Judgment:
"(i) I hereby confirm the demand of Rs. 11,58,744.18 (BED Rs. 10,53,403.80 + SED Rs. 1,05,340.38) against M/s. Binny Limited (Engg. Division), Madras under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A(1) of the Central Excises & Salt Act, 1944.
(ii) I confiscate the goods manufactured at site viz. M/s. Baghpat Cooperative Sugar Mills Ltd., Baghpat by M/s. Binny Limited, Madras under Rule 173C of the Rules ibid which may be redeemed on payment of redemption fine of Rs. one lakh only.
(iii) I do not, however, order confiscation of goods mentioned in Annexure I & II to the Show Cause Notice as proposed therein.
(iv) I also impose a penalty of Rs. 3.00 lakh only on M/s. Binny Ltd. (Engg. Division), Madras under Rule 9(2), 52A and 173Q for breach of Rules 9(1), 52A, 173B, 173C, 173F, 173G and 174 of the Central Excise Rules, 1944.
(v) A penalty of Rs. One lakh only is imposed upon M/s. Baghpat Cooperative Sugar Mills Ltd., Baghpat under Rule 209A of the Central Excise Rules, 1944 ibid.
2. The facts leading to the present appeal are that it was gathered by the Central Excise Authorities, acting on intelligence, that M/s. Binny Limited, Madras had entered into a contract with M/s. Baghpat Cooperative Sugar Mills Ltd., Baghpat on 5-8-1989 to design and prepare engineering layout, manufacture, repair, procure and supply of boiling house with accessories for expansion of the Sugar plant of M/s. Baghpat Coop. Sugar Mills, Baghpat. The appellant has also entered into another contract to erect, commission and make ready for commercial use the said Boiling House with accessories. Investigations further revealed that the Appellant started manufacturing activities at the site for completion of the above referred contract situated in the factory premises of M/s. Baghpat Coop. Sugar Mills Ltd., Baghpat and manufactured and cleared excisable goods as per details in the Annexures to the Show Cause Notice. The Department alleged that in the construction of sugar plant, various machinery items emerge which fall under different sub-headings. These machines are then fixed to the ground and that this fact cannot make them immovable property and hence duty was payable on the total value of the contract. Accordingly, a Show Cause Notice was issued to the Appellants asking them to explain as to why Central Excise duty amounting to Rs. 50,02,533.53 should not be demanded from them and why penalty should not be imposed. In reply to the Show Cause Notice, the appellants submitted that critical equipment and parts are manufactured at their factory at Madras and are cleared from there after payment of duty; that wherever an amount of duty is mentioned, in the Annexure, for the goods manufactured in their Madras Unit was not correct; that the assessable value of the goods works out to Rs. 73,89,400/- on which Central Excise Duty amounting to Rs. 3,78,467/-has been paid; that items mentioned in Annexure II of the Show Cause Notice were bought out goods valued at Rs. 1,80,23,548.20 inclusive of duty; that the items mentioned in Annexure III to the Show Cause Notice has been fabricated at Site by the following sub-contractors: (i) M/s. Southern Fabricators, Madras, (ii) M/s.
Thayil Bros., and (iii) M/s. Twin Toss, Vizag.
3. The Appellants submitted that the sub-contractors are separate legal entities and small scale units and were eligible to exemption as SSI Units upto a value of Rs. 30.00 lakhs under Notification No. 175/86; that the work involved at site was cutting of pieces of beams or drilling etc.; that thereafter they were taken for erection or welding to the site, that they were embedded to earth; that they were not goods, as they were not marketable; that the appellants only supplied raw materials and raw material suppliers does not become manufacturer; that this fact was supported by various decisions.
4. The appellants also submitted that the facts of manufacture were known to the Excise Department; that there was nothing held back from the Department and, therefore, the extended period cannot be invoked for raising the demand. After careful consideration of the submissions, the ld. Collector held as indicated above.
5. Shri V.S. Venugopalan, the ld. Advocate appearing for the appellants, submitted that the appellants were supplying raw materials to their sub-contractors; that critical parts of machinery was being manufactured in their factory at Madras; that some other items were being procured from the market on which duty was paid by the manufacturers; that only fabrication and erection work was being done by the sub-contractors. The ld. Counsel submitted that fabrication was done at the site; that erection was done piece by piece; that these goods are embedded in the ground and the goods are not marketable and, therefore, were not excisable. He submitted that the applicants were not manufacturers. In support of this contention, the ld. Counsel relied upon the judgment of the Apex Court in the case of M/s. Basant Industries [1995 (75) E.L.T. 21]. He submitted that in this case, the Central Excise Department issued a Show Cause Notice; that the appellants in that case got the power driven pumps manufactured with brand name of 'Atul Shakti' from the different manufacturing units who in fact were manufacturing these pumps on behalf of the appellants. In reply, it was stated that the appellant had given raw materials to independent units who were not under the control or direction of the appellant. According to the appellant, on the raw material supplied by it, the independent units had manufactured according to specifications given by the appellants. Therefore, the work carried on by the independent units could not be deemed to be on behalf of the appellants and the appellants could not be denied the benefit of exemption under Notification No. 85/72. The Apex Court in the case of Ujagar Prints and Ors. v. Union of India - [1988 (38) E.L.T. 535] held that the test to confirm the liability under the Act is whether a new commercial commodity has emerged. Since the goods which were manufactured by different units with the raw materials supplied by the appellant was a new commercial commodity, it cannot be said that it did not amount to manufacture and that was not in dispute in the Show Cause Notice which called upon the appellants to explain as to why duty should not be levied on it as it was manufactured on its behalf. The ambit of controversy thus was not so much whether the pumps were manufactured by different parties, but whether it was manufactured on the appellant's behalf. The Tribunal in this regard found it as fair that the appellant had no control either over the manufacturing process or manufacturing parties. The ld. Counsel submitted that at Site the goods were manufactured by the independent fabricators who were neither dummies nor hired labour nor the agents of the appellants, but being independent units and had a principle to principle relationship with the Appellants, were the manufacturers in their own right and were neither the agents of appellants nor were they manufacturing the goods on behalf of the appellants as the only control the appellants exercised over the independent units was in respect of the goods as to their quality and standard before they are accepted The ld. Counsel referred to the decision of this Tribunal in the case of M/s. Fusion Polymers Ltd. - 1991 (56) E.L.T. 665 (Tribunal) wherein this Tribunal held that supply of raw material does not amount to control over manufacture and does not ipso facto make the supplier a manufacturer.
The ld. Counsel submitted that in their case also, only raw material was supplied by the Appellants and also drawings were supplied and the control exercised was only that of inspection for quality and standard and thus, the Appellant cannot be termed as manufacturers.
6. The ld. Counsel submitted that raw material was supplied by the appellants; that the contractors were working on their own; that the dealings between the two, viz. between the appellant and the sub-contractors were on principle to principle basis and, therefore, the contractors were actually the manufacturers and not the appellant.
In support of this contention, he cited and relied upon the decision in the case of Kerala State Electricity Board v. C.C.E. [1990 (47) E.L.T.62 (Tribunal)]. The ld. Counsel also referred to the decision of this Tribunal in the case of C.C.E. v. Sonali Enterprises [1991 (56) E.L.T.164 (Tribunal)] wherein the Tribunal held that the raw material supplier is not a manufacturer.Tata Robin Eraser Ltd. v. C.C.E. [1990 (46) E.L.T. 562], the ld. Counsel submitted that the Tribunal in the case held that the goods were fabricated by independent fabricator on job work basis for supplier of raw materials and others. The fabricator is the manufacturer and not the supplier of raw materials. Explaining the facts of their case in the light of the above decision, the ld. Counsel submitted that the appellant was only a supplier of raw materials and the fabrication work was done by the sub-contractors who were independent units, were neither hired labour nor agents nor dummy units of the appellants and, therefore, the fabricators i.e. the sub-contractors were manufacturers in the present case and not the appellants.
8. Summing up his arguments, the ld. Counsel submitted that they were not the manufacturers of the items fabricated; that they had no control over the management of the sub-contractors; that the sub-contractors were neither their hired labour nor agents, nor their dummy units; that the dealings between them and the sub-contractors were on principle to principle basis; that at the site only fabrication and erection was being done; that it was being done piece by piece and by a process of welding and cutting or boring holes or rivetting; that these goods were not marketable and were embedded on earth and they were not goods for purposes of levy of excise duty. The ld. Counsel, therefore, submitted that both demand of duty and imposition of penalty is not warranted in their case.
9. Shri P.K. Jain, the ld. SDR appearing for the respondent Commissioner, submits that the ld. Commissioner of Central Excise has dealt with the valuation aspect of the case in detail and has elaborately examined and analysed the submissions made and evidence produced by the Appellants. He submits that in the instant case, not only raw materials was supplied, but the entire designing work was done by the Appellants and that they had control over the sub-contractors inasmuch as supervision over the goods were exercised before their acceptance. Distinguishing the decision of the Apex Court in the case of C.C.E., Baroda v. MM. Khambhatwala [1996 (84) E.L.T. 161 (S.C.)] relied upon by the Appellants, the ld. SDR submitted that the activity was not being done in their supervision in the case cited and relied upon by the Appellants, whereas in the instant case, the entire activity was being supervised by the Appellants. He submitted that the fabricators can be treated as hired labour of the appellants inasmuch as they were paid wages per tonne; that the entire fabrication work was being done in the premises of M/s. Baghpat Coop. Sugar Mills Ltd.; that the place does not belong to the sub-contractors; that the workshop and place for work was provided to the sub-contractors; that electricity bills etc. were required to be paid by the fabricators; that the agreement was duly signed by M/s. Baghpat Cooperative Sugar Mills Ltd. and M/s. Binny Limited. The ld. SDR submitted that for deciding the issue, a single point cannot be taken; that all the factors are to be taken together to decide as to who the manufacturer was. He submitted that the factors as the labour, raw materials, electricity bills, place of work, workshop, designs, etc. are to be considered together that Section 11A(1) proviso talks about the persons chargeable to duty; that the person chargeable with duty was the appellant as the contract stipulated that Central Excise Duty, if any, shall be payable by the appellant. In support of this contention, he referred to the decision of the Apex Court in the case of Chandrakant Krishna v. CC [ECR-C-Cus.
174 S.C.]; that it has clearly been brought out in para 29 of the impugned order that the sub-contractors were agents of the appellants.
Reading copiously from the various paragraphs of the adjudication order, the ld. SDR submitted that the position has been very lucidly brought out by the ld. Collector; that the appellants were manufacturers. He submitted that in view of the above submissions and the finding of the ld. Collector, duty has rightly been demanded from them and penalty has justifiably been imposed on the appellants.
10. Heard the submissions of both sides. On careful consideration of the submissions made before us, we note that the following points arise for determination :- (i) Whether the activities undertaken by M/s.
Binny Limited, through their sub-contractors, within the pricincts of M/s. Baghpat Cooperative Sugar Mills would be said to have amounted to manufacture of items/goods falling under the Schedule to the Central Excise Tariff Act, 1985 chargeable to duties of Excise; (ii) If so, who is to be treated as the manufacturer of these goods, liable to pay the aforesaid duty of excise? - M/s. Binny Limited or their Three sub-contractors/Job Workers; (iii) How is the appropriate valuation of the goods so manufactured, was to be worked out so that the duty liability could be quantified?; (iv) Whether in the facts and circumstances of this case, duty could be demanded for the extended period of 5 years under the Proviso to Section 11A(1) of the Central Excises & Salt Act, 1944 on grounds of wilful mis-statement/suppression of facts; and (v) Whether the two Noticees, and in particular M/s.
Baghpat Cooperative Sugar Mills are liable for penal action under the relevant provisions of the aforesaid Central Excise Act and Rules made thereunder? 11. On the first issue, we note that M/s. Baghpat Cooperative Sugar Mills entered into a contract with M/s. Binny Limited for certain additions/ provisions in their factory at Baghpat. M/s. Binny Limited, in turn, appointed sub-contractors for execution of the work. The work involved fabrication and erection of various items in the premises of M/s. Baghpat Coop. Sugar Mills. Now whether this activity of fabrication and erection amounted to manufacture is to be seen in the light of the work done. We find that, no doubt, fabrication brought into existence certain goods; erection of various components and their installation at the site gave rise to certain goods. But for the purpose of leviability of Central Excise duty, the goods must be made marketable. In the instant case, fabrication was being done at the site and erection of plant and machinery was also undertaken at the Site.
The goods are not brought to the market for purposes of sale. Moreover, by fabrication and erection, these goods were embedded to earth. There is a catena of judgments that marketability is one of the tests to which the goods should be subjected. Both from the marketability angle as also from the angle that the plant and machinery on erection got embedded to earth and, therefore, they are not goods. Since they are not goods, therefore, they will not be chargeable to duty.
12. On the second issue as to who the manufacturer was, we note that the contract was signed between M/s. Binny Limited and M/s. Baghpat Coop. Sugar Mills. M/s. Binny Limited, in its turn, appointed three sub-contractors specializing in the job. They provided the raw materials to the sub-contractors and also inspected the goods before they are fabricated/erected at site. We note that the Apex Court in the case of Brittania Industries Limited v. CCE [1997 (89) E.L.T. 22] observed that Tin Sheets were supplied by the Customer, who kept with himself the right to reject metal containers; the work was done by four job working units who got fixed rates and having separate Central Excise Licence, held that the Customer not liable as a manufacturer of metal containers, particularly when all the 4 Job working units had their own licences and employed their own workers. In the instant case, we note that the three sub-contractors had their own work force and specialization in different aspects. It was also brought to our notice that these three sub-contractors were not hired labour, but were independent small scale units and that the transaction between them and M/s. Binny Limited was on principle-to-principle basis. We note that manufacture by independent manufacturer is not treatable as manufactured by the Supplier of raw materials. A hired labour is one who hires himself out to work for and under the control of another for wages. Thus, a person who manufactures goods and who has machinery can, without himself manipulating or working machinery, hire labourers to make/manufacture goods. But because he makes goods for another customer for a consideration, he cannot be said to have hired himself out to other persons for manufacture of goods or that the customer engages in manufacture of goods. We further note that a job worker, who employes his own machinery, labour and capital and without any management control or financial involvement of the customer, there being no relationship between the two except as on a principle-to-principle basis, the Job Worker is the manufacturer and not the Customer. We also note that mere supply of raw materials to Job Workers does not make him a hired labourer when he is having his own independent unit. To constitute hired labour, relationship of Master and Servant between those Hired and Hiring is a must, which implies active control and supervision of those hired. In the instant case, we find that the three sub-contractors were independent of M/s. Binny Limited and were subject to the sub-contracts signed with them. Looking to the facts and circumstances as brought out above in the submissions made, we hold that the three sub-contractors were the manufacturers and not M/s.
Binny Limited.
13. Insofar as the question of valuation of the goods is concerned, we have held that in view of the circumstances and facts of the present case, the goods were not leviable to excise duty and, therefore, the question of their valuation and duty liability does not arise.
14. On the question whether duty can be demanded for the extended period of 5 years under Proviso to Section 11A(1), we find that we have held that the goods were not leviable to excise duty and, therefore, the issue whether duty can be demanded for the extended period is only of academic interest and is not being discussed.
15. On the question of levy of penalty, we find that from the evidence placed before us and the submissions made that since the goods were not leviable to duty as they were not excisable goods inasmuch as they had not satisfied the marketability test and they were embedded to earth, therefore, the question of imposition of penalty does not arise.
16. Having regard to the above findings, we set aside the impugned order and allow the appeal. Consequential relief shall be admissible to the appellants in accordance with law.