Full Judgment
2. The Collector (Appeals) on careful consideration of the matter held that the assessee and M/s. Automatic Electric Ltd. are independent units and that M/s. Automatic Electric Ltd. is not a dummy unit of the assessee. He has held that M/s. Automatic Electric Ltd. were getting the goods manufactured on job work basis by supplying raw materials and therefore, the assessee is an independent manufacturer. Ld. Collector has also held that there is no flow-back between the assessee and M/s.
Automatic Electric Ltd. and the department had not made out any allegation of flow back for clubbing the clearances of both the units.
In that view of the matter, he has held that the assessee is entitled to clear the goods in terms of Notification No. 71/78. He has also noted that the assessee is crossing the limit of Rs. 5 lakhs they had been paying duty on the next clearances. He has also held that demands are hit by limitation as no allegation of suppression has been made in the show cause notice and accordingly the normal time limit of six months would apply in the facts and circumstances of the case-He has also held that the Asstt. Collector has decided the issue entirely on a different ground than that alleged in the show cause notice. While arriving at conclusion, ld. Collector has noted the decision in the following case: (i) P.M. Abdul Latin and Ors. v. Asstt. Collector of Central Excise and Ors. -1985 (22) E.L.T. 758 (Mad.) (ii) R.K.H. Industries and Anr. v. Univn of India and Anr. -1984 (16) E.L.T. 40 (Bom.)Lucas Indian Service Ltd. v. Collector of Central Excise, Madras (iv) Collector of Central Excise, Madras v. Medoplast (P) Ltd. - 1985 (5) ETR 526 (CEGAT) 3. We have heard ld. DR Shri K.K. Jha for the Revenue and Shri A.V.Naik, ld. Advocate in this matter. On careful consideration of the submissions made by both the sides, we are satisfied that the revenue has not made out any case in this appeal, the reason being that in order to club the clearances of one unit which is an independent, with clearances of another unit then the revenue has to show that there is nexus between the two in terms of flow back or that one unit is a dummy of the other. In the present case such an allegation has not been made.
The ground on which the revenue has proceeded is that the clearances of Automatic Electric Ltd. is required to be clubbed with the asses-see as the assessee is receiving the raw material from the other company and manufacturing the final goods on labour charges. The ld. Collector has held that this allegation is not sustainable on the ground that the supplier of raw material cannot become manufacturer as it has been well settled that job worker is an independent manufacturer; unless it is shown that both the units are one and the same and it has to be supported by evidence. In this case no evidence has been produced by the revenue to club the clearances of both the units. Further, it is noticed that the demands are barred by time and the finding given by the ld. Collector is that there is no allegation of suppression in this case and this finding is not controverted by the revenue in this appeal. The revenue has not made out any grounds pertaining to various other findings given by the ld. Collector. In that view of the matter, there is no ground to interfere with the well considered judgment of the Collector (Appeals). Therefore, we reject this appeal.
(Sd/-) With due respects to the ld. Judicial Member, my views and orders are as follows : 4. In this case the ld. DR has stated that the respondents are the manufacturers of electric motors falling under TI 30. They also manufactured certain goods for and on behalf of M/s. Automatic Electric Ltd., Bombay on their supply of raw materials and on payment of labour charges, only by the latter.
5. They were availing exemption Notification No. 71 / 78 on the basis of their declaration. On verification, it was noticed that the goods belonged to M/s. Automatic Electric Ltd., and if their clearance was taken into account, the exemption Notification No. 71 /78 was not admissible. Therefore, the Assistant Collector issued a show cause notice alleging inter alia the suppression of facts.
6. In reply to the show cause notice, the respondents admitted that they were manufacturing goods for M/s. Automatic Electric Ltd. on labour charges as evident from the letter dated 18-4-1980 (Annexure C).
M/s. Automatic Electric, Bombay also admitted the position vide their letter dated 27-8-1980 (Annexure D). Therefore, Asstt. Collector disallowed the exemption and demanded duty on the goods in question.
7. The ld. Collector (Appeals) however, allowed the respondents petition on the ground that the respondent was not a dummy and the demand beyond six months was time barred.
8. It was the department's contention that the Collector (Appeals) has erred inasmuch as the manufacturing company need not be a dummy company. The transactions were required to be examined to determine as.
to who is the real manufacturer. The position obtaining in the case of Shri Agency (1976 Cencus page 94-D) decided by the Supreme Court is similar to the instant case. The Supreme Court had clarified that the term 'manufacture' not only includes one who engages in production or manufacture but also a person who supplies raw materials and employs hired labour and gets goods manufactured through an independent contractor.
It was their contention that the ld. Collector (Appeals) has not given effect to the ratio of this judgment.
9. M/s. Automatic Electric Ltd. were supplying raw material and paying labour charges is an admitted position.
10. As regards the time bar, ld. DR stated that the show cause notice (Exhibit B) had alleged specifically that the respondents had not declared the value of full turnover and suppressed the fact of manufacture on account of M/s. Automatic Electric Ltd. and had wrongly claimed exemption. Therefore, the ld. Collector (Appeals) had erred in not applying the extended period of time.
11. The ld. Counsel for the respondents had drawn attention to the order of the Collector (Appeals) and emphasised that the demand is hit by limitation as the show cause notice was issued on 10-4-1980 for clearance effected on 1-4-1979 onwards. Secondly, in the show cause notice it was alleged that the appellants had failed to disclose the value of clearances regarding Label Printing and Assembly of Electrical Measuring Instruments; but the A.C. had decided the issue on different grounds.
12. The A.C. has erred in treating M/s. Automatic Electric Ltd. as the manufacturer of electric motors. The respondents herein are independent of M/s. Automatic Electric Ltd. and the Ld. Collector (Appeals) has rightly relied upon the Madras High Court judgment and other cases cited by them and the case of Shri Agency was distinguishable.
13. I observe that Ld. DR's submissions have a lot of force. He is right in pointing out that the department has not alleged that the respondents were dummy unit but specifically charged them with suppression of facts relating to goods manufactured by them for and on behalf of M/s. Automatic Ltd. In my opinion the department also is right to the extent that the manufacturing company need not be a dummy company in such cases; but what is required to be seen is who is the real manufacturer.
14. In the present case the admission by the respondents that they were also engaged in label printing and assembly of electrical measuring instruments on labour charge basis and the confirmation by M/s.
Automatic Electric Ltd. in their letter of 27-8-1980 that the respondents were manufacturing electric motors on their behalf is significant. It is equally significant that the respondents have not contradicted the allegation that this fact was not disclosed in the declaration filed by them. Therefore, the deptt. was entitled to invoke the extended period of limitation.
15. It is well settled by now that a job worker is required to be treated as independent manufacturer (unless proved otherwise) and in view of the facts narrated in the Grounds of Appeal and not contradicted by the respondents and the admission of the respondents confirmed by M/s. Automatic Electric Ltd. It is also apparent that the case is similar to the one decided by the Hon. Supreme Court in the case of Shri Agency. Even otherwise it is significant that Notification No. 71/78 speaks of goods manufactured for and on behalf of a manufacturer in one or more factories. But a difficulty arises inasmuch as M/s. Automatic Electric Ltd. have confirmed and declared that M/s.
Print Origin Co., Lonavala are the only manufacturers manufacturing electric motors on their behalf vide their letter dated 27-8-1980 whereas the respondents have in their letter dated 18-4-1980 have stated that they were doing label printing and assembly of electrical measuring instrument on behalf of M/s. Automatic Electric Ltd. In other words, here we are faced with letters regarding different products.
The Notification No. 71 /78 refers to 'specified goods' and allows exemption in r/o first clearances of such excisable goods for home consumption upto an aggregate value not exceeding the prescribed limit and cleared on or after 1st day of April m any financial year by and on behalf of manufacturer from one or more factories. Therefore, insofar as the goods manufactured by or on behalf of M/s. Automatic Electric Ltd. are concerned the duty will be required to be paid by that company in case of non-fulfilment of the conditions of Notification and not by the respondents herein.
16. On the other hand if the respondents are correct in claiming that they had themselves manufactured the goods independently although at the instance of other party. In r/o the entire quantity of the specified goods manufactured by them, from one or more factory, they would be liable to pay duty if the value of their clearances exceeded the prescribed limits.
There is yet another complication. The A.C. has described M/s.
Automatic Electric Ltd. as a loan licensee of M/s. Print Origin Co. and stated that the respondents had claimed exemption on behalf of loan licensee. This is not understandable. There is nothing to indicate in the order as to on what basis these observations have been made. There is no discussion about this aspect either in the order of A.C. or in the order of the Collector (Appeals) and the position was also not clarified during the hearing. It is important to note that an exemption can only be claimed by a person who is eligible and entitled for the same. As per the General Scheme of the Act and the Rules, as well as Notification No. 71/78, the exemption could be claimed only by a person (manufacturer) only in r/o specified goods manufactured by him, or on his behalf. Therefore, exemption, if any due, could be claimed and allowed or disallowed depending upon the fulfilment or otherwise of the conditions mentioned therein only by M/s. Automatic Electric Ltd. and not by the respondents in r/o the goods manufactured on behalf of the former.
There is yet another complication that the respondents have in their letter dated 18-4-1980 stated that labour jobs or label printing is carried out in their establishment at Bombay whereas assembly of electrical measuring instrument was carried out in Shed. No. 3, Lonavala Industrial Estate, Nagargaon. Therefore, the position was required to be examined factory by factory manufacturer by manufacturer, and item by item.
17. It is also required to be explained as to why the department has referred to TI 68 since it is not one of the items mentioned in the table annexed to Notification No. 71 /78. Similarly, it is required to be clarified as to why both the sides have referred to label printing and assembly of electrical measuring instruments as these items are also not mentioned in the table annexed to the notification which covers only specified goods. The respondent's letter dated 27-8-1980 refers to TI 28A (without mentioning description of the goods) and TI 28A is one of the items mentioned in the table but the description of the goods covered by the entry is 'electrical stamping, lamination all sorts' (and not electrical measuring instruments).
18. It is noteworthy that notification refers to the aggregate value of the specified goods cleared from one or more factories. Therefore, while claiming exemption, the respondents were required to declare the value of the goods manufactured in their Lonavala unit at Nagargaon as well as these manufactured in their Bombay unit in case of manufacture of specified items (and not otherwise). If the respondents had delcared in the annexure to the classification list or otherwise that they will be removing from the premises the products of other jobs relating to label printing and assembly of electrical measuring instrument and the price list was also verified by the Superintendent as claimed by the respondents, then no suppression could be alleged merely on that basis as it has no bearing insofar as the claim for exemption under Notification No. 71 /78 was concerned. But if the appellant had not disclosed the quantity value or description of the goods manufactured by them in one or more of their factories (as required for the purposes of Notification No. 71/78) then it will amount to suppression of facts.
The difficulty is that neither of the two sides have cared to file the classification list before us. It is also apparent that all the relevant aspects have not been examined either at the original or at the first appellate stage.
19. Further in the case of quantity of the specified goods manufactured by or on behalf of M/s. Automatic Electric Ltd. the show cause notice has been wrongly addressed to the respondents. I, therefore, set aside the impugned orders and remand the case to the A.C. for re-consideration in accordance with law.
20. In view of the difference of opinion between Hon. Member (J) and the Vice President the matter is submitted to the Hon. President for reference to a third Member on the following point :- "Whether the appeal is required to be rejected in view of the observations and findings of Member (J) or the matter is required to be remanded in view of the observations of the Vice President ?" (Sd/-) (Sd/-) (S.L. Peeran) (S.K. Bhatnagar) Member (J) Vice President dated 24-9-1996 dated 24-9-1996 21. [Order per: Justice U.L. Bhat, President]. - Respondent is absent in spite of notice of hearing. I have heard Shri M. Jayaraman, JDR for the Revenue.
22. The appeal was heard by a Bench consisting of Shri S.K. Bhatnagar, Vice President and Shri S.L. Peeran, Member Judicial on 9-2-1996. I find an order signed by the Member Judicial on 29-2-1996 dismissing the appeal and an order signed by the Vice President on 24-9-1996, setting aside the impugned orders and remanding the case to the Assistant Collector for reconsideration in accordance with law. The two Members referred the following point to a third Member :- "Whether the appeal is required to be rejected in view of the observations and findings of Member Judicial or the matter is required to be remanded in view of the observations of the Vice President?" 23. The point referred to appears to be somewhat vague. But since I do not desire the matter to be prolonged, I proceed to express my views on the point of difference. Though I have the benefit of two orders, I think it necessary to state the facts briefly. Respondent is manufacturing electrical motors, label printing and assembly of electrical measuring instruments falling under erstwhile T.I. 30, T.I.68 and T.I. 28A respectively using the raw materials supplied by M/s.
Automatic Electric Ltd. (for short, AEL) and after manufacture, returns the finished products to the supplier. The dispute in this appeal relates to the year 1979-80. Appellant claimed benefit of exemption under Notification No. 71/78, dated 1-3-1978 on the ground that the total value of clearance of goods specified in the table to the notification during the year 1978-79 was below Rs. 15 lakhs. The Assistant Collector, after issuing show cause notice and following the other procedures contemplated by law, held that AEL is the real manufacturer and not the respondent and therefore, in computing the value of clearances, the value at which AEL sold the goods should be adopted and not the assessable value declared by the respondent and going by the value of AEL for electrical motors (erstwhile T.I. 30), label printing (erstwhile T.I. 68) and measuring instruments (erstwhile T.I. 28A), the value of clearances of specified goods in 1978-79 would exceed Rs. 15 lakhs and therefore, the respondent cannot avail benefit of the notification. The show cause notice had alleged suppression of facts and failure to furnish the total value of the products during the previous year. In the reply to the show cause notice, appellant had denied the allegation of suppression of facts, but did not specifically raise any plea of bar of limitation. The order passed by the Assistant Collector was in the form of a letter and was not very self-explanatory.
24. In appeal before the Collector (Appeals), it was contended for the job worker that the show cause notice was barred by limitation and the Assistant Collector was in error in treating AEL as manufacturer, since the job worker was independent of AEL. The Collector (Appeals) held that the show cause notice did not contain any allegation of suppression and therefore, the notice was barred by limitation, that since there was no allegation that AEL was set up as a dummy company, the appellant before him must be treated different from AEL and the value of the manufactured goods in the hands of the job worker should be taken into consideration and not the price at which AEL was selling the goods and since value of clearances on that basis for the previous year would be less than Rs. 15 lakhs, the appellant before him would be entitled to the benefit of the notification. This order is challenged before the Tribunal.
25. The Member Judicial indicated that the Revenue has failed to make out justification for clubbing clearances of one independent unit with the clearances of another unit, that there was no nexus in terms of flow back, that there was no allegation that either of the units was dummy for the other, that the job worker being an independent manufacturer must be treated as manufacturer for the purpose of central excise duty, that the demand was barred by time as there was no allegation of suppression in the show cause notice. For these reasons, the Member Judicial desired to dismiss the appeal.
26. In a lengthy order, the Vice President dealt with various aspects, some of which did not arise from the orders of the lower authorities or the contentions urged by both sides. The Vice President pointed out that the question of clubbing did not arise in this case and the question is who was the real manufacturer. On the question of limitation, he pointed out that the show cause notice contained the requisite allegation and this contention was not decided by the Assistant Collector. He drew attention to some of the averments in the letters of the two concerns to the Department said to contain certain admissions. Reference was also made to the description by the Assistant Collector that AEL was a loan licensee which appears to be wholly irrelevant. Reference was also made to the averments in the respondent's letter dated 18-4-1980 that label printing was carried out in their establishment at Bombay, while the assembly of electrical measuring instruments was carried out in Nagargaon and this position was required to be examined. A Reference was also made to T.I. 68 mentioned in the order passed by the Assistant Collector and it was stated that was not one of the items mentioned in the table to the notification. He indicated that reference to T.I. 28A in respondent's letter dated 27-8-1980 cannot be correct, since T.I. 28A took in "electrical stamping, lamination all sorts" and not electrical measuring instruments. Since it was held that all these matters required further consideration, the Vice President desired remand of the case.
27. It appears to me that the matters arising for consideration are quite simple. Electrical motors fall under T.I. 30 of the table to the notification. The Assistant Collector proceeded on the basis that electrical measuring instruments fall under the description "electrical stamping, lamination all sorts" in T.I. 28A of the table to the notification. Admittedly, "label printing" falling under erstwhile T.I.68 is not an item covered by any of the items under the table to the notification. Therefore, the question of clubbing clearances would arise, if at all, only in relation to motors and electrical measuring instruments.
28. I am inclined to agree that the question of limitation was not properly considered in the order proposed by the Member Judicial, as I find that the allegation of suppression of facts made in the show cause notice was not dealt with by either of the lower authorities and the Collector (Appeals) erroneously proceeded on the basis that the show cause notice did not contain any such allegation.
29. However, the gordian knot has to be cut in this appeal which can be done by looking at the matter on the basis of the facts of the case.
Shri M. Jayaraman, JDR pointed out the relevant data with reference to two letters dated 24-5-1979 of the respondent and letter dated 8-8-1990 of AEL addressed to the Assistant Collector. Respondent did not furnish separately assessable value of electrical measuring instruments taking the view that they fall under T.I. 68. Letter dated 24-5-1979 disclosed the respondent's value of clearances of electrical motors during the year 1978-79 to be Rs. 8,82,320.00. The letter dated 8-8-1980 of AEL shows the latter's value of clearances of electrical motors attributable to AEL to be Rs. 7,01,600.00 and the value of item 28A goods to be Rs. 3,90,338.10. The letter also shows the value of T.I. 68 items to be Rs. 6,92,97,516.79.
30. Clause (a)(ii) of the exemption notification states that the notification shall not apply to a manufacturer during the financial year subsequent to the financial year 1978-79, if such clearances, if any, of the specified goods, during the preceding financial year had exceeded Rs. 15 lakhs. Goods falling under T.I. 68 are not specified in the table to the notification. Electrical motors do fall under the table to the notification. If electrical measuring instruments are to be regarded as attracting erstwhile T.I. 28A, they are covered under the table. Even taking AEL value for these two items, total value of clearances of these two items in 1978-79 would be Rs. 10,91,938.10 which would be much less than the limit of Rs. 15 lakhs. In this view, I find that the order passed by the Collector (Appeals) cannot be interfered with and appeal is liable to be dismissed.
31. I agree with the view taken by the Member Judicial that the appeal has to be dismissed.
32. In view of the majority opinion, the Department's appeal is rejected.