department. In particular he invited the attention of the Bench to letter dated 11th September, 1985 at Serial No. 7 of the Paper book addressed to the Assistant Collector of Central Excise, Calcutta by the appellants. In this letter the appellants had, inter alia, intimated to the Assistant Collector that a good number of components i.e., fans, down rods and some other items are made in a number of small factories on cottage industry basis.
6. Shri Ravindra Narain further submitted that job work as a manufacturing concept was well known in Central Excise and for the purpose he cited Notification No. 119/75-C.E., dated 30-4-1975. This notification deals with exemption of goods falling under T.I. 68 produced on job work basis. He submitted that merely because the appellants got some products manufactured by a job worker or some processes done on raw material by the job worker which were returned to the appellants would not make the appellants themselves manufacturer of these products. He also submitted that merely by supplying raw materiel the appellants would not become manufacturer of the finished product from the raw material. He further submitted that there was no allegation or proof that job workers were a facade or a camouflage for appellants. The transaction between the appellants and the job workers was on principal to principal basis. The agreement between the appellants and the job workers was a standard commercial agreement and from this the Collector wrongly inferred that the appellants were manufacturers in respect of the products produced or processed by job workers. He submitted that in any case, the show cause notice did not contain necessary facts or allegations from which merely by having got job work done the appellants could be treated manufacturers of the product on which in fact job workers had done certain processes or even manufactured them. Shri Ravindra Narain in his arguments relied on the following decisions :
Ravindra Steel Limited, Nagpur v. Collector of Central Excise, Nagpur -1983 E.L.T. 413 (CEGAT) India Record Manufacturing Company Limited, Calcutta v. Collector of Central Excise, Calcutta-19S4 E.C.R, 1239 (CEGAT) Light Roofings Ltd. v. Superintendent of Central Excise, Kancheepuram & Two Others-1981 E.L.T. 738 (Madras) Lucas Indian Service Ltd., Madras v. Collector of Central Excise, Madras-1994 (16) E.L.T. 415 (Tribunal) Cibatul Ltd. P.O. Atul v. Union of India and Ors.-1978 E.L.T. (J 68) Philips India Ltd. and Ors. v. Union of India and Ors.-1980 E.L.T. 263 (All.) Poona Bottling Co. Ltd. and Anr. v. Union of India and Ors.- 1981 E.L.T. 389 (Del.) P.M. Abdul Latif, Proprietor Paragon Industries and Ors. v. Assistant Collector of Central Excise and Ors.-1983 E.C.R. 55D (Madras) Amin Chand Payarelal v. Collector of Central Excise, Chandigarh-1984 (16) E.L.T. 126 (Tribunal)
7. On behalf of the Respondents Shri N. I. Ramanathan, SDR, defended (he orders passed by the Collector. Shri N. V. Raghavan Iyer who at one stage intervened in the proceedings on behalf of the Respondents submitted that even though the show cause notice dated 26-8-1982 may not have contained all the details and allegations, it sufficiently complied with the requirement of law. The appellants had clearly contravened the provisions of Central Excises and Salt Act, 1944 and the rules made thereunder and, therefore, even if there be no fraud, collusion, wilful mis-statement or suppression of facts on the part of appellants, the demand of duty for the longer period of five years would be legally justified. The Respondents relied on Shree Agency's case 1977 E.L.T. (J 168) Supreme Court and an unreported decision of Bombay High Court in Bajarang v. Balkundri referred to at page 50 of Taraporewala and Parikh, The Law of Central Excise (Tripathi), 2nd Edition.
8. We have carefully considered the arguments advanced by the parties. It is not disputed that the appellants have been manufacturing fans for a number of years and the Department cannot claim that they did not have knowledge as to what components go in the making of a fan. We have also on record a letter from the appellants addressed to the Assistant Collector which would show that the Department had knowledge that the appellants were getting some components processed or manufactured by other factories or job workers.
9. Apart from the above, all that the show cause notice alleged was that the appellants during the period 1977 to 31-3-1981 had supplied raw materials for the manufacture of component parts, namely, aluminium blade, down rods etc. to different jobbers on job charge basis and in turn received back the said finished product without discharging any Central Excise duty. There was no allegation of fraud, collusion, wilful mis-statement or suppression of facts. There was no allegation of intent to evade payment of duty. For invoking the longer time-limit of five years for demand of duty in view of Madras High Court decision in Light Roofings Ltd. v. the Superintendent of Central Excise and Two Others-1981 E.L.T. 738 (Madras), it was necessary to allege and prove the ingredients aforesaid and intent to evade payment of duty ; that is lacking in the show cause notice. That not having been done, on the strength of the show cause notice the invoking of five years' period for making the demand cannot be sustained and there is no dispute that if the shorter time-limit of 6 months be invoked in the case, the whole demand against the appellants in time-barred.
10. Coming to the question of penalty, job work as a concept in Excise Tariff 18 is well-established. It is also well-settled that merely supplying the raw material to another for manufacture of goods in accordance with one' drawings and specifications does not make the supplier a manufacturer of such goods unless it is proved that manufacture was done in the capacity of a dummy company. In the present appeal, in the show cause notice there is neither any allegation nor any proof that the job workers were dummies on behalf of the appellants. There is nothing to negate the appellant's contention that the transactions between the appellants and the job workers were on principal to principal basis. On the other hand, a number of affidavit have been filed by the appellants on behalf of the job workers, namely those of Smt. Santosh Malhotra, M/s. S. A. Engineering Works, Shri Satyanarayan Jhunjhunwala, Shri Bepin Chandra Shah, M/s. M. K. Engineering Enterprises and Bhola Nath Show which show that the transactions between the appellants and these job workers were on principal to principal basis. In absence of necessary allegation in the show cause notice and proof that the job workers were merely a facade or camouflage for the appellants or dummies, the appellants could not be called manufacturers in respect of processes or manufacture done by these job workers. For taking this view we find support from a decision of Bombay High Court in R. K. Industries and Ors. v. Union of India and Anr. (which was specifically a case relating to electric fans), the Madras High Court decision in P. M. Abdul Latif v. Assistant Collector of Central Excise and Ors. -1983 E.C.R. 55D (Madras) and the Tribunal's decision in Lucas Indian Service Ltd., Madras v. Collector of Central Excise, Madras-1984(16) E.L.T. 415 (Tribunal). As to Collector's reliance on the agreement between the appellants and the job workers, to us it appears to be a standard commercial agreement and, besides, there was no allegation about this agreement in the show cause notice.
11. On the facts and circumstances of the present appeal, the two cases relied on by the Department those of Shree Agencies and Bajrang v. Balkundri-do not help the Respondents. On this reasonining, imposition of penalty on the appellants cannot also be justified.
12. In the view we take it is not necessary for us to give a specific finding whether the appellants are manufacturers in respect of goods on which processes have been done or which have been manufactured by job workers. We may also add that necessary material and evidence for the purpose is lacking in the case. As a result of the aforesaid discussion the demand of duty from the appellants is held time-barred and set aside. On the facts and circumstances and absence of necessary allegation and proof, penalty is also not justified and the same is set aside. The appeal is thus allowed.