Judgment:
1. The appellants were manufacturing organic chemicals on job work basis for M/s. Citurgia Bio-Chemicals Ltd. The raw materials were procured by the appellants on behalf of the principal manufacturers for which the payment was made by the principal manufacturers. The examination of the Annual Report revealed that the appellants were getting unsecured loans from the principal manufacturers. On recording the statements of concerned persons, show cause notice dated 9-5-1991 was issued alleging that the appellants were hired labourers for M/s. Citurgia Bio-Chemicals Ltd., that M/s.
Citurgia Bio-Chemicals Ltd. were the owners of the raw materials as well as finished goods, that the transaction between them were not on principal to principal basis and therefore, the benefit of Notification No. 175/86-C.E. was wrongly taken by the appellants. The show cause notice also invoked the proviso to Section 11A on the ground that the fact that the appellants were hired labour was suppressed with intention to evade payment of duty. The demand for difference of duty for the period April, 1988 to November, 1988 was made. It was also alleged that the appellants were liable to penalty. The Collector in his order has confirmed the demand and also imposed a penalty of Rs. 50,000/- on the appellants. Hence this appeal.
2. We have heard Shri S.P. Gandhi, learned Chartered Accountant for the appellants and Shri H.K. Jain, learned DR for the Revenue. The specific allegation in the show cause notice is that the appellants were hired labour for M/s. Citurgia Bio-Chemicals Ltd. and therefore, in terms of Section 2(f) of the Central Excise and Salt Act, 1944, M/s. Citroflex Pvt. Ltd. was the manufacturer and not the appellants. The Collector in his order examined the relationship between the two units and in para 16 made the following observations :- 'In the present case, the evidence does not suggest that M/s.
Citroflex Pvt. Ltd. is not an independent unit and relationship between M/s. Citurgia Bio-Chemicals Ltd. and M/s. Citroflex Pvt.
Ltd. are that of master and servant as there is no evidence to establish that M/s. Citurgia are examining supervision and control on the production and marketing activities of M/s. Citroflex Pvt.
Ltd....' 3. In his findings at para 16.3, he confirms this statement. "In the present case, there is no evidence to suggest regarding exercising of supervision and control by M/s. Citurgia Bio-Chemicals over M/s.
Citroflex but there is ample evidence to establish financial control by M/s. Citurgia Bio-Chemicals on the manufacturing activities of M/s.
Citroflex. There is certainly a financial interest between M/s Citurgia Bio-Chemicals and M/s Citroflex Pvt. Ltd., in as much as the later have been taking unsecured loans ranging from Rs. 17 lakhs to Rs. 22 lakhs from M/s. Citurgia Bio-Chemicals Ltd. which clearly proves that there was financial interest between the two units." 4. The learned Chartered Accountant claimed that apart from M/s Citurgia Bio-Chemicals, the appellants had also secured loans from other corporate persons such as Gujarat State Financial Corporation and other financial institutions. He relied upon substantial case law to show that mere financial accommodation between the two units does not suggest that the relationship was not on principal to principal basis.
5. To our mind, the issue before the Collector was limited to finding whether the appellants were hired labour in terms of Section 2(f) and not whether they were dummy or shadow unit of the principal manufacturer. Citing the case of M/s Ujagar Prints reported in [1988 (38) E.L.T. 530], the learned Chartered Accountant stated that where a job worker is held to be an independent manufacturer, he ceases to qualify for the term hired labour.
6. We have examined the case law which has a bearing on the interpretation of the term hired labour. In their judgment in the case of Apex Electricals Pvt. Ltd. reported in [1992 (61) E.L.T. 413], the Gujarat High Court after examining the circumstances of the case before them, held that job workers could not be treated as hired labour. The Tribunal in the case of Techma Engineering Enterprise, Calcutta reported in [1987 (27) E.L.T. 460] defined the scope of the term hired labour. Para 11 of the judgment reads as under: "It is submitted by M/s Techma that an independent contractor or manufacturer cannot be called a hired labourer. We are in agreement with this. We understand a hired labourer as one who hires himself out to work for and under the control of another for wages. Thus a person who manufactures cans and who has machinery in his house can, without himself manipulating or working the machinery, hire labourers to make/manufacture cans by turning, manipulating, working the sheets in the machinery, to produce and turn out cans. Such a man is a man who hires labour to manufacture cans and so engages himself in their manufacture. He is directly and visibly involved in the process of manufacture, in the act of forming and manipulating and fabricating cans from sheets either manually or with the aid of machinery. That person may manufacture the cans for himself or for another, but he engages in their production on his own account. But because he undertakes to make cans for another customer for a consideration, he cannot be said to have hired himself out to other persons for the manufacture of cans or that the customer engages in the manufacture of cans. The difficulty in the interpretation given by the Collector is that there will be two manufacturers in such a case, the so-called person who engages himself and the person who actually manufacturers the goods, the hird labourer." 7. In a recent judgment of M.M. Khambhatwala reported in [1996 (84) E.L.T. 161], the Supreme Court was examining the scope of this very term. In that case, raw materials were supplied by a person to household ladies to manufacture the goods, sold them and sent the sale proceeds to the supplier of the raw material. The Supreme Court held that in such a case, since the respondents were supervising the manufacturing operations, the ladies could not be treated as hired labourer but had to be held as manufacturers of the goods.
8. In the present case, it is an admitted position that there was no supervision of the work of the present appellants by the suppliers of the raw materials. The Collector himself admitted that the relationship between them was that of a master and servant. In these circumstances, following the case law cited by us, it cannot be held that the present appellants were the hired labourer of the principal manufacturers.
Therefore, their status was clearly that of an independent manufacturer on the job work basis and the benefit of the subject notification was available to them. On these observations, we allow this appeal, set aside the impugned order and direct consequential relief to the extent admissible.