Kersi Kapadia Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. mahindra & mahindra manufacture tough motor vehicles which are good for rough roads but not so good for decent roads. at least that is how it appears. this appeal has got nothing to do with cars tough or otherwise.2. m/s. m & m have an administrative office building in kandivali, which needed some doing up. the ground floor and the fourth floor needed particular attention. they engaged one architect, a few carpenters and some workers to design, make and work respective to complete job of renovation, which included making furniture. the arrangement is that while m/s. m & m pay the skilled and unskilled workers and for the material required, the architect would supervise the making of furniture he having originally designed it. nobody gets paid without the architect saying so. in course of time, the work was got done, everyone got paid and the furniture was put to use.3. wooden furniture of a kind used in the offices falls under tariff subheading 9403.30 of the schedule to ceta and is dutiable.4. some twelve months passed since the furniture was made. the intelligence wing of central excise department gathered intelligence that an event amounting to manufacture of furniture had taken place in the office building of m & m. the officers paid a visit to the office on 1-12-97, found the offending furniture and detained it under whatever powers vested with them.5. they (the officers) came back again on 19-1-98 and this time, seized the furniture, which ranged from the sublime to the mundane such as director's sofa (sofas go by the name of the officials, who sit on them), discussion table, disc for computer wire, belgian mirror frame in the toilet etc. admittedly, no duty was paid on the furniture. there is this general impression that goods have to be first seized before they are confiscated. detention is not enough. having seized the furniture the officers left it with the officials of m & m under supatnama (with instructions not to part with it) so that the director could sit, the staff could endlessly discuss sitting round the discussion table and use the toilet which has a belgian mirror frame.6. investigations were conducted to ascertain how and who manufactured the furniture. such enquiries pointed in the general direction of the architect who supervised the making of the furniture. the officers of m & m were reluctant to disclose the name of the architect for some reason. after a lot of persuasion they however gave the name but incorrect address. the central excise officers found their man all the same and recorded his statement. statement of others including the excise-in-charge of m & m, the contractor who undertook the job etc was also recorded. kersi kapadia is the name of the architect as it turned out.7. it transpired that kersi kapadia, the architect was the one who designed the furniture, selected the carpenters, supervised their work, certified the quality of work, acted as a go-between for clearances to be obtained from various authorities, co-ordinated the work etc. he however did not pay for the material. he also did not pay the skilled and unskilled labour employed. these expenses were met by m & m. the commissioner held kapadia as the person who manufactured the furniture without central excise registration and also the one who cleared it without payment of duty (20% ad valorum on the furniture); demanded the duty evaded from him, confiscated the furniture and imposed a penalty on shri kapadia. it was made clear that kapadia should redeem the furniture on payment of fine rs. 6.00 lacs (rupees six lacs only).8. the commissioner exonerated s/shri raghavan and narayanan, senior executives of m & m who were accused of aiding and abetting kapadia in the misadventure of making furniture without central excise registration. m/s. m & m were also not found guilty of any offence though initially they were also accused of similarly, aiding and abetting kapadia, mistry, the labour contractor was also not found aiding or abetting kapadia. so then, kapadia, the architect stood the test of 'manufacturer' and evader of central excise duty all by himself. hence this appeal by him.10. the appellant says that he is only an architect and has not become a manufacturer yet; that his colleagues who have undertaken similar jobs have not got themselves registered with the central excise department; that the fact that he designed the furniture, estimated its cost, floated tenders, selected the bidder, supervised the making of director's sofa and the belgiam mirror frame etc. does not make him a manufacturer under section 2(f) of c.e. act; that behind every furniture manufacturer an architect or an interior decorator would be lurking and for that reason the lurking he or she cannot be called manufacturers of furniture; that he was paid for his services by m & m just as they paid the carpenters; that he was at best a paid labour etc. a copy of the agreement entered into between kapadia and m & m was produced which delineated the nature of work to be performed by shri kapadia. without prejudice, he argued that the notice is time-barred as he entertained a bona fide belief that he is not required to take out a central excise registration. it is argued that the department did not correctly arrive at the value of the furniture in question and that resulted in excessive demand for duty. this last plea is seemed to have been made, just in case, the tribunal holds that duty is payable by him.11. theoretical economists say that there are four factors of production land, labour capital and organization - without which goods cannot be produced. that holds good for furniture too. all the above factors were provided by m & m and not kapadia. he was the architect who planned and successfully got the work executed for a fee. he provided a service. the relationship between m & m and kapadia is not the one between a principal and a job worker. just as a construction engineer who supervises construction of a building cannot be accused of being a builder, shri kapadia cannot be called a manufacturer. he would, perhaps, some day become one. till then the department can wait.12. the commissioner confiscated the furniture under rule 173q(1).non-duty paid goods are liable to confiscation irrespective of where they are lying and in whose possession. it is an admitted fact that duty is payable on the furniture. the commissioner gives the option to kapadia to redeem the confiscated goods on the ground that he was the manufacturer. we hold he is not. we also observe that the goods in question for all intents and purposes belonged to m & m and therefore, kapadia is not the owner of the goods either. it is highly debatable whether an order of confiscation itself gets vitiated when a wrong person is asked to redeem the confiscated goods. but in the present case it is not merely a question of wrong person being asked to redeem the goods, it is a case where the demand for duty itself is made on a wrong person. such proceedings in their entirety have to be quashed.

Judgment:
1. Mahindra & Mahindra manufacture tough motor vehicles which are good for rough roads but not so good for decent roads. At least that is how it appears. This appeal has got nothing to do with cars tough or otherwise.

2. M/s. M & M have an administrative office building in Kandivali, which needed some doing up. The ground floor and the fourth floor needed particular attention. They engaged one architect, a few carpenters and some workers to design, make and work respective to complete job of renovation, which included making furniture. The arrangement is that while M/s. M & M pay the skilled and unskilled workers and for the material required, the architect would supervise the making of furniture he having originally designed it. Nobody gets paid without the architect saying so. In course of time, the work was got done, everyone got paid and the furniture was put to use.

3. Wooden furniture of a kind used in the offices falls under tariff subheading 9403.30 of the Schedule to CETA and is dutiable.

4. Some twelve months passed since the furniture was made. The Intelligence Wing of Central Excise Department gathered intelligence that an event amounting to manufacture of furniture had taken place in the office building of M & M. The Officers paid a visit to the office on 1-12-97, found the offending furniture and detained it under whatever powers vested with them.

5. They (The Officers) came back again on 19-1-98 and this time, seized the furniture, which ranged from the sublime to the mundane such as Director's sofa (sofas go by the name of the officials, who sit on them), Discussion table, Disc for computer wire, Belgian mirror frame in the toilet etc. Admittedly, no duty was paid on the furniture. There is this general impression that goods have to be first seized before they are confiscated. Detention is not enough. Having seized the furniture the officers left it with the officials of M & M under Supatnama (with instructions not to part with it) so that the Director could sit, the staff could endlessly discuss sitting round the discussion table and use the toilet which has a Belgian mirror frame.

6. Investigations were conducted to ascertain how and who manufactured the furniture. Such enquiries pointed in the general direction of the architect who supervised the making of the furniture. The Officers of M & M were reluctant to disclose the name of the architect for some reason. After a lot of persuasion they however gave the name but incorrect address. The Central Excise Officers found their man all the same and recorded his statement. Statement of others including the Excise-in-Charge of M & M, the Contractor who undertook the job etc was also recorded. Kersi Kapadia is the name of the architect as it turned out.

7. It transpired that Kersi Kapadia, the architect was the one who designed the furniture, selected the carpenters, supervised their work, certified the quality of work, acted as a go-between for clearances to be obtained from various authorities, co-ordinated the work etc. He however did not pay for the material. He also did not pay the skilled and unskilled labour employed. These expenses were met by M & M. The Commissioner held Kapadia as the person who manufactured the furniture without Central Excise registration and also the one who cleared it without payment of duty (20% ad valorum on the furniture); demanded the duty evaded from him, confiscated the furniture and imposed a penalty on Shri Kapadia. It was made clear that Kapadia should redeem the furniture on payment of fine Rs. 6.00 lacs (Rupees Six lacs only).

8. The Commissioner exonerated S/Shri Raghavan and Narayanan, Senior Executives of M & M who were accused of aiding and abetting Kapadia in the misadventure of making furniture without central excise registration. M/s. M & M were also not found guilty of any offence though initially they were also accused of similarly, aiding and abetting Kapadia, Mistry, the labour contractor was also not found aiding or abetting Kapadia. So then, Kapadia, the architect stood the test of 'manufacturer' and evader of Central Excise duty all by himself. Hence this appeal by him.

10. The appellant says that he is only an architect and has not become a manufacturer yet; that his colleagues who have undertaken similar jobs have not got themselves registered with the Central Excise Department; that the fact that he designed the furniture, estimated its cost, floated tenders, selected the bidder, supervised the making of Director's sofa and the Belgiam mirror frame etc. does not make him a manufacturer under Section 2(f) of C.E. Act; that behind every furniture manufacturer an architect or an interior decorator would be lurking and for that reason the lurking he or she cannot be called manufacturers of furniture; that he was paid for his services by M & M just as they paid the carpenters; that he was at best a paid labour etc. A copy of the agreement entered into between Kapadia and M & M was produced which delineated the nature of work to be performed by Shri Kapadia. Without prejudice, he argued that the notice is time-barred as he entertained a bona fide belief that he is not required to take out a Central Excise Registration. It is argued that the Department did not correctly arrive at the value of the furniture in question and that resulted in excessive demand for duty. This last plea is seemed to have been made, just in case, the Tribunal holds that duty is payable by him.

11. Theoretical economists say that there are four factors of production land, labour capital and organization - without which goods cannot be produced. That holds good for furniture too. All the above factors were provided by M & M and not Kapadia. He was the architect who planned and successfully got the work executed for a fee. He provided a service. The relationship between M & M and Kapadia is not the one between a principal and a job worker. Just as a construction engineer who supervises construction of a building cannot be accused of being a builder, Shri Kapadia cannot be called a manufacturer. He would, perhaps, some day become one. Till then the Department can wait.

12. The Commissioner confiscated the furniture under Rule 173Q(1).

Non-duty paid goods are liable to confiscation irrespective of where they are lying and in whose possession. It is an admitted fact that duty is payable on the furniture. The Commissioner gives the option to Kapadia to redeem the confiscated goods on the ground that he was the manufacturer. We hold he is not. We also observe that the goods in question for all intents and purposes belonged to M & M and therefore, Kapadia is not the owner of the goods either. It is highly debatable whether an order of confiscation itself gets vitiated when a wrong person is asked to redeem the confiscated goods. But in the present case it is not merely a question of wrong person being asked to redeem the goods, it is a case where the demand for duty itself is made on a wrong person. Such proceedings in their entirety have to be quashed.