Collector of C. Ex. Vs. Satish Engineering Works

1. This is an appeal filed by the Collector of Central Excise, Bombay-I against the order of Collector of Central Excise (Appeals), Bombay. The brief facts of the case are that the respondents are a partnership concern having two units at two different places manufacturing goods falling under Tariff Item 15A(2) and also the Tariff Item 68 in these two units. They filed a declaration before the Central Excise authorities on 20th April, 1982 in terms of Notification No. 111/78 seeking exemption from the Licensing control as the goods manufactured by them were exempt under Notifications No. 68/71, dated 29-5-1971 and No. 105/80-C.E., dated 19-6-1980 and Notification No. 179/77. In one of their two units, they manufacture moulded articles out of duty paid raw materials and they brought the same to their other unit at Wadala for assembly without the aid of power. The Assistant Collector taking into account the quantum of their clearances made under Tariff Item 15A(2) and Tariff Item 68 came to the conclusion that the respondents had exceeded the exemption limits entitling them from manufacture of the goods without obtaining a licence and to the clearance of the same without payment of duty. He held that the respondents were not entitled to the benefit under the Notification No. 50/82 and No. 179/77. The demand of duty raised in respect of their Wadala unit in respect of the goods manufacturd under Tariff Item 68 was confirmed. Since the demand in respect of the other unit at Alibag was in the jurisdiction of another Central Excise authority, the original authority in proceedigns subject matter of appeal before us, dropped the demand in respect of the Alibag unit and the concerned Central Excise authority separately started proceedings for recovery of duty due in respect of goods manufactured in the Alibag unit of the respondents. The respondents in respect of the demand raised in case of Wadala unit, filed an appeal before the Collector (Appeals) who in his order has treated the two units of the respondents as separate entities under two separate partnership managements and has treated the clearance made from each of the two units as if made from two independent units. He has held as under - "Therefore the goods cleared by them cannot be treated as a collective entity for the purpose of extending the benefit in Notification No. 89/79 or 105/80. Further, if instead of one or two common partners, all the partners of three firms are common still all the three firms will be treated separate and distinct firms.

Similar type of decisions have been held in following casesChandra Sekara Bharati Weaving Mills v. Assistant Collector of Central Excise The Tribunal in the case of M/s. Jagivandas & Co., Thane v. Collector of Central Excise, Bombay-II 1985 (19) ELT 441 (Tribunal) have held that "manufacture of goods by or on behalf of - commonness of partners of different firms does not establish manufacture for or on behalf of one another".

The order-in appeal passed by the Collector of Central Excise (Appeals), Bombay does not appear to be correct in law on the following grounds - (a) Both the decisions of CEGAT and GOI relied upon by the Collector of Central Excise (Appeals), Bombay are not relevant to the issue under reference.

(b) In the instant case, as could be seen from the order-in-appeal itself that the "respondents" are having only one partnership firm having their two units one at Wadala-Bombay another at Alibag (Dist.

Raigad of Maharashtra State). In other words these are not separate legal entities as contended by the Collector of Central Excise (Appeals), Bombay.

(c) Further, the components falling under Tariff Item 15A(2) are manufactured by their Alibag unit with the aid of power and sent to their Wadala unit for making finished products falling under Tariff Item 68 without the aid of power i.e. the Wadala unit is not purchasing the components are relied upon by the Collector of Central Excise (Appeals), Bombay.

2. The learned Departmental Representative for the Department urged that both the units belong to the same partnership concern and if the clearances are taken together, the benefit of the notification as claimed would not be available to them. The learned Advocate for the respondents conceded that both the units belong to the same partnership concern and stated that he is not urging any arguments so far as the clubbing of the clearances from the two units are concerned for the purposes of the benefit of the notification based on the total value of the clearances. He however, contended that even then, the total value of the clearances will not be exceeding the exemption limits as goods manufactured by the respondents without the aid of power in the Wadala unit will be eligible for exemption in terms of Notification No. 179/77 and could not be reckoned for working the aggregate value of clearances. We observe that the Collector (Appeals) findings holding the respondents to be eligible for the benefits as claimed by the respondents are on the following two counts - (i) the clearances from two units cannot be combined together and the clearances from both the units should be treated separately; (ii) the goods manufactured in the Wadala unit without the aid of power out of the components manufactured with the aid of power at the Alibag unit cannot be taken into reckoning for arriving at the aggragate value of clearances.

3. We observe that inasmuch as, in terms of Notification No. 105/80, the total clearances taken into consideration are by and on behalf of a manufacturer and inasmuch as it is the same partnership concern which is manufacturing the goods in the two units, the clearances of both the units have to be held as having been made by or on behalf of the same manufacturer. We observe that the Collector (Appeals) has mis himself in holding that the clearances by two units were not by and on behalf of the same manufacturer. The respondents also do not question this position.

4. The next point for consideration is whether in terms of Notification No. 179/77, the goods manufactured by the respondents out of the parts brought from their other unit at Alibag without the aid of power can be covered by the terms of the notification. The Notification No. 179/77 for convenience of reference is reproduced below - "In exercise of the powers conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts all goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) in or in relation to the manufacture of which no process is ordinarily carried on with the aid of powers, from whole of the duty of excise leviable thereon." We observe that this notification came in for consideraion before the Hon'ble Supreme Court in the case of Standard Fireworks Industries, Sivakasi and Anr. v. Collector of Central Excise, Madurai [1987 (28) ELT 56 (SC)] in a case where the manufacture of fireworks was not using any power in his unit where the fireworks took shape but was sending some of the raw materials used for the same outside for processing. The required processing was done with the aid of power in other units (not owned by the manufacturer of fireworks) and the processed raw materials were used for making fireworks without the aid of power. The Hon'ble Supreme Court has held as under - "The claims for refund advanced by the appellants have been rejected on the footing that they are not covered by the Notification of 1977 inasmuch as cutting of wires and conditioning of paper have been carried with the aid of power. The learned Counsel for the appellants has streneously contended that the statutory authorities under the Act and the Tribunal have overlooked the fact that in Item 68 at the relevant time the words "manufactured in a factory" occurred. We do not think that there is any substance in this contention. The notification purports to allow exemption from duty only when in relation to the manufacture of the goods no process is ordinarily carried on with the aid of power. It is not disputed that the cutting of the steel wires or the treatment of paper is a process for the manufacture of goods in question. Since those processes were carried on with the aid of power though carried outside the factory, the requirement of the notification would not be answered so as to entitle the appellants to exemption from duty.

It is not necessary to refer to any authority inasmuch as on the analysis indicated above the claim for refund appears to have been rightly rejected." From the above judgment of the Hon'ble Supreme Court, it is seen that in case, in respect of a manufacturing activity carried out by a manufacturer for the manufacture of any goods in his factory where no power is used, if any process is carried out with the aid of power on his behalf in another unit which is relatable to the manufacturer of the end product, then the goods can be said to have been manufactured with the of power. Here we have the case of a manufacturer where he has two units. In one of his two units, he is making the parts with the aid of power and utilising the same for the manufactureof the goods in the other linit where no power as such is used for giving shape to goods.

5. Following the ratio of the Hon'ble Supreme Court, it has to be held that the manufacturer is manufacturing the goods with the aid of power.

It is not necessary as held by the Hon'ble Supreme Court that the power has to be used in relation to the goods in the unit where the goods finally take shape, so long as the power is used by the manufacturer in the processes relatable to the end product. In the present case, we observe the manufacturer is using power in relation to the component parts which he is manufacturing in his Alibag unit and bringing the same to the Wadala unit where he is assemblinghe same without the aid of power, fn the notification, it is clearly set out that only such of those goods are exempt from Central Excise duty in or in relation to the manufacture of which no process is ordinarily carried out with the aid of power. The point to be considered is who should not have carried out the processes with the aid of power in or in relation to the manufacture of the goods. Obviously it is the manufacturer himself or by some one else on his behalf. Here in the instant case, the same manufacturer is having two units and in one of the units, he is carrying out the processes with the aid of power in respect of component which he is utilising for the manufacture of the end product in the other unit. It has to be held that the manufacturer in this case is carrying out the manufacture of the end product in relation to which power has been used, since both the units belong to him. We observe that the notifn. has to be interpreted in the context of the manufacturing activities carried out by a manufacturer, may be in one unit or more than one unit belonging to him, and their nexus of the same with the finished goods manufactured in any of his two unit in respect of which the benefit of exemptn. is claimed.

6 .In view of this, we hold that the goods manufactured in the Wadala unit have to be held to be not eligible for exemption under Notification No. 179/77.

7. In the abive view of the matter, we hold that the order of the Collector (Appeals) is not maintainable in law and we allow the appeal of the Department and uphold the demand. The cross-objection is dismissed, it being in the nature of comments.