Bombay High Court
Pilky Footwear Co. Pvt. Ltd. vs Union Of India And Others on 1 January, 1800
Equivalent citations: 1980(6)ELT338(BOM)
ORDER
1. The petitioners are a limited company and manufacture and deal in footwear. The petitioners have a factory at 93A, Pokharan Road No.1, Thana and the petitioners manufacture P.C.V. footwear in the said factory. The factory was established in the year 1966 and the petitioners have entered into an agreement with M/s Bata Shoe Company Pvt. Ltd. on July 5, 1966. The agreement, which is annexed as Exh. A to the petition, inter alia provides that the Bata Shoe Company would provide for technical assistant for the manufacture of footwear and the petitioners would supply the entire production to Bata Shoe Company and the entire product would bear the brand name of Bata Shoe Co. The agreement was valid for a period of five years from the date of commencement of the production. The Central Government imposed the excise duty on footwear by a notification dated May 28, 1967 under Tariff Item 36 under the Schedule to the Central Excises and Salt Act, 1944, which reads as under :
----------------------------------------------------------------- Item No. Description of Goods Rate of Duty
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36. Footwear and parts thereof in or in relation to the manufacture of which any process in ordinarily carried on with the aid of power;
(1) Footwear 10% ad valorem. (2) Parts of footwear 15% ad valorem.
Explanation - "Footwear" includes all varieties of footwear, whether known as boots, shoes sandals, chappals, or by any other name.
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2. The Authorities under Central Excise Act called upon the petitioners to furnish the price lists of goods manufactured by them and on furnishing of such price lists in the year 1967, the same was rejected by the Assistant Collector, Central Excise holding that in view of the agreement between the petitioners and Bata Shoe Co. the prices charged by the Bata Shoe Co. should be considered as wholesale price for the purpose of determining the assessable value under Section 4 of the Central Excise Act. the assistant Collector took the view that as the entire production of the petitioners is sold to Bata Shoe Co., the agreement between the parties cannot be held to be at arms length. Before the Assistant Collector, the petitioners also made a claim that the petitioners are not liable to pay the excise duty for a period commencing from May 28, 1967 to December 1, 1967 in view of the exemption notification published by the Government of India on March 1, 1964. that claim was turned down by the Assistant Collector holding that the notification has no application in respect of the products falling under Item 36 of the Schedule. the petitioners also claimed that in any event the duty on footwear casting less than Rs.5/- is exempted under Notification dated July 24, 1968, and the advantage of the two notifications should be given too the petitioners. The petitioners also claimed that for determining the assessment value under Section 4 of the Act, the cost incurred in respect of post-manufacturing operations should be excluded and after exclusion of such cost if the price of the product falls below Rs.5/- then advantage of the exemption should be granted. The Assist it Collector turned down this contention holding that the petitioners and the Bata Shoe Co. are independent entities, and therefore, discount cannot be granted. This conclusion of the Assistant Collector is clearly erroneous and in direct contract to the earlier finding recorded that the agreement between the parties is not at arms length, and in fact Bata Shoe Co., are the manufacturers. The petitioners carried an appeal against the order of the Assistant Collector, but the appeal ended in dismissal by an order dated April 15, 1969. The petitioners further carried a before the Government of India but it also met with same fate. The petitioners have approached this Court by filing the present petition under Art. 226 of the Constitution of India to challenge the validity of the passed by the Excise Authorities. It is required to be stated that the respondents filed a Return to this petition only today and Mr. Rana requested that he should be granted permission the file a further affidavit by tomorrow as he intends to deny whatever has been stated in the reply. As no further material is to be brought on record, the learned Counsel suggested that petition should be disposed of and accordingly I have a both the Counsels.
3. Mr. Rana, the learned Counsel appearing in support of the petition, has raised three contentions to attack the orders passed by the Excise Authorities. The first and the foremost submission is that the agreement dated July 5, 1966 arrived at between the parties is clearly at arms length and the contrary conclusion recorded by the Excise Authorities is totally erroneous. Mr. Rana submits that the view taken by the Excise Authorities is clearly contrary to the principles enunciated by the Supreme Court in a Judgment A. K. Roy and Anr. v. Voltas Ltd. Mr. Rana submits that the three authorities below have taken merely one factor into consideration in holding that the agreement is not at arms length and that factor is that the entire production of the petitioners is supplied to Bata Shoe Co. with its brand name. The learned Counsel is right in his submission that factor alone is not sufficient to come to a conclusion that the agreement was not at arms length. In view of the decision of the Supreme Court, it is clear that while determining the question as to whether an agreement is at arms length, all the factors will have to be taken into consideration and from the cumulative effect of various considerations a finding will have to be recorded. It is true that the Excise Authorities have not approached the case properly from that angle, but instead of remanding the proceedings for that purpose, I have decided to hear Mr. Rana in detail and after careful consideration of the circumstances pointed out by Mr. Rana and Mr. Dalal appearing on behalf of the respondents, in my judgment, the view taken by the Excise Authorities appears to be a correct view. Mr. Rana, in support of his contention, pointed out three or four circumstances to indicate that the petitioner company is not an agent of Bata Shoe Co. The learned Counsel submitted that the agreement discloses that the factory was to be set up by the petitioners at their own costs. The second circumstance on which reliance is placed is that the equipment and machinery for setting up of the factory is procured by the petitioners at their own costs. Mr. Rana submits that the agreement provides that the petitioners are duty bound to observe all laws and make payment of taxes, wages and salaries and discharge the obligation provided by various statutes. The last circumstance on which strong reliance is placed by the learned Counsel is that the prices in respect of footwear is to be determined from time to time by taking into consideration the costs of the spare parts, material, wages, salaries and other charges. The learned Counsel submitted that clause 6 of the agreement, which deals with question of prices, clearly indicates that the petitioners unit was an independent unit and not an agency of Bata Shoe Co. In answer to this submission, Mr. Dalal also relied upon 4 or 5 circumstances, and submitted that these circumstances do indicate that the agreement was not at arms length. Mr. Dalal submits that the agreement provides that Bata Shoe Co. shall provide not merely an advice and assistance and technical know-how and supervision the the petitioners unit, but would also provide necessary working capital by way of interest free advances required for operation of the plant and other working expenses. The agreement further provides that interest- free advance would be given by the Bata Shoe Co. for procurement of molds required for the purpose of manufacture of footwear. The agreement also requires Bata Shoe Co. to give free advance for purchase of equipment and clause 9 of the agreement debars the petitioners from enlarging the capacity or from installing the fresh machinery without the consent of Bata Shoe Co. These circumstances, submits Mr. Dalal, in addition to the fact that entire stock is to be sold with the brand name of Bata Shoe Co. clearly establishes that the agreement was not at arms length and the petitioners were merely the agents of Bata Co. The circumstances relied upon by Mr. Dalal are quite strong and if on the strength of the circumstances the view taken by the department can be sustained, then I am afraid it is not permissible for this Court to record a contrary finding than one recorded by the Excise Authorities holding that the agreement was not at arms length. In my judgment, the plain reading of the agreement does give an indication that the petitioners and the Bata Co. are not two different units but the petitioners appears to be the agents of Bata Co. The Supreme Court did observe in Voltas Case and in Attic Industries Ltd. v. H. N. Dave, Asstt. Collector of Central Excise and Ors's case that the cumulative effect of various circumstance arising from the agreement is required to be taken into consideration to arrive at a finding whether the agreement is at arms length or otherwise. In my judgment, taking an overall view of the matter and the cumulative effect of circumstances pointed out by Mr. Rana on one hand and Mr. Dalal on the other hand, the conclusion is in-escapable that, the agreement was not at arms length.
4 The second submission of the learned Counsel is that even if the petitioners are liable to pay excise duty, the petitioners need not pay the same for a period commencing from May 28,1967 to December 1, 1967. The learned Counsel placed reliance upon the notification dated March 1, 1964 in support of his claim for exemption. The Notification was published by the Government of India in exercise of the powers conferred under Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and the notification inter alia provides that all articles made of plastics except Polyurethane foam and rigid plastic laminated boards and sheets falling under-sub-item (2) of Item 15A of the First Schedule to the Central Excises and salt Act are exempted from the whole of the duty of excise leviable thereon. Mr. Rana submits that this notification exempts all articles of plastics including plastic footwear manufactured by the petitioners and therefore, the petitioners are not liable to pay the duty for the relevant period. The submission is not correct. A plain reading of the notification makes it quite clear that what is exempted is all articles made of plastics falling under sub-item (2) of Item No. 15A of the Fire Schedule. The articles Falling under this sub- item of the Schedule are articles made up of plastics including tubes, rods, sheets, foil, sticks etc. It is not in dispute that the plastic footwear manufactured by the petitioners do not fall under this sub-item (2) of Item 15A of the Schedule. As indicated hereinabove Item 36 of the Schedule deals with footwear and parts thereof and the plastic footwear clearly attracts duty under that item. The notification on which strong reliance is placed by Mr. Rana is applicable only in respect of items falling under sub- item (2) of Item 15A and has no application whatever to items falling under Item 36 of the First Schedule. The claim of the petitioners for exemption from the payment of excise duty for a period commencing from May 28, 1967 to December 1, 1967 deserves to be rejected and the view taken by the Excise Authorities in that connection appears to be a correct one.
5. The last submission of Mr. Rana deserves to be accepted. The learned Counsel submitted that a duty on footwear costing less than Rs.5/- was exempted under Notification dated December 1, 1967 and a further Notification was issued on July 24, 1968 providing that the exemption would operate from May 26, 1967. These two Notifications clearly establish that the petitioners are not liable to pay excise duty on footwear costing less than Rs.5/- manufactured on or after May 26,1967. Mr. Dalal, the learned Counsel, appearing for the respondents,did not dispute this position. Mr. Rana submits that while determining the assessable value of the product, the Excise Authorities could not take into account the cost of post-manufacturing operations. The submission of the learned Counsel is sound. It is necessary for the Excise Authorities to determine whether a certain product is entitled to exemption under the two Notifications by assessing the wholesale price of the product after exclusion of costs of post-manufacturing operations. The petitioners are entitled to the relief in that connection and the request relief shall be granted by the Assistant Collector. The proceedings are required to be remitted back it Assistant Collector for that purpose. The Assistant Collector, after taking into account the costs of the post-manufacturing operations and excluding it, will determine the assessable value under Section 4 of the Act. The Assistant Collector should arrive at his conclusion after giving a bearing to the petitioners and the decision should be recorded by the Assistant Collector within a period of six months from to-day. Save and except the relief in this connection, the other claims made by the petitioners are rejected. The Rule is made absolute accordingly and the proceedings are remanded back to the Assistant Collector for determination as indicated hereinabove.
6. In the circumstances of the case, there will be no order as to costs.