1. This Appeal No. 1228/83-Meteor Satellite v. Collector of Central Excise, Baroda and Appeal No. 1229/ 83 (Telstar Electronic, Ahmedabad v. Collector of Central Excise, Baroda) arising out of the same order dated 30-12-1982 passed by the Collector of Central Excise, Baroda, raise common issues and are disposed of by this order.
2 The question for decision in the two appeals is whether appellant M/s. Meteor Satellite Ltd. (hereinafter called Meteor) is the real manufacturer of pistons manufactured by appellant Telstar Electronics (hereinafter be called Telstar) and whether appellant Telstar Electronics was not entitled to avail of the benefit of the Notification No. 71/78, dated 1-3-1978 as amended by Notification No.80/80, dated 19-6-1978 and exemption from licensing control under Notification 111/78, dated 2-5-1978.
3. Meteor is a Public Ltd. Co. registered under the Companies Act, 1956 and is engeged in the business of manufacturing automobile pistons and other parts falling under T I. 34A of C.E.T. at its factory and Head Office at Kattawada, District Ahmedabad. For the purpose it holds a license in form L4 issued by the Excise Department. Telstar is a registered partnership firm engaged inter alia in the manufacture of motor vehicle parts, namely, pistons falling under Tariff Item 34A of the C.E.T. Meteor at the material time had five Directors, namely : - The last Shri V.P. Amin is nominated by Gujarat State Finance Corporation, as the Government of Gujarat has invested funds in Meteor.
Shri Ram Krishan Parekh at the material time was Managing Director of Mete but on objection being raised by Company Law authorities he resigned the office in 1982. Of Telstar, the partners are R.M. Parekh, Amol A. Shah and Smt. Sneh Veena Ben Shah. It would be seen that the three partners in the Telstar were Directors in Meteor. It appears that Telstar on the strength of Notification Nos. 80/80 and 111/78 claims exemption from licensing control up to 80% of the exemption limit set out in the notification and for the purpose filed declaration dated 4th September, 1980 before the Superintendent of Central Excise, Ahmedabad having jurisdiction in the matter.
4. It appears that officer of Central Excise (Preventive) Gr. II, Central Excise, Ahmedabad on 19-2-1981 made a surprise check of the Telstar factory at Parke premises Bappu Nagar Road, Ahmedabad. On check the officers felt that Telstar had wrongly been filing the exemption from licensing control and duty as per the notifications already mentioned above. They also noticed that two units Metalloy Costings and Manifold Engineering Pvt. Limited were housed in the same premises of Telstar sand shared a common office and store room. (Metalloy Costings and Manifold Engineering Pvt. Limited were not proceeded against by the Collector nor are they parties before us.) The officers fully investigated the affairs, during which they also seized 3,309 pistons, 3,339 guageon pins and 6,478 circlips. The officers felt that Telstar had engaged in manufacture of pistons at its factory Telstar for and on behalf of Meteor without holding 14 licence for the purpose. The officer were prima facie of the view that both Meteor and feistar had contravened various provision of the Rules and Act. Show Cause Notices to both the appellants were issued calling upon them to show cause why duty on pistons valued at Rs. 7,57,981.32 for the period 20-9-1980 to 20-2-l98l, and penalty be not realised from them and pistons, pins and circlips not confiscated? The two appellants filed replies denying the allegations. The Collector recorded evidence and after complying with the principles of natural justice passed order dated 30 12-1982 as follows : Penalty of Rs 20,000/- imposed on each of the two appellants for contravention of Rule 173Q(1) of the Rules and confiscation of 3309 pistons, 3239 gudgeon pins and 6478 circlips seized from M/s.
Telstar with an option to gel the goods released on payment of fine of Rs, 10,000/-. The appellants Meteor to pay duty on parts removed or found short for the period .20-9-1980 to 29-2-1981 valued at Rs. 7,57,981.32. Both the parties to obtain L4 licences for manufacture of Pistons falling under T.1. 34-A of the Central Excise Tariff.
5. Aggrieved with the order, the appellants have filed the present appeals to the Tribunal. At the hearing of the appeal Shri Nargolwala, learned Consultant for Meteor in his extensive arguments submitted that the case depended on the interpretation . of definition of "Manufacture" set out in Section 2(0 of the Central Excises and Salt Act, 1944. The question in the present two appeals was who was the manufacturer of the Pistons which admittedly were manufactured at the factory of Telstar. He submitted that Meteor is a Public Limited Co.
incorporated under the Companies Act; whereas Telstar is a Registered Partnership firm. During the course of his arguments, he admitted that the three partners of M/s. Telstar at the material tune were Directors of Meteor and one of them was the Managing Director. He, however, submitted that Meteor has a separate juridical identity different from its shareholders and merely because the Partners and Directors in Meteor and Telstar were common, there cannot be an inference that their interest were in any way common or close linked. It was explained that Meteor had Italian collaboration for manufacturing of Pistons had acquired a name in the field. Its brand name had also acquired reputation. The agreement with Italian Firm/ Collaborators allowed sub-licensing and Meteor had granted sub-licence in favour of Telstar.
This would not make Telstar an agent of Meteor. For this technical collaboration Telstar was to pay Rs. 2/- per piston up to 20,000 pieces and Re. 1/-per piece above these figures. About the sale of Pistons between 7th January to 21st March by Telstar to Meteor he explained that Telstar had been selling the pistons to other buyers also. The process of making pistons was also explained. He submitted that there was no financial connection between Telstar and Meteor and nor was it alleged. The two firms had independent financial sources. The Gujarat State Finance Corporation had advanced loans to Meteor whereas Telstar had taken loans from Bankers. As for sales of some Machinery by Meteor to Telstar the same was on arms length and had earned a profit of Rs. 20,000/-which was found in the Income-tax accounts books and duly assessed. He further argued that even if the entire sales of pistons were from Telstar to Meteor it would make no difference. He also argued that at a later stage Telstar was selling its products to Meteor at a margin of 50 paise because Meteor had better marketing arrangements. As for the brand name he sub-mitted that merely because Telstar used the brand name of Meteor this would not make Meteor the manufacturers of the goods or the Telstar its agents. He further argued that as for the offices of Metalloy and Telstar being situated in the same premises the same would make no difference as both paid rent separately and in Ahmedabad where there is shortage of space such arrangements between different parties is not uncommon. He submitted that there was no evidence of any control on Telstar by Meteor. The brand name was not a decisive factor. The manufacture of pistons by M/s. Telstar was by virtue of an agreement which was permitted by the Italian Collaborators. Meteor had no control financial or otherwise on Telstar's activities. He reiterated that whereas one was a public limited company and had juridical identity, other was a partnership firm. There can be no relationship between the two and Telstar cannot be called an agent of Meteor. In support of his argument, the appellants filed their income-tax papers to show that the Accounts and financial sources of the two i.e. M/s. Meteor and M/s. Telstar were totally separate from one and another and that profits made by Telstar did not flow back to Meteor.A.C.C.E. & C, v. Shri J.C. Shah, 1978 E.L.T. J 317 (Supreme Court); (ii) Cibatul Ltd. P.O. Atul v. Union of India and Ors., 1978 E.L.T. J 68 (Gujarat) ; (iii) Hind Lamps Ltd. v. Union of India and Ors., 1978 E.L.T. J 78 (Allahabad) ;Bata India Ltd. v. Assistant Collector of Central Excise, Patna, (v) Ganga Dhar Ram Chandra v. Collector of Central Excise, Allahabad and Ors., 1979 E.L.T. J 597 (Allahabad) ; (vi) Andhra Re-rolling Works and Ors., 1979 E.L.T. J 600 (Andhra Pradesh) ; (vii) Batliboi and Company v. Union of India and Ors., 1980 E.L.T. 1(Bombay) ; (viii) Philips India Ltd. and Ors. v. Union of India and Ors., 1980 E.L.T. 263 (Allahabad); (xi) Gentron Industrial Alliance Ltd. v. Union of India and Ors., 1980 E.L.T. 622 (Bombay) ;Rice and Oil Mills, Kandassankadavu v. Dy. Superintendent, Central Excise, Trichur, (xiii) C.B. Weaving Mills and Ors. v. A.C.C.E. Sivakasi, 1981 E.L.T. 62 (Madras) ; (xiv) Jaswant Sugar Mills Ltd., Meerut v. Union of India and Ors., 1981 E.L.T. 177 (Delhi) ; (xv) Ceramics and Electrical Industries Pvt. Ltd. v. Union of India and Ors., 1981 E.L.T. 358 (Bombay); (xvi) Remington Rand of India Ltd. and Anr. v. C.C.E. Calcutta and Ors., 1981 E.L.T. 874 (Calcutta) ; (xviii) Poona Bottling Co. and Ors. v. Union of India and Ors., 1981 E.L.T. 389 (Delhi);G.D. Industrial Engineers, Faridabad v. Collector of Customs ana Central Excise, Chandigarh, 1983 E.L.T. 1994 (CEGAT).
7. Shri Mehta, who appeared for Telstar, while substantially adopting the arguments of Shri Nargolwala criticised the appreciation of evidence by the Collector and submitted wrong inferences had been drawn. He submitted that his findings are based on surmise and conjectures. He argued that the Collector had ignored the evidence like deed of partnership, M/s. Telstar manufacturing other items prior to August, l980, its Sales tax registration, S.S.I. registration, Factory Act licences, separate income-tax assessment, establishment of factory out of personal resources, loan from outsiders and from banks without any financial connections with Meteor, which went to show that Telstar had separate and independent existence and had no connection with Meteor. He also criticised the various conclusions drawn by the Collecter stating that same were either based on no evidence or were contrar to evidence on record. He argued that appellants M/s. Telstar on 9-5-1.978 had filed proper declaration with necessary particulars mentioning Notifications under which this appellant claimed exemption from licensing control and payment of duty. It was also urged that there was no question of fraud, wilful suppression, or mis-statement of facts and therefore, no notice beyond the period of 6 months as stipulated under Section 11A (1) of the Act could be issued. No particulars of fraud, wilful suppression, etc., were set out in the Show Cause Notice. The appellant had not contravened any Rule. Both the appellants also urged that notice under Section 11A of the Act for demand of duty could be made only by an Asstt. Collector and not by Collector. The proceedings initiated by the Collector of Central Excise were therefore illegal and without jurisdiction.
8. On behalf of the Respondent Shri V. Lakshmi Kumaran, SDR argued that the matter should be viewed from the totality of circumstances. He admitted that the case law on Brand names and the juridical status of two units having common or same partners was against the Department. He submitted that some of the decisions which are against the appellants have been challenged in Supreme Court and binding nature of such decision had been lost. In particular he referred to decision of the Tribunal in G.D. Industrial Engineers, Faridabad v. C.C.E. Chandigarh, 1983 E.L.T. 1994 CEGAT wherein, it was held that if in two partnership firms all the partners were common, their product could not be clubbed, as they were two different manufacturers. Shri Lakshmi Kumaran submitted that correctness of this decision was open to question and an appeal had been filed against the same in the Supreme Court. He submitted that on examining the totality of facts and circumstances in the case, there can be no doubt that Telstar was only a facade for manufacturing pistons on behalf of Meteor and the clearance of the two should therefore be clubbed. Thus viewed Telstar was not entitled to exemption from licensing control and from payment of duty under Notification No. 71/78, dated 1-3-1978 as amended by Notification No.80/80-C.E., dated 19-6-1980. He argued that internal price of pistons whether manufactured by Meteor or Telstar are the same; whereas in the case of manufacture by Telstar there was no duty but in the case of Meteor there was 20% duty. He further argued that by disposing of the machinery and doing what they had done, Meteor has been able to save 20% duty i.e. by availing one of all concessions available in the name of Telstar. He argued that the Tribunal should pierce the corporate veil i.e. of Meteor and find out and conclude that Meteor and Telstar are in fact one and Telstar has been brought into existence to circumvent taxation. As for the time bar, he argued that Telstar's declaration did not mention the agreement with Meteor nor had Meteor informed the Department about its interest in Telstar, therefore, he argued there was mis-statement or mis-declaration and the extended time-limit would apply. He defended the Collector having passed the orders instead of the Assistant Collector having done so. Shri Lakshmi Kumaran in his argument relied on the following decision : 9. Notification No. 111/78-C.E., dated 9-5-78 exempts manufacturers from the operation of Rule 174 relating to licensing regarding the class of goods specified in the notification subjcet to conditions set out therein. The exemption inter alia is applicable to all goods that are exempt from the whole of the duty of Excise leviable thereon unconditionally. The two conditions of the Notification are that the aggregate value of the goods cleared by or on behalf of a manufacturer from one or more factories does not exceed 80% of the exemption limit specified in the relevant exemption Notification and further a manufacturer claiming exemption for the first time under the notifications makes a declaration and gives an undertaking as specified in the form annexed to the notification before 15th day of April of each financial year. Notification No. 80/80-C.E., dated 1-6-1980 which superseded Notification No. 71/78-C.E., dated 1-3-1978 grants concession to small scale units. First clearance of the specified goods upto an aggregate value not exceeding Rs. 15 lakhs are free from the whole of duty of Excise leviable thereon. Clearances exceeding this amount also get concession in the rate of duty which is not material for the present appeal. The notification inter alia is subject to certain exceptions under Clause (11), the notification is not applied to a manufacturer if the aggregate value of clearance of specified goods by him or on his behalf for home consumption from one or more factories during the preceding financial year exceeded Rs. 15 lakhs and to a manufacturer who manufactures excisable goods under more than one Tariff Item of the Schedule the aggregate value of the clearances of goods manufactured by him or on his behalf for home consumption from one or more factories during the preceding financial year had exceeded Rs. 20 lakhs. Parties agreed that if the clearances by Telstar be held to be manufactures by or on the behalf of Meteor, Telstar would not get exemption from licensing control under Notification No. 111/78-C.E., dated 9-5-1978 and exemption and concession under Notification No.80/80-C.E., dated 19-6-1980. The question for decision therefore, also agreed by the parties is whether the pistons manufactured and cleared by Telstar were by or on behalf of Meteor.
10. The findings of the Collector that the goods manufactured by Telstar and were by or on behalf of Meteor has been seriously criticised by both the appellants. It has been urged that this finding is contrary to evidence, based on no evidence and on surmises and conjectures. Each conclusion drawn by the Collector in Paras 18, 20 and 22 has been assailed on these grounds. A detailed discussion of this evidence the finding and the ground of challenge is not necessary, where necessary these are briefly adverted to.
11. Now admittedly Meteor is a Public Limited Company registered partnership firm. It is true that three partners of Telstar at the material time were Director of Meteor. A Public Limited Company, which is a judicial entity is a personality different from its shareholders, while the same cannot be strictly said about a registered partnership firm. A number of decisions have been cited dealing with effect of partners being common or identical in two firms on the issue relating to manufacture for 'the purposes of the Act. The present appeals are not cases of two partnership firms where one or more partners might be common.
12. Of the precedents cited, the two nearest and directly applicable in the present appeals are (1) Philips India Ltd. and Ors. v. Union of India and Ors., 1980 E.L.T. 263 (Allahabad) and Jaswant Sugar Mills, Meerut v. Union of India and Ors., 1981 E.L.T. 177 (Delhi). In Philips India's case a Director was common in two companies. The Allahabad High Court held that a person being director of two companies is not indicative of the fact that one company is dummy for another. In Jaswant Sugar Mills Ltd. v. Union of India and Ors. 1981 E.L.T. 177 (Delhi) which was a case of Public Limited Company partnership firm, the Delhi High Court after referring to the General Clauses Act observed that partnership firm concerned would be a person distinct from the petitioner which was a Public Limited Company.
13. The Supreme Court decision in Assistant Collector of Central Excise v. J.C. Shah (1978 E.L.T. J 317) relating a person-owner being partner in two places separate partnership factories would also support this view. Therefore, merely because three Directors in M/s. Meteor were partners in M/s. Telstar would not itself lead to the conclusion that M/s. Telstar was a dummy or comouflage for M/s. Meteor. [We do not express any opinion, one way or the other, regarding G.D. Industrial Engineers, Faridabad v. Collector of Customs and Central Excise, Chandigarh, 1983 E.L.T. 1994 (CEGAT), as the order is not directly applicable in the present appeals.] 14. Dealing with the various aspects of interpretation of the word 'Manufacture', the Allahabad High Court inter alia held that it is only if those who own a factory are a dummy concern or a comouflage for the buyer of goods produced that the latter can be considered to be a manufacturer. The High Court further pointed out that for such a finding financial involvement needed for manufacture or producing the goods, control or supervision over the production aspect of the buyer is necessary. In the absence of these, transaction between the two parties would appear generally to be on principal to principal basis in the ordinary course of business.
15. The Collector partly based his findings on the fact that pistons produced at Telstar's factory bore the same brand name as that of Meteor. Now on this point, there are a number of judicial pronouncements that use of brand name would not necessarily make the manufacturer using such mark an agent of the brand name owner. It cannot be said that manufacture by or on behalf of the brand name owner. Some of the decisions on the points are : (i) Cibatul Ltd. P.O. Atul v. Union of India and Ors., 1978 E.L.T. J 68 (Gujarat) ; (ii) Hind Lamps Ltd. v. Union of India and Ors., 1978 E.L.T. J 78 (Allahabad) ;Bata India Ltd. v. Assistant Collector of Central Excise, Patna, (iv) Batliboi & Co. v. Union of India and Ors., 1980 E.L.T. 1 (Bombay); (vi) Ceramics and Electrical Industries Pvt. Ltd. v. Union of India and Ors., 1981 E.L.T. 177 (Delhi); (vii) Remington Rand of India Ltd. and Ors. v. C.C.E., Calcutta and Ors., 1981 E.L.T. 874 (Calcutta) ; In view of these decisions Brand name aspect does not weigh against the appellants.
16. Another ground which weighed with the Collector in his findings is that Meteor had sold some machinery to Telstar. It is not alleged that this sale was under-valued or not bona fide. Sales have been duly accounted for in the Accounts Books of the parties and Meteor has shown a profit for the same. It is also noticed that Telstar, besides purchasing the machinery from Meteor also purchased machinery from other sources. Out of total machinery costing Rs. 16,803,34, Rs. 96,048/- was from Meteor and Rs. 65,755/- from others. This would not therefore weigh against Telstar. The Collector for his findings also relied on the fact that M/s. Telstar for certain period sold its entire production to M/s. Meteor. It is in evidence that earlier Telstar had also sold its products to other buyers. The appellants have explained why sales arrangement were necessary with Meteor. The appellants were using brand name of Meteor and Meteor had better sales organisation.
From this fact it would not be proper to hold that manufacture by Telstar is by or on behalf of Meteor.
17. The Collector also based his findings on the fact that Meteor had supplied raw material to Telstar. This is disputed by M/s. Telstar. Be however, it may be, this fact alone would not make M/s. Telstar a mannfacturer by or on behalf of Meteor. Decisions on the point are : (i) Gangadhar Ram Chandra v. Collector of Central Excise, Allahabad and Ors., 1979 E.L.T. J 597 (Allahabad) ; (ii) Andhra Re-rolling Works and Ors., 1979 E.L.T. J 600 (Andhra Pradesh) ; andBata India Ltd. v. Asstt. Collector of Central Excise, Patna, 1978 E.L.T. J 217 (Patna).
18. Some arguments were addressed that the Offices of Meteor Alloy Castings and Meteor were housed in the same premises. The Collector has referred to this in Para 17 of his order but has not based his findings on this aspect. Besides Metalloy Castings is not before us, we, therefore, do not deal with this aspect of the matter.
19. The appellants have filed various documents like deed of partnership, papers showing M/s. Telstar's manufacturing activities prior to August, 1980, sales tax and small scale industries certificate from M/s. Telstar, Factory Act Licence, plant and machinery purchased, balance sheet, Income-tax assessment and Chartered Accountant's certificate. There is nothing to show that profit made by Telstar flowed back to Meteor. Considering all the factors, the transactions between Telstar and Meteor be held to be on principal to principal basis. Telstar cannot be said to be an agent of Meteor. There is no evidence that Meteor had any financial involvement in the affairs of Telstar, nor is there any evidence for its activity were controlled by Meteor. For all these reasons the Collector's findings that goods produced by Telstar was for and on behalf of Meteor cannot be sustained.
20. As for the rulings relied on by the learned Senior Departmental Representative, it is sufficient to say that while Court or Tribunal is certainly entitled to lift mask of corporate entity if the conception is used for tax evasion or to circumvent tax obligation or perpetrating fraud, this is to be resorted to only in exceptional cases. In absence of evidence that profits made by Telstar flowed back to Meteor or evidence of control or supervision of Meteor over Telstar, we are not inclined to do so. The rulings do not help the respondent, 21. In the view we have taken it is not necessary to consider the other points urged by the parties, whether the show cause notice issued by the Collector of Central Excise was competent or the same should have been issued by the Assistant Collector of Central Excise or whether the demand against the appellants was time-barred.
22. As a result the order passed by the Collector of Central Excise, Baroda holding that the goods produced by Telstar were manufactured for and on behalf of Meteor is set aside. As a consequence the order of penalty, confiscation and redemption fine are also set aside. The appeal is thus allowed.