Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Sonali Enterprises on 10 January, 1991
Equivalent citations: 1991(56)ELT164(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. When the cases were called, none appeared on behalf of the respondents. We find that the Respondents have requested for decision on merits on the basis of available records. Accordingly, the learned Departmental Representative for the revenue and the Appellant were heard.
2. A common order is being passed in all the five appeals because common issues are involved.
3. Brief facts of the cases are that, the Respondents are receiving the fabrics from M/s. Bombay Dyeing & Manufacturing Company Ltd. cut to size of the bed covers, bed sheets and pillows. The Respondents, thereafter, carry out the remaining part of the work, i.e. stitching, hemming and affixing the brand name of M/s. Bombay Dyeing on the goods and then, subsequently packing on the basis of job charges received by them from M/s. Bombay Dyeing. Question that is involved herein in all the matters is, whether, the Respondents are entitled to draw the benefit of Notification No. 175/86, dated 1-3-1986 (as amended). The finding of the original authority has been that the respondents are actually a sort of hired labour and the real manufacturer is M/s. Bombay Dyeing & Manufacturing Company Ltd., and since the turn-over of the latter exceeds the ceiling limit of the Exemption Notification No. 175/86, the goods fabricated by the Respondents would not be entitled to the said exemption.
4. Contention of the Respondents, on the other hand, has been that they are independent job workers and under no circumstances, can they be treated as hired labour working for M/s. Bombay Dyeing & Manufacturing Company Limited. They merely received the raw material, carried out the process of stitching, hemming and affixing of brand name and packing of the goods as contracted and then returned the goods to M/s. Bombay Dyeing & Manufacturing Company Limited. The whole transaction, according to them, is on principal to principal basis.
5. Learned JDR, Shri L.C. Chakraborthy, for the Revenue has urged that the instant cases are covered by a recent decision of the Bombay High Court (Division Bench) in the case of Swadeshi Dyeing & Bleaching Mills (P) Ltd. v. Union of India 1989 (41) ELT 224.
6. The Respondents, on the other hand, before the lower appellate authority had relied on the following judgments :
1. Suhrid Geigy Ltd. -1980 (6) ELT J 759
2. Mody Rubber Ltd. -1978 (2) ELT J 127
3. Kirloskar Cummins -1982 (10) ELT 29 (Bom.)
4. Shakti Udyog Jalandar - ELT Aug. 1986 page 423
5. Empire Inds. -1985 (20) ELT 179 (SC)
6. Mahavir Metal Ind. -1987 (28) ELT 85.
7. We have carefully considered the pleas advanced from both sides. It is now a well settled proposition, through a catena of judgments of the Supreme Court, this Tribunal and of the various High Courts that a raw material supplier does not necessarily become a manufacturer; the manufacturer is one who actually manufactures or fabricates the goods. In order that the actual raw material supplier should be a manufacturer, something more is required to be brought on record as evidence which should show that the job worker or the actual fabricator of the goods is merely dummy unit or it is a puppet in the hands of the person supplying a raw material and that he is under the control or supervision of the persons supplying the raw material. No such evidence is available in this case. The only circumstance which appears to have been relied upon to dub the Respondents as merely hired labour acting for M/s. Bombay Dyeing & Mfg. Co. is that the latter is of sending the raw material in the form of cut to size of bed covers, bed sheets and pillows and that the Respondents are merely undertaking the incomplete or unfinished process namely stitching, hemming, affixing of brand name and packing of the final goods. Cutting of the fabric to sizes of bed sheets etc., does not change the character of fabric. Subsequent processes undertaken by the respondents change the fabric into made up articles. Respondents are to be treated as manufactures and not M/s. Bombay Dyeing. Another circumstance referred to in an order of one of the original authorities is that M/s. Bombay Dyeing & Manufacturing Company is not rejecting any defective goods in order to conclude that the Respondents are not independent of M/s. Bombay Dyeing & Mfg. Co. We do not feel that these circumstances are enough to justify the conclusion drawn by the original authorities or put forwarded now by the Appellant-Collector. The mere fact that the Bombay Dyeing are not rejecting any defective goods does not amount to saying that the defective goods are not liable to be rejected by M/s. Bombay Dyeing & Mfg. Company. What are the terms of the contract - oral or written -between the Respondents and M/s. Bombay Dyeing & Mfg. Co. have not been brought on record. It is possible that during the period under scrutiny by the department in these cases, the Respondents did not produce any defective goods which could be rejected by M/s. Bombay Dyeing & Manufacturing Company.
8. Reliance placed by the learned DR on the decision of Bombay High Court in the case of Swadeshi Dyeing is misplaced. We have gone through that judgment and find that the evidence brought on record was sufficient to prove that the two units involved in that case were one and the same. Excerpts from paras 7 & 8 from the said judgment are reproduced below:
"In other words the exemption in respect of processes of calendering and stentering is available provided the other process of bleaching and mercerising is not carried out in the same factory. The modus is, therefore, found out by nominally setting up two separate units one for the purpose of bleaching and mercerising while the other for calendering and stentering. The process of bleaching and mercerising does not bring into existence a new article which is of a marketable value, but the wet fabric which has undergone bleaching and mercerising is required to be further processed by calendering and stentering to make it a final product. It is, therefore, obvious that to secure advantage of both the exemption notifications a method is found out to split up the factory into two units, one run by the private limited company while the other by the partnership firm, but both under the control and care of the same group of persons.
The Collector in the impugned order has set out number of factors to conclude that the two units really constitute one composite unit or a factory. The premises in which the two units are set up are adjoining to each other. The premises stand in the name of the partnership firm and is alleged to have been leased to the company in June 1985 for a duration of eleven months. The consideration agreed to be paid was Rs. 400/- per month and the same was payable at end of December 1985. The premises were used by the company even prior to this agreement of lease for eleven months. Both the company and the firm was constituted in October 1984. The Collector is therefore, right in concluding that this alleged agreement to lease by the firm to the company is nothing but a camouflage to indicate that the two units are separate. There is further telltale circumstance to indicate that the two units are one and the same. The two units spent substantial sum in August 1985 for construction of a compound wall between the area of the two units. It is impossible to believe that a large amount would be spent when the lease to the company is only for a duration of eleven months. Even in spite of construction of a compound, an opening was left to enable the employees of the two units to travel over and the tankers of the partnership firm are parked in the area which is alleged to have been let out to the company. The common door in the compund wall enables the two units to enjoy the premises of each other. The evidence also established that the electricity was provided by the partnership firm to the company and there was no material to indicate that charges were paid by the company. The evidence collected by the Collector unmistakably establishes that the partnership firm receives from the customers grey fabric for the purpose of bleaching and mercerising and after that process is over the wet fabric is forwarded to the company for finishing operations like calendering and stentering, folding, dyeing etc. The two units are run by the same family and there is clinching evidence to establish the charge that the setting up of the two units is nothing but a camouflage to secure advantage of the two exemption notifications. That piece of clinching evidence is the fact that the firm, which is a non-power operated unit purchased felt calendering machine which works only with the aid of power. After purchase the same was rented out to the company and after sometime a document was prepared to indicate that the machine was sold to the company. All these factors taken singularly and cumulatively unmistakably establish that setting up of the two units is nothing but an attempt to claim that the two units are separate and are entitled to the advantage of the two exemption notifications. The conclusion of the Collector that the two units are one and the same and the mere preparation of record to indicate that the two units are separate and distinct cannot be accepted, nor can lead to the conclusion that separate processes are carried out in two separate factories is correct. In our judgment, on the strength of the findings recorded by the Collector, the conclusion that the units should apply for a fresh licence or amendment of the licence as required under Rule 174 cannot be faulted with. The order of the Collector does not suffer from any infirmity and the petitions must fail."
9. Similarly, the cases of H. Guru Instrument P. Ltd., Calcutta v. CCE, Calcutta 1987 (27) ELT 269 relied upon by the Appellant-Collector in his appeal-Memo, has also been decided on the peculiar facts of that case and the ratio of that decision cannot be applied to the facts and circumstances of this case. So is the case with the decision of the Supreme Court referred to by Appellant-Collector, namely (1) Bajrang Gopilal v. M.N. Balkundri and Ors. -1986 (25) ELT 609 (SC), (2) Shree Agency v. S.K. Bhattacharjee and Ors. -1977 (1) ELT J 168.
10. Accordingly, we hold that the respondents cannot be held as hired labour for M/s. Bombay Dyeing & Manufacturing Company. The Respondents are manufacturers in their own right and are entitled to the benefit of Notification No. 175/86, dated 1-3-1986 (as amended). Hence the appeals are rejected.