1. These appeals are taken up together for disposal as per law, as the issue lies in short compass. The details of the appeals are given below: The Commissioner of Central Excise, Bangalore-I Commissionerate, Bangalore.
E/994/2005 - M/s. Indian Rayon and Industries Ltd. (An unit of Madura Garments Division) 2. The appellants would place orders on various inputs and the suppliers would send the inputs directly to the job workers, who would avail Cenvat Credit and manufacture Ready Made Garments (RMG). The RMG would be affixed with the brand name of the appellant. The job worker would clear the RMG in bulk condition. Duty would be paid by the job worker on the RMG cleared in bulk condition on a value arrived at on the basis of cost of raw materials plus the processing charges. On receipt of the RMG, each RMG would be removed from the bulk pack to retail pack and put in individual polythene cover. The price tag would be affixed to each RMG. In the case of shirts, the said goods are thereafter put in a product box. A label indicating the style code, the price of the RMG, the size is affixed to the product box together with a small piece of the fabric, commercially known as swatch. Each RMG is thereafter arranged and stored for further transportation for which purpose they are put in a corrugated box. The appellants availed the benefit of exemption Notification 38/2003 CE dated 30.4.2003 exempting garments which are subjected to any of the processes like labeling/relabelling, repacking from bulk packs to retail packs, alteration, etc., subsequent to its purchase. The internal audit party visited the appellants unit and examined the procurement system adopted by the appellants' w.e.f 1.1.2004. A Show Cause Notice dated 13.1.2005 was issued alleging that the appellants had wrongly availed the benefit of Notification No. 38/2003 CE dated 30.4.2003 proposing to demand differential duty of Rs. 8,25,36,069/-. The above Show Cause Notice was withdrawn on 9.2.2005. However, on the same date another Show Cause Notice was issued denying the exemption on the ground that the garments received from job workers cannot be treated to have been purchased from them. The duty of Rs. 16,15,98,728/- was demanded. The duty already paid by the job workers was not adjusted. The Adjudicating Authority after giving a personal hearing passed the impugned order confirming the demand. He has allowed the appellants to avail cenvat credit of duty paid by their job workers. The appellants are aggrieved over the impugned order.
3. Shri G. Shivadass, learned advocate who appeared on behalf of the appellants urged the following points.
(i) The appellants receive RMG affixed with brand name. Thereafter, they undertake processes like repacking, labeling, fixing price tag, etc. The above processes are covered by Notification No. 38/2003 dated 30.4.2003 under Sl. No. 50.
(ii) The only ground on which the benefit of the Notification has been denied to the appellants is that they do not purchase the RMG but only receive the same from the job workers and since the Notification specifically indicates that the specified processes have to be undertaken subsequent to 'purchase' they are not entitled to the benefit of the Notification.
(iii) The term 'purchase' has not been defined in the said Notification. The expression 'sale' and 'purchase' have been defined in Section 2(h) of the Central Excise Act 1944 as "any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration". The above definition contemplates that to be considered as 'purchase' or 'sale' in a transaction, there has to be transfer of possession of the goods from one person to another and should be for a valuable consideration. There is no condition that there should be transfer of property in the goods. Further, the definition does not contain any stipulation regarding quantum of consideration. So long as, there is transfer of possession of goods from one person to another for a consideration, the definition of sale and purchase in Section 2(h) of the Central Excise Act 1944 is satisfied.
(iv) The Apex Court in the Ujagar Prints case as reported in 1988 (38) ELT 535 (SC) in the context of valuation of goods manufactured by the job worker has clearly held that the job worker's premises would be the deemed factory gate, as if the processed goods have been sold by the processor. In the present case, the appellants had paid the job workers the job charges and that there has been a transfer of possession from one person to another. Once the transfer of possession of the garments has taken place from the job worker to the appellants for a consideration, the conditions specified in the Notification are satisfied.Partap Steel Rolling Mills (P) Ltd. v. CCE (vi) The Tribunal in the case of Imex Eng. Co. Pvt. Ltd. v. CCE negatived Revenue's decision to deny modvat credit on the only ground that the transaction between a job worker and a principal is not sale, by relying upon the definition of 'sale' in the Central Excise Act, 1944.
The ratio decidendi in the case cited is that the definition of 'sale' as defined in Central Excise Act, 1944 has to be applied whenever the said term occurs in the Central Excise Rules or Notification.
(vii) Revenue's contention that there is no sale between the job worker and the appellant on the ground that valuation has been adopted on the basis of formula laid down by Apex Court in the case of Ujagar Prints has been followed and not on the basis of Section 4(1)(a) or Section 4(1)(b), is not correct, for the reason that the valuation adopted was not because there was no sale in terms of the Central Excise Act but because the valuation provisions did not provide for any clear mechanism to determine the intrinsic value of the product manufactured by the job worker. Therefore, they resort to Rule 7 read with Rule 6 (b)(ii) of the erstwhile valuation rules read with Apex Court's decision was adopted. Even after 1.7.2000 the above situation has not undergone any change as per Board's circular dated 19.2.2002.
(viii) The Commissioner has held that the transaction cannot be considered as a 'sale', since the job worker does not pay Sales Tax while sending the goods to the appellants. The definition of 'sale' in the Karnataka Sales Tax Act is different from the definition of sale in the Central Excise Act, 1944. In the former, there is requirement of transfer of property in goods to attract Sales Tax whereas in the Central Excise Act, it is enough if there is transfer of possession of goods for a consideration without transfer of property in the goods. As there is no transfer of title, the payment of Sales Tax does not arise.
(ix) The modvat credit of duty already paid by the job worker is liable to be extended. If the duty of Rs. 7,90,62,659/- is reduced from the duty now confirmed, the liability of the appellants would come down to Rs. 8,25,36,069/-. As the duty demand confirmed in the impugned order itself, is not sustainable, the demand for interest under Section 11AB of the Central Excise Act is also not sustainable.Levis Strauss (India) Pvt. Ltd. v. CCE, Bangalore-I Commissionerate 4. The appellant is a dealer/trader in RMG, which have the name Levis and Dockers on them. These goods were got manufactured by the appellant from independent contract manufacturers on payment of job charges, after supply of inputs such as fabrics/accessories. After paying duty, the job workers send the goods to another unit called Vishesh Enterprises who did the activity of affixing MRP, tagging, packing and labeling the goods. The goods were thereafter sold obtaining space at the premises of a concern called MERX Logistics. Revenue issued Show Cause Notice dated 21.03.2005 to the appellant on the ground that the goods were not entitled to the benefit of Notification No.38/2003-Central Excise dated 30.04.2003 and the appellants alone are required to pay the duty. The reason for denying the exemption Notification is that the Notification in question would apply only when there is a 'purchase' or 'sale' of goods. But in the present transaction, there is no 'purchase' or 'sale'. The Original Authority in the impugned order No. 24/2005 dated 25.08.2005 held that the Notification No. 38/2003 would not be applicable to the goods procured on job work basis as there was no 'purchase'. He held that the appellant is liable to pay duty on the RMGs at the rate of duty of 10% on a tariff value of 60% of Retail Selling Price affixed on such RMGs in terms of Notification No. 20/2001-CE (NT) dated 30.04.2001 issued under Sub-section (2) of Section 3 of the Act. He demanded a sum of Rs. 1,16,61,660/- for the period from 03.03.2004 to 08.07.2004 under Section 11A(2) of the Central Excise Act, 1944. Interest under Section 11AB was also demanded.
5. Shri K.S. Ravi Shankar, the learned Advocate who appeared for the appellants urged the following points: (i) The appellant is not a manufacturer and, therefore, Section 3 or Section 11A cannot be pressed into service against them.CCE v. M.M. Khambatwala has held that when goods are manufactured by an independent person, though the material is supplied by the buyer and sale proceeds go to the coffers of the buyer, the independent persons would be manufacturers under the Central Excise law and not the buyer. Ownership of material is irrelevant to consider the nature of manufacture and the question of who is the manufacturer.
(iii) The Board in its Circular No. 759/75/2003-CX dated 30.10.2003 has clarified that Section 4 and Transaction value would apply to cases of jobbing of RMG and that the actual person who conducts the activity of jobbing would be the manufacturer as held by Courts.
(iv) The word 'purchase' which is the opposite of sale has been defined in Section 2(h) of the Central Excise Act, 1944 and no other meaning can be assigned to it, when the statute defines the same and the Respondent's theory that sales tax law related definition and documents are relevant to construe this position, is highly preposterous. 'Sale' should be understood only as per Section 2(h) in Central Excise law which means transfer of possession by one to another for deferred payment or other valuable consideration.
(v) The following Tribunal decisions are relied upon, in the context of what constitutes a 'sale' and 'purchase' in Central Excise law.Rado Tyres Ltd. v. CCE 2001 (138) ELT 1121(T) and also Rado Tyres in ;Pratap Steel Rolling Mills (P) Ltd. v. CCE E/290/2006 Arvind Clothing Limited v. CCE, Bangalore-I Commissionerate 6. The appellants supply all inputs for manufacture of garments to the job workers and the inputs are consigned to them. The inputs are duty paid. The job workers receive the input, take Cenvat credit and manufacture garments. They clear the garments in bulk on payment of excise duty valuing the goods under Section 4 (on the value of raw materials + job charges). These garments are sent back to the warehouse of the appellant. On receipt of the duty paid garments in bulk into their warehouse, the appellant carries out price tagging, stickering, washing instructions, tagging and retail packing. The goods were cleared by availing exemption Notification 7/2003-Central Excise as amended by Notification No. 38/2003. Revenue issued Show Cause Notice to the appellants alleging that they are not entitled for the benefit of exemption Notification No. 38/2003. The Adjudicating Authority, consequently, held that the appellant is liable to pay duty in terms of Notification 20/2001-CE(NT) dated 30.04.2001. Duty demand of Rs. 51,48,000/- for the period from 01.05.2004 to 08.07.2004 was confirmed.
Interest under Section 11AB was also demanded.
7. Shri Ravi Shankar, the learned Advocate, urged that the appellants are entitled for the benefit of the Notification 38/2003-CE and Revenue's contention that there is no purchase is not correct, in the light of the definition of 'purchase' in Section 2(h) of the Central Excise Act, 1944. He relied on the case-laws cited supra in the case of M/s. Levi Strauss (India) Pvt. Ltd. 8. The learned JDR took us through the Orders-in-Original and urged that the Adjudicating Authority has examined the issue properly and come to the conclusion that the appellants are not entitled for the benefit of the Notification. He also pointed out that the job workers clear the goods on payment of duty based on the valuation as per Ujagar Prints (supra) case. This is done because there are no sales. When there is no sale, the Notification cannot be made applicable. He requested the bench to confirm the Orders-in-original.
9. On a careful consideration, we find that the facts are more or less similar in the case of M/s. Indian Rayon & Industries Ltd. and also M/s. Aravind Clothing Ltd. In these cases, the appellants send the inputs to the job workers. The job workers manufacture the RMGs. They clear it in bulk on payment of duty. On receipt of the RMGs, the appellants carryout the processes mentioned in the Notification such as (1) labeling or re-labeling, that is to say attaching or affixing price tag, name of seller of such goods or instruction regarding usage; (2) repacking form bulk packs to retail packs; (3) alteration; or (4) any other process to make the product marketable. After carrying out these processes, the appellants clear the goods without payment of duty by availing Notification No. 38/2003 dated 30.04.2003. The contention of the Revenue is that the appellants are not entitled for the benefit of the exemption for the reason that there is no 'purchase' of the goods, which is an essential condition for availing the Notification benefit.
According to the Revenue, the title of the goods always rests with the appellant. There is actually no 'purchase' of the goods from the job worker. In these circumstances, the benefit of the Notification cannot be extended. The appellants contended that the transaction amounts to "sale" in terms of Section 2(h) of the Central Excise Act. Even though the appellants relied on 5 case-laws to press their point that the transaction amounts to sale/purchase, the Commissioner has observed that the said case-laws are not applicable to the present cases.
According to him, the case-laws are in connection with the availment of modvat credit. According to the Commissioner, the said case-laws cannot be taken as a general ruling on the definition of 'sale' or 'purchase' that has limited application. We find that the said Notification has not defined 'sale' or 'purchase'. In the absence of such a definition in the Notification, we have to go by the definition given in the Central Excise Act. According to Section 2(h) of the Central Excise Act "Sale' and 'purchase' with their grammatical variations and cognate expressions, to mean any transfer of the possession of the goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration". The learned Advocate pointed out that as per Karnataka Sales Tax Act, there should be transfer of property of goods, so that the transaction can be considered as sale. However, in the Central Excise law, it is sufficient if there is transfer of possession of goods for valuable consideration. The appellants have clearly shown that in their cases, there is actually transfer of possession from the job worker to the appellants and since, the appellants pay the job work charges to the job workers, there is actually a valuable consideration. In these circumstances, we are satisfied that the transaction amounts to 'purchase' by the appellants from the job worker. Now, we reproduce the relevant portion of the Notification for clarity.
Article of apparel or clothing accessories when subjected to any one or more of the following processes, other than the process of affixing a brand name or trade name, subsequent to purchase, namely: (1) labeling or re-labeling that is to say, attaching or affixing price tag, name of seller of such goods or instruction regarding usage; "brand name" or "trade name" means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person.
Since, the definition of sale/purchase is somewhat different in the Central Excise Act, we cannot say that the particular transaction is not sale because no sales tax has been paid. We are satisfied that in the case of both the appellants, the transaction from the job worker to the appellants amounts to 'purchase' by the appellants for a valuable consideration. Hence, the benefit of exemption notification cannot be denied.
9.1 As regards the appellant M/s. Levi Strauss (India) Pvt. Ltd., it is seen that the appellant is only a dealer/trader in branded garments.
The duty paid inputs are sent to the contract manufacturers or job workers. The job workers carry out the manufacture of garments and clear them in bulk packing on payment of duty. They are actually sending the bulk goods to Vishesh Enterprise. Vishesh Enterprises carry out the activity of affixing MRP, tagging, usage instructions, labeling, re-packing, etc. Vishesh Enterprises send the goods to MERX Logistics India. The goods are sold from there. It is the contention of the appellant that they are not manufacturers. They have relied on the Apex Court's decision in the case of CCE v. M. Khambatwala (supra) decision. In the said case, it was held that when the goods were produced on piece rate basis out of raw materials supplied by the person paying wages, the jobbers were the manufacturers and sale or ownership of raw material was not at all relevant. In the above mentioned case, the question arose as to whether the Respondents are manufacturers of agarbatti, amlapodi and dhup etc., even though they were manufactured in various premises of the household ladies outside the factory of the Respondents. The Apex Court held that the ownership of the end product is irrelevant and the job workers are only the manufacturers. We reproduce para 7 and 8 of the above decision.
7. We have considered the submissions advanced before us by the learned Counsel on both the sides. We find force in the arguments of the learned Counsel for the respondents: on the admitted facts which we will set out immediately the respondents cannot be considered as manufacturers of agarbatti, amlapodi and dhup etc. manufactured in the premises of house-hold ladies as described above without the aid of power. The undisputed facts are that the respondents supplied raw materials for rolling incense sticks etc. to outside manufacturers and paid wages to them on the basis of number of pieces manufactured. Such manufacture was without the aid of power. There was no supervision over the manufacture. Incense sticks were put in packets and such packets were sold from the premises of the house-hold ladies and they did not go to the factory premises of the respondents. No doubt the sale proceeds went to the respondents but that will not change the character of manufacture. If the conclusion is that the house-hold ladies were the real manufacturers then the decision of the Tribunal cannot be faulted. CEGAT after considering the materials before it concluded that the respondents are not the manufacturers of agarbatti, amlapodi, dhup etc. manufactured by various cottage type manufacturers on job work basis. On the facts narrated above, we do not think that the assumption of the Collector that the respondents got the goods in question manufactured by 'hired labourers' can be sustained. On the other hand we find, on the facts, the house-hold ladies are the manufacturers of the goods in question and the liability to excise duty will be attracted on their manufacture of the goods and therefore, it cannot be clubbed with the goods manufactured in the factory premises of the respondents to deny the exemption claimed.
The taxable event for Central Excise is the manufacture of excisable goods and the moment there is a transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes "manufacture" takes place and liability to duty is attracted. The sale or the ownership of the end-product is absolutely irrelevant for the purpose of taxable event under the Central Excise.
9.2 We find that the ratio of the Apex Court decision is clearly applicable to the present case. In Para 23 of the OIO, the Adjudicating Authority has examined the appellant's contention that they are not the manufacturers. He has observed that under 2(f) of the Central Excise Act, it is not necessary that only the person who carries on the actual process of manufacture is the manufacturer. Even, so called trader can be a manufacturer if he gets the goods manufactured on his account. He has further stated that the appellant did not follow the procedure prescribed in Rule 12B authorizing the job worker to observe procedure relating to Central Excise Rules and, therefore, the liability to pay duty devolves on the person who gets RMGs produced. There is no discussion of the ratio of the Supreme Court decision in the OIO. In our view, the Supreme Court's decision is squarely applicable to the present case and in the light of the facts on record, we have to hold that that the appellant M/s. Levi Strauss (India) Pvt. Ltd. are not the manufacturer in the present case. Even, if it is assumed that they are the manufacturers, they would be entitled for the benefit of the exemption Notification No. 38/2003-CE dated 30.04.2003 for the reasons stated in paragraphs 7 and 8. Actually, in this case, Vishesh Enterprises have cleared the goods after carrying out the processes mentioned in Notification No. 38/2003-CE. No action appears to have been taken against them by the Revenue. Therefore, there does not appear to be any reason for demanding duty from the appellants.
9.3 In the light of the above observations, we allow these appeals with consequential relief by setting aside the Orders-in-Original.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)