ORDER
S.L. Peeran, Member (J)
1. This is Revenue appeal against Order-in-Original No. 28/96, dated 2-8-96 passed by CCE, Madras dropping the charges brought out in the SCN, dated 30-11-86 asking the respondents and its directors and nine other units as to why : –
(i) The clearance of nine units should not be considered as clearances of MTPL and duty of Rs. 54,85,599/- should not be demanded from MTPL and nine units under Rule 9(2) read with Section 11A (1) of the Act, for the goods cleared during the years 1982-83 to 1986-87 and (ii) Penalty should not be imposed on MTPL and nine units under Rule 173Q and on S/Shri M. Ebrahim Aiyaz, M. Ebrahim, N. Kannan and A. Md. Kareemullah under Rule 209A.
2. The Noticees took up a lengthy defence denying the allegation that MTPL (respondent herein) and the nine units are liable to pay the duty amount as demanded in the show cause notice. The main allegation centered around the respondent having set up these nine units to evade payment of Central Excise duty. They denied the allegation that nine units were set up with a new group to evade payment of duty. A defence was also taken by them that all the nine units were independent in existence with their own bank accounts; with their own premises; with separate registration with sales tax authorities and were assessed to income tax separately. They had engaged their own labour and had obtained components and raw materials directly from their own sources. They were neither provided with any funds by the respondent, MTPL nor they had sold any components to these independent units. Although the raw materials had been supplied by MTPL and the goods namely, ‘Mixies’ had been manufactured, according to the quality and design and specifications of MTPL and affixed with their brand name but that by itself cannot be a factor for clubbing the clearances of all the units. They submitted that the relationship was that of principal to principal and the Apex Court’s judgment in the case of UOI v. Cibatul reported in 1985 (22) E.L.T. 302 wherein it was held that “goods produced with customer’s brand name cannot be said to have been manufactured on behalf of the buyer even where the buyer is exercising quality control over the manufacturer in relation to branded goods” was relied by the respondent and the nine units. Although, the nine units were owned by the Manager and some other officials of MTPL, but it was set up with their own funds and MTPL did not control their management nor there was any flow back of funds because the entire profit being taken away by the MTPL.
3. The Ld. Commissioner after a detailed scrutiny of the 38 grounds/replies filed by respondent and grounds taken by the nine units upheld their contention by holding that nine units were independent units and merely because they manufactured the item which was marketed by MTPL with their own brand name that by itself no ground to club the units as each one had been separately and independently set up. He also observed that whole units had come into existence much before MTPL locked out their premises due to labour problem. He also noted that mould required for manufacture of components and developed at the cost of MTPL was left with M/s. Plasti Craft Industries who supplied moulded components to MTPL. Subsequently, the mould was sold to M/s. Mansfield for Rs. 1,00,000/- but the mould continued to be in the custody of Plasti Craft. M/s. Mansfiled supplied moulded components to the units through Plasti Craft and issued separate debit notes against them for the supplies. These debit notes were recovered from Mansfield and not from MTPL. The Commissioner noted that there is no evidence to prove that the debit notes were prepared by MTPL. Thus, he held that, the units were receiving components from Mansfield and making payments to him directly. He has also noted the judgment of Hon’ble Madras High Court rendered in Ashok Leyland Ltd., 1993 (68) E.L.T. 65 (Mad.) and that of Tribunal judgment rendered in Santha Industries, 1995 (78) E.L.T. 556 which held that supply of raw materials by one unit to maintain the standards of final goods by itself will not be a ground to club the units. He also noted that making of advances for supply of goods is a normal trade practice and cannot be termed as financial accommodation unless the evidence of flow back is available. He noted that there is no evidence or even charge of flow back in the show cause notice. He noted that no special significance can, therefore, be attached to the advances made to M/s. Deen Appliances and M/s. Leo Appliances even before the start of supply of mixies. He also noted that these advances were made by A/c payee cheques and were recorded in the book of accounts of both MTPL and the units. He noted that no adverse inference could be drawn from the fact that the advances were used for purchase of raw materials. He also noted that the charges made in the show cause notice that MTPL fixed the price of mixies providing for meagre margins and selling the entire quality manufactured by all the units to MTPL cannot be a ground to club the units. He noted that as MTPL is selling mixies so purchased from various units in the market, it is also not unusual for MTPL to negotiate for a uniform price. He noted that this issue of controlling the price, maintaining the market cannot be a ground for clubbing the units as has been upheld by the Tribunal in the case of Cheryl Laboratories – 1993 (65) E.L.T. 596 (T). Even with regard to guarantees which were obtained from the units, the Commissioner noted that this was done with a view to maintain name and reputation which had been established in the product. Such a practice was done by large number of industries. He noted that the issue pertaining to this charge had been decided by the Tribunal in the case of Alpha Toyo Ltd., 1994 (71) E.L.T. 689 (T) wherein it was held that common managerial control, a few common directors, advancing of interest free loans by main unit to other units were not sufficient to make other units as dummies when they were having independent existence without profit sharing, management control or money flow back to the main unit. The Commissioner also did not accept the charge with regard to keeping blank signed cheques both in the custody of Purchase Manager as an evidence to club clearances. Even with regard to charge of MTPL paying advertisement charges, he noted that there is no evidence to support the allegation of units paying them. He also noted that there is no evidence on record to counter the claim of MTPL that recovered pamphlets showing that mixies were manufactured by MTPL had actually been printed when they were manufacturing mixies at their factory. Similarly, he noted that there is no evidence on record to controvert MTPL’s argument that the printing of instructions manual and duplex boards was arranged by them by making the negative available but was arranged by the nine units themselves. He also noted that sufficient evidence had been produced to show that each of the units had their own premises, work force, and tools; that they were registered with sales tax authorities, assessed to income tax individually and had control over their day-today affairs. He noted that there was independent physical existence of the units which is not in doubt. He noted that the charge to club the units was on the ground that the owners of the units were relations of employees of MTPL. He noted that this is a settled position of law that the person who does the actual work is the real manufacturer and in the absence of evidence of flow back from the units to MTPL, clearances cannot be clubbed and demands made against all the 10 units. In this regard, he noted the judgment of Kerala State Electricity Board – 1990 (47) E.L.T. 62.
4. Even with regard to the charge of extending the larger period, the Commissioner noted that there is no evidence on record to come to the conclusion that there was suppression of facts. He noted that the larger period was not invokable for the reason that all the units had filed their declarations and one unit M/s. Durable Appliances had taken out the Central Excise licence. He noted that the four units M/s. Durable Appliances, Quality Appliances, Perfect Processors and Modern Appliances commenced production even before MTPL declared lock out in October, 1982. He also noted that MTPL had informed the department about the lock out. He also noted that in 1984, the department had issued Show Cause Notice No. 857/84 to five out of nine units on the same issue. Even after the issue of show cause notice in 1984, MTPL had continued to get the mixies manufactured by the units and the department even after the issue of SCN had not taken any further steps but in fact had dropped the SCN by accepting the plea that all the units were independent. Therefore, he held that subsequent issue of SCN and proceedings were barred by time as there was no suppression of facts for invocation of larger period. In this regard, respondents had cited large number of judgments to support the plea that once the department had been informed about the existence of units all the arrangements from the manufacture in the like manner and department had also issued show cause notice and dropped the same and therefore after a lapse of two years to reopen the issue alleging suppression will not be acceptable. In this regard the Tribunal judgment rendered in Neyveli Lignite Corporation Ltd. – 1992 (58) E.L.T. 76. (T).
5. We have heard Ld. DR Shri A. Jayachandran and Senior Counsel Shri Abibullah Badsha, assisted by Shri R. Sudhakaran, Advocate and J. Shankararaman, Advocate.
6. Ld. DR read out the grounds of appeal made by the Board of Revenue and the order passed by the Commissioner and prayed for setting aside the impugned order and confirming the demands. It is his contention that all the units had been set up solely with a view to evade payment of duty as MTPL had closed its unit due to labour problem and therefore had set up the units in the employees’ premises and hence they are to be considered as having been floated by the respondents for the purpose of evading payment of duty. He referred to the grounds already dealt with by the Commissioner with regard to procurement of raw materials, packing materials by MTPL and the units manufacturing mixies in terms of designs and quality control of MTPL. He also referred to the advance payment made by MTPL without charging interest and making meagre payment towards labour charges being grounds for clubbing the unit. He also pointed out that proprietor/proprietrix of the said nine units were mere name lenders and for the entire activities like arranging capital, procurement of raw materials. Packing materials, negotiation of the prices, arranging pre-delivery inspection, delivery of assembled mixies etc. were attended by the employees of MTPL for the services of which they were not getting any salary/fee etc. from the said nine units. He also pointed out that the price at which the nine units delivered mixies to MTPL were the normal price since the so called price does not include cost of design, interest on capital invested, expenses like wages on personnel attending to the work of procuring raw materials etc. and the normal price for the mixies shall be selling price of the actual manufacturer, i.e. MTPL. He also submitted that observations of Commissioner in para-16 of his order that nine units were receiving components from Mansfield and not from MTPL is not correct as Shri L.E. J. Mansfield, a former employee of MTPL who had given a specific undertaking that mould could be used for supply of components to the units. He pointed out that none of the nine units individually approached Shri L.E.J. Mansfield in this regard. M/s. MTPL had been directly and occasionally through Shri Mansfield, addressing M/s. Plasticraft Industries, the custodian of the mould to supply the components in the name of the nine units to enable them to receive components and assemble them. No other unit was permitted to receive the components by making use of the said mould. Hence, it appeared that M/s. MTPL was giving directions/instructions either to M/s. Mansfield or Plasticraft Industries for supply of components to nine units and M/s. Mansfield was only carrying out the instructions of MTPL. He also pointed out from the Annual Report of MTPL that for the period ending 31-3-1984, 31-3-85 and 31-3-86, it was noticed that they had shown the quantity of mixies manufactured as ‘NIL’ . In the annual report for the period ending 31-3-83, they had shown 1378 nos. of mixies produced by them and this clearly showed in the light of submissions and other evidence that nine units were only name lenders and everything was controlled by MTPL. Therefore, he pleaded for setting aside the order and confirming the demands in the SCN.
7. Learned Senior Counsel took us through the entire show cause notice and reply, evidence on record and various catena of judgments to show that non-filing of appeals against nine units is a ground by itself for dismissing this appeal. He also submitted that there was no ground made out with regard to findings on time bar given by the Commissioner. That finding stands and on that ground alone, the appeal is required to be rejected. Ld. Senior Counsel argued even on merits to show that all the nine units were independent in existence with separate registers and bank accounts and having independent transactions. They were working on principal to principal basis and that merely because the quality controlled by supply of raw materials from one unit i.e. Plasticraft Industries & MTPL that by itself will not be a ground to club the units. He submitted that mould was supplied by Plasticraft and Mansfield and not by respondent to the nine unit. Further four of the units were in existence even before there was labour problem in MTPL and their closing the unit. Therefore, merely because the MTPL packed their goods manufactured from the nine independent units that will not be a ground for clubbing the unit. He submitted that in the appeal memo, no evidence of financial flow back has been brought out and in fact the ground itself supports assessee’s plea that they were in existence independently and there is no charge of flow back from any of the units even in the grounds of appeal and in the SCN. He submitted that Apex Court in the case of CCE, Baroda v. M.M. Khambhatwala, 1996 (84) E.L.T. 161 (S.C.) held that ‘agarbattis made by household ladies independently are not treatable as hired labour but they are manufacturer of the goods and that clearances cannot be clubbed on the supply of raw material. This judgment has been rendered in the light of Ujjagar Prints v. UOI, 1988 (38) E.L.T. 535 (S.C.) and Empire Industries Ltd. v. UOI, 1985 (20) E.L.T. 179 (S.C.). He also relied on 29 citations to show that the entire case is covered on each point on the High Court’s judgment as well as Tribunal’s rulings. The judgments have since attained finality before the Hon’ble Apex Court and therefore there cannot be any doubt that the order given by the Commissioner is legal, valid and proper and the department has not established financial flow back between MTPL and nine independent units and hence the appeal is required to be rejected.
8. We have carefully considered the submissions made by both sides and have perused the entire records of the case. Ld. Senior Counsel has taken a preliminary objection that the appeal against a single party i.e. M/s. MTPL is not maintainable without filing of appeals against other nine units of whose clearances, department wanted to club with the clearances of MTPL in terms of show cause notice. He had submitted that the like issue had come up before the Tribunal in three cases as in the case of –
(i) CCE, Mumbai v. Maganlal Nandlal & Sons - 1999 (113) E.L.T. 597 (ii) CCE, Mumbai v. Supreme Electrical Appliances - 2001 (131) E.L.T. 271 (iii) CCE, v. Sompura Ceramics - 2001 (130) E.LT. 195 (T) = 2001 (42) RLT 399.
9. We have carefully considered the submission on this plea. We notice from the show cause notice, which was issued on 20-11-86 to all the 14 parties calling upon the respondent and other parties as to why the manufacture, clearance and sales as detailed in the statement of facts annexed to the show cause notice in respect of units mentioned should not be considered as manufacture, clearance, sale by and/or on behalf of the company mentioned in Serial No. (i) i.e. MTPL. The SCN also stated that notice is issued without prejudice to any other or further actions of proceedings which may be initiated against the said parties, either individually or jointly under the provisions of Central Excises and Salt Act, 1944. On a perusal of the entire SCN, it is clear that the demand was not restricted to MTPL but all the units had been put to notice and they were called upon to explain as to why demands should not be recovered from them. The Commissioner adjudicated the case against all the 10 parties and clearly held that there was no relationship between MTPL and other units which was on principal to principal basis and there was no flow back of funds and the factors delineated for clubbing the clearances were not sufficient in the light of well settled judgments. The grounds of appeal clearly sets out the facts that SCN 20-11-86 was issued to MTPL and the nine units demanding duty from MTPL and nine units for the goods cleared during the period from 1982-83 to 1986-87. We notice from the rulings rendered in the three judgments cited supra on this point that where revenue does not make other units as parties after demanding duty from them, then a single appeal is not maintainable. On this ground, the appeals have been dismissed. The findings recorded in the case of CCE v. Sompura Ceramics reported in 2001 (130) E.L.T. 195 (T) in para-3 of the order is reproduced herein below :-
“3. We have carefully considered the submissions made by both sides. Show cause notices were issued to the appellants M/s. Sompura Ceramics, and Partners of other units on the charge of clubbing of clearances. There is some force in the arguments advanced on behalf of the respondents that since the respective units were licence holders for manufacture of excisable goods, firm was charged for clubbing of clearances but show cause notice was served on the partners, hence notice issued to the partners was non est in law. The firm is a separate legal entity from its partners for the purpose of Central Excise Act and hence service of notice on partners cannot be said to have served notice on the firm. Further the appeal filed by the Department against the four units were dismissed as barred by time. In the case of Commissioner of Central Excise, Mumbai v. Azo Dye Chem (supra) in an application filed under Section 35E(4) of the Central Excise Act, it has been held that Tribunal has no power to condone the delay caused in filing the appeal beyond the period of three months allowed by the clause as it has in the case of appeal under Section 35B. In view of this, appeals filed by the Department as against the other units were dismissed as barred by time. Since no appeal lies against the co-noticee, issue with reference to clubbing of clearances of five units cannot be decided hearing the appellant alone as it was rightly pointed out by the respondent’s Counsel. We find that Tribunal in the similar situation in the case of CCE, Mumbai v. Maganlal and Nandlal & Sons reported in 1999 (113) E.L.T. 597 as well as in the case of CCE, Mumbai v. High Land Dye Chem, held that appeal by the Department against only one firm without impleading other firms is not maintainable when clearances of all the units are proposed to be clubbed.”
10. We notice that the ratio of this judgment was applied to the facts of CCE v. Supreme Electrical Appliances on similar facts and the large number of appeals against only one firm without making other firms as parties and the appeals have been held to be not maintainable when clearances of the units are proposed to be clubbed. Following the ratio of these three judgments, we have to uphold the plea of ld. Sr. Counsel that single appeal against MTPL without making other nine units as parties is not maintainable that clearances of the units are proposed to be clubbed as held by the Tribunal in the noted judgments . On this ground alone, respondent succeeds.
11. Be that as it may, the ld. Sr. Counsel also took us through the order passed by the Commissioner and drew our attention to previous proceedings initiated by SCN dated 15-1-84 by AC Division VII Madras and the said SCN on the same allegation was dropped. SCN No. 857/84, dated 15-1-84 was issued to MTPL and 9 other units alleging as to why clearances should not be clubbed and demands should not be confirmed. However, the same was dropped without further proceedings. The Commissioner in paras 28 & 29 noting about this fact has held that larger period is not invokable as there was no suppression of facts . He has noted that M/s. Durable Appliances had obtained a Central Excise licence and others had filed declarations. The four units namely, M/s. Durable Appliances, Quality Appliances, Perfect Processors and Modern Appliances commenced production even before MTPL declared lockout in October, 1982. MTPL had also informed department about the lock out in 1984. The show cause notice was issued to all of them on the same grounds as made out in the present SCN. However, no further proceedings were held and matter was dropped. Therefore, the findings arrived at by the Commissioner with regard to time bar has not been challenged by the Revenue in the present grounds of appeal. Not a whisper has been made in the Order No. 122-R/97, dated 14-5-97 passed by the Central Board of Excise and Customs seeking review of Order-in-Original No. 28/96, dated 2-8-96. Therefore, we have to uphold the plea of ld. Senior Counsel that demands are barred by time and the findings given by the Commissioner has not been challenged and therefore the findings has attained finality. He has relied on large number of judgments to substantiate his plea that the demands are barred by time. On this very plea, the judgment of Dawn Fireworks Factory and Ors. v. CCE Madurai, 1999 (31) RLT 104 has been relied. The findings recorded by the Tribunal in para-5 of the said order is reproduced below which applies to the facts both on limitation as well as on merit. The arguments noted by the Tribunal in para-3 is also extracted as the same argument made in the grounds of appeal applies to this case. The Paras 3 to 6 are reproduced herein below :-
“3. Arguing for the appellants, the learned advocate Sri Ranganathan pointed out that the issue of notice to the other independent firm namely Dawn Fireworks Industries was mandatory as it was in existence with independent registration and without issue of notice to them and deciding the case against them is unsustainable under law. In this regard, he relied on the judgment of the Tribunal rendered in the case of Ogesh Industries v. CCE as reported in 1997 (94) E.L.T. 88 (T), wherein it was held that when at all times, the existence of M/s. Gore Industries separately from Ogesh Industries was projected, the department should have issued the show-cause notice to M/s. Gore Industries. Thereafter, the adjudicating authority could go into the question whether the two units were really independent or whether one was a dummy unit, but he could not pre-determine the issue and limit the show cause notice only to that unit which he considered to be the only real unit. The Tribunal held that the failure to issue the show cause notice to one of them would show non-application of mind on part of the authorities, as a consequence, relying upon the judgment of Bombay High Court in the case of Bajaj Auto Limited v. UOI as reported in 1992 (60) E.L.T. 32, the Tribunal held that the show-cause notice must be held to be bad in law. He also relied on the judgment rendered in the case of Hindustan Foam Industry v. CCE as reported in 1990 (48) E.L.T. 33, wherein it has been held that mere service of notice on the partners is not sufficient and there has to be issue of show-cause notice on the firm and the term ‘person’ has not been defined in the Central Excises and Salt Act, 1944. In the absence of the definition of the term ‘person’ in the Excise Act, the term has to be understood as used in legal terminology which includes individual, firm, society, club, association of persons etc. It held that excise duty is leviable on the excisable goods manufactured by the person who is a manufacturer and the excise law does not contemplate more than one party as manufacturer of the same commodity. The Tribunal further held that in the instant case, the firm was licence-holder for manufacture of excisable goods and the firm was charged for under valuation and imposed duty and penalty, but show-cause notice was served on the partners and hence notice issued to the partners was non est in law and in this regard, it relied on the judgment of Madras High Court rendered in the case of Additional Collector v. Kathiresan Pillai as reported in 1989 (42) E.L.T. 189. The Tribunal clearly held that the firm is a separate legal entity from its partners for the purposes of Central Excise Act, irrespective of the treatment of the firm and partners under General law and relied on the above cited Madras High Court judgment and several other cases. The Counsel further submitted that the appellants had contended that the serpent eggs manufactured by M/s. Dawn Fireworks Industries, the second firm, falls for the purpose of classification under heading 3604.90 of the Central Excise Tariff, as Pyrotechnic articles for amusement other than fireworks carrying nil rate of duty. This view has been upheld in the case of Taj Fireworks Industries v. CCE as reported in 1995 (6) RLT 811 = 1995 (76) E.L.T. 180. He submits that in view of this legal position of serpent eggs manufactured by the three units, Dawn Fireworks Industries being not excisable, therefore, the question of clubbing of its clearances for imposing duty does not arise. He also submits that the first unit namely Dawn Fireworks Factory having paid duty on their clearances, the demands are required to be set aside including penalties. He further stated that the demands issued by show-cause notice dated 13-12-1990 for the period April, 1980 to July, 1990 is barred by time as the department was fully aware of the facts of both these units and there was no suppression of facts. He pointed out that earlier show-cause notice issued on 3-7-1990 alleging some facts and therefore, subsequent show-cause notice invoking larger period is not sustainable, in view of the Tribunal’s judgment rendered in the case of Neyveli Lignite Corporation Ltd. v. CCE as reported in 1992 (58) E.L.T. 76 (T). The learned Counsel also relied on several other judgments including the case of Precision Gears Pvt. Ltd. v. CCE as reported in 1998 (25) RLT 685 (T) a 1998 (100) E.L.T. 535 (T), wherein it has been held that holding of shares by common Directors not to make one company a subsidiary of another, especially when both companies geographically apart and without any financial flow back. The learned Counsel pointed out that this judgment relied on large number of judgments which has analysed the aspect pertaining to clubbing of clearances. He submitted that the second unit is not on paper but it was on existence with independent registration and having independent transactions and merely because as referred to the banking as well as Dawn group of industries, that by itself cannot be a ground for clubbing the unit. The factors relied on by the department has been negative in large number of judgments in the case of Precision Gears Pvt. Ltd. including the case of Alpha Toyo Ltd. v. Collector as reported in 1994 (1) RLT 591 (T) = 1994 (71) E.L.T. 689 (T), wherein the aspect pertaining to dummy unit has been discussed.
4. The learned fSDR reiterated the departmental’s contention.
5. On a careful consideration of the submissions on both sides, we have to uphold all the pleas raised by the learned Counsel and have to allow the appeal. The first issue is pertaining to non-issue of show-cause notice to the other units in this case. Admittedly there was existence of the other two units in the same building. There was a clear registration and the business had been carried out. The department has raised grounds for clubbing of units, which were in existence and carrying out transactions, admittedly there was business transactions and the Bench referred them as groups of Dawn Industries. This fact itself is not sufficient to hold that the second unit namely DFI is a dummy unit. The aspect pertaining to non-existence of unit but only on paper has been gone into in great detail in the case of Alpha Toyo Ltd, (cited supra) wherein it has been clearly held that dummy unit has to only remain on paper and such an existence has been created for the purposes of tax evasion. In this case particularly, there is an existence of unit and the department was required to have shown the financial flow back and sharing of profits and for that they have issued show cause notice to the other unit, which has not been done in the present case and in view of the judgment rendered by the Tribunal in the case of Ogesh Industries and in the case of Hindustan Foam Industry, the contention of the appellants that non-issue of show-cause notice has vitiated the proceedings, is required to be upheld and on this ground alone, the appellants are entitled to succeed. The other ground is that the item serpent eggs manufactured by M/s. Dawn Fireworks Industries is dutiable and not eligible for classification under heading 3604.90 at nil rate of duty and such dutiable and on had being clubbed with the clearances of the first unit M/s. DFF duty liability. In the case of Taj Fireworks Industries, the Tribunal has held that serpent egg is classifiable at the nil rate of duty under Heading 3604.90 of Central Excise Tariff Act, 1985. In view of this legal position, raising demand by the department on serpent eggs will not be sustainable and therefore, the present demands raised on this item and confirmed in favour of M/s. Dawn Fireworks Factory could not arise and hence, these demands are required to be set aside. Thirdly, the present show-cause notice dated 13-12-1990 raised the demands for the period April, 1980 to July, 1990, which is beyond six months. The demands beyond six months are required to be confirmed, if the department has shown suppression of facts and that the department was not aware of the existence of the units and clearances of the goods without payment of duty. In this particular case without invoking the larger period, the show-cause notice dated 3-7-1990 had been issued by the department. This show-cause notice was issued to both units by the Assistant Collector on the same issue and of the facts which had been alleged. Subsequent notice had also been issued by the Assistant Collector to both the units on 31-12-1990 on the same facts, therefore, the department being aware of all these facts and also about the registration of the units, therefore, the department cannot say that there was suppression of facts and the department was not aware of the details requiring invokation of larger period. In a similar situation, in the case of Neyveli Lignite Corporation Ltd., subsequent show-cause notice issued invoking the larger period was held to be time barred and therefore, applying the same ratio, we have to clearly hold that the demands are not sustainable.
6. In that view of the matter, for the reasons given on the three points, the impugned order is not sustainable and the appeals are required to be allowed and we ordered accordingly.”
12. On a reading of the above finding, we are of the considered opinion that the facts are similar in the present case and the ratio is required to be applied. On the ground of limitation revenue has not made any plea nor raised any grounds in the memo of appeal. Therefore, respondents also succeeds on this ground and the appeal is required to be rejected as time-barred.
13. In so far as the plea on merits is concerned, we notice that Revenue has taken a plea that MTPL set up the units solely with a view to avoid payment of duty in view of labour problem in early 1982 itself by MTPL. The facts as brought out in the grounds of appeal itself discloses that each of the units is an independent unit with separate partners/proprietor/proprietrix and they are not having any nexus with MTPL. Even the facts of the case as narrated in the appeal memo speaks about arranging, procurement of raw material, packing material, negotiation of prices, arranging pre-delivery inspection, delivery of assembled mixies and employees of MTPL attending to 9 units to maintain standards of work. There is no allegation brought out in the memo of appeal or in the Board order showing that there was a flow back of funds and MTPL had funded nine units and had taken away all the profits, exclusion of 9 units. The Commissioner has clearly recorded that revenue did not rely on any evidence on financial flow back. The fact that respondent MTPL supplied raw material has been discounted by the Commissioner is not a ground for clubbing clearance in the light of large number of judgments noted supra. We have considered this plea of Revenue and notice that demands in the case of CCE v. M.M. Khambhatwala (supra) noting the earlier judgment of Ujjagar Prints v. UOI and that of Empire Industries Ltd. v. UOI have clearly held that merely because the household ladies were paid small amount by the supplier of raw materials that by itself is no ground for treating the household ladies as “hired labourers” nor as manufacturers. The findings recorded in Paras 7 to 11 is reproduced herein below :-
“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 household 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 agarbati, 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.
8. In Empire Industries (supra) this Court held :
“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. In Ujagar Prints (supra) the Constitution Bench had held that the view taken in Empire Industries (supra) case is an eminently plausible view and does not suffer from any fallacy.
10. On the facts of this case and in the light of the pronouncements of this Court on the question of liability to excise duty, we do not think that there is any case for interference with the order of the CEGAT. We answer the point against the appellant.
11. The appeal fails and is dismissed accordingly. No costs.”
14. On a careful reading of the above judgment, we notice that the said finding of the Apex Court clearly answers the grounds of appeal brought out by the Revenue and the Commissioner’s order is sustainable.
15. Further, we notice that the issue of common premises, common Directors, supply of raw materials have all been the subject matter of several Tribunal orders as in the case of Cheryl Laboratories v. CCE, 1993 (65) E.L.T. 596, Alpha Toyo Ltd v. CCE, 1994 (71) E.L.T. 689; Mico Ltd.; 1999 (111) E.L.T. 163. It will not be out of place to extract the findings of the Tribunal rendered in MICO Ltd. (supra) which would apply to revenue’s contentions raised in the grounds of appeal. Paras 19 to 22 are extracted herein below : –
“19. The Commissioner has rejected the independency of the ancillary units on the ground that they have not demonstrated their sovereignty in determining their own price and that they are merely as ancillary units prepare a cost estimate and the purchaser (or buyer) MICO fixes the price. And this runs counter to the concept of principal to principal dealing also. He has further held that the concept of determination of price by MICO is not an attribute of principal to principal relationship and the arrangement of this type cannot be regarded as sale of goods at which they are ordinarily sold in the wholesale trade. This is the concept which has kept on analysing the statements and agreements to draw the conclusion that the monetary consideration for the transaction were determined by MICO. In para 37 of the impugned order, the Commissioner goes on to state that by extension of even the profit level of the ancillary company is determined by MICO; actually that ought to have been the exclusive preserve of the management incharge of ancillary companies. All these ancillary units have ceded one vital managerial function to MICO, i.e. determining the level of profit they should make. Therefore, the Commissioner wonders that in such circumstances, who is really running these enterprises. He holds that the managerial control is not demonstrated by having separate sales-tax, income-tax, excise, ESI, P.F. and other registrations, but in his view, it is demonstrated by the right to determine its price and profit level. Those who are managing these enterprises can be said to be in control if they had demonstrated their sovereignty in deciding the price they want to charge for selling of the goods they manufacture and the quantum of profit they want to make while selling such goods. He has held that they, like a paid employee, manufacture, then compute the cost data, supply it to MICO and leave the decision to MICO. He has held that although the ancillaries state that they are happy with the profit they are making (or getting) but the sharing of cost data with the buyer militates against the doctrine of “Indoor Management”. He has held that determination of price or the profit level (or loss) should be the policy decision of the Management in-charge of the company. In such a policy matter, if determined by somebody else, it demonstrate that such somebody is incharge of the management. He states that this is precisely what the show cause notice alleges, i.e. the goods are manufactured under the management, direction and control of MICO. Thus the show cause notice is substantially correct when it alleged that the goods are manufactured under the management, direction or control of MICO.
20. With due respect, we are unable to agree with this conclusion of ld. Commissioner. This is not a new concept which the Commissioner or the department has tried to bring out in the order. But this has been gone into again and again by several courts and they laid down what managerial control means and in these cases it has been well laid down that managerial control should be such as to lead to the flow back of the profits to Principal manufacturer. In this particular case, admittedly the ancillaries prepare the cost estimate and that is being negotiated and where there is an escalation of price, the same is also negotiated and re-fixation of price is arrived at. In any contract of this type there is always a price and that price is a negotiated price with offer and acceptance and that there is free will in determining the price. In this case the Commissioner has not demonstrated and shown that there is no free determination of price by negotiation. The data relied by Commissioner itself disclose that there is negotiation and the price is arrived at thereafter. The ancillary units are making profit and it is not as though no profit is made by them. The MICO is determining the market and it is they who are marketing the goods and as the market player, it has to keep its price in terms of the market fluctuations. Therefore, being aware of the market situations, it negotiates the price to maintain the business. Such fixation of price by MICO with its ancillary units cannot be said to be a control as to make the ancillary units a hired labour, which is different concept; wherein a hired labour has no role to play except to receive his wages and the contract is that of employer and employee and the hired labour services can be terminated and that he can seek reinstatement or sue for compensation or for enforcement of the contract obligation. While in the present case, the relationship is not of a hired labour as admitted facts are that the ancillaries have come up on their own, with their own finances, functioning independently with their own constitution and incorporations. The loss or the profit is not taken over by MICO and MICO cannot be held responsible for all the actions of the ancillary units. The determination of price, so long as it is independent and not influenced by any factors of under valuation as laid down under Section 4 of the Central Excise Act, then such negotiated price is required to be accepted. Section 4 of the Central Excise Act, deals with the aspect pertaining to the related persons, and even in such cases, the price of a related person cannot be rejected so long as the price is a mutually arrived at one and not fixed by any consideration and that there is no flow back in any form. When the price of related persons is the same as that of other dealers and in such circumstances also the price is required to be accepted. In the present case, the department is not proceeding on the basis of ancillary units being related persons but as Commissioner has analysed, they have proceeded on the basis that the goods are manufactured under the management, direction and control of MICO. All units being ancillaries manufacture goods according to design and specifications, therefore, MICO getting such goods manufactured as per their specification does not make MICO as the manufacturers in terms of Section 2(f) of Central Excises and Salt Act. This has been further analysed by the Hon’ble Supreme Court in the case of C.C.E. v. M.M. Khambhatwala as reported in 1996 (84) E.L.T. 161 (S.C.) where goods produced by household ladies in their own premises out of the raw material supplied by the respondents who paid wages on the basis of number of pieces manufactured and there was no supervision over the manufacturing of the goods by the respondents, and the goods sold from the premises of such household ladies, but sale proceeds sent to the respondents. Such household ladies, the Hon’ble Supreme Court held, are to be treated as “manufacturers” of the goods and not as “hired labourers”. In this regard Hon’ble Supreme Court relied on its earlier judgment in the case of Ujagar Prints v. Union of India as reported in 1988 (38) E.L.T. 535 (S.C.) and that of Empire Industries v. Union of India as reported in 1985 (20) E.L.T. 179 (S.C.). In the case of Santha Industrials v. C.C.E. as reported in 1995 (78) E.L.T. 556 (Tribunal), the Tribunal held that owner of the brand name getting the goods manufactured, the ancillary is certainly concerned about its make, quality, standard and market reputation. The Tribunal held that there is no bar in the notification that the brand name holder to get his products manufactured through other independent units on principal to principal basis, on supply of raw materials and by quality control. The Tribunal held that this will not make the other units dummy.
21. This citation refers to large number of judgments of the Tribunal. In the case of Cheryl Laboratories v. C.C.E. as reported in 1993 (65) E.L.T. 596 (Tribunal) in a similar circumstances the 3-Member Bench held that a buyer cannot be considered as a manufacturer and two persons cannot be held to be manufacturers of the same product. The Bench cited the Supreme Court judgment in the case of Union of India v. Cibatul Ltd. as reported in 1985 (22) E.L.T. 302 (S.C.). Hon’ble Supreme Court in para 6 and 7 answered the question whether the goods are manufactured by the seller or are manufactured by the seller on behalf of the buyer. The Hon’ble Supreme Court noted the relevant provisions of the agreement and other materials on record which showed that the manufacturing programme is drawn up jointly by the buyer and seller and not merely by the buyer, and that the buyer is obliged to purchase the manufactured product from the seller only if it conforms to the buyer’s standard. For this purpose, the buyer is entitled to test a sample of each batch of the manufactured product and it is only on approval by him that the product is released for sale by the seller to the buyer. On other words, the buyer has the right to reject the goods if he does not approve of them. If the manufactured goods are not in accordance with the buyer’s standard, they are either reprocessed to bring them up to the requisite quality, or if that is not possible, the goods are sold to the buyer for a different purpose if they are compatible with the specifications of some other product and provided that the buyer has a need for that product, or the goods are sold to others in the market as sub-standard goods at a lower price or the goods are destroyed. It is significant to note that the buyer is not obliged to purchase the goods manufactured by the seller regardless of their quality and that in the event of rejection by the buyer the alternatives present before the seller extend to the sale of the manufactured goods to others or even to the very destruction of the goods. It is apparent that the seller cannot be said to manufacture the goods on behalf of the buyer. Further the Supreme Court observed in para 7 that the appellant relies on the circumstances that under the agreements the seller is required to affix the trade-marks of the buyer on the manufactured goods and, it is said, that indicates that the goods belong to the buyer. The Supreme Court observed that it seems to them clear from the record that the trade-marks of the buyer are to be affixed on those goods only which are found to conform to the specifications or standard stipulated by the buyers. All goods not approved by the buyer cannot bear those trade-marks and are disposed of by the sellers without the advantage of those trade-marks. The trade-marks are affixed only after the goods have been approved by the buyer for sale by the seller to the buyer. The seller owns the plant and machinery, the raw material and the labour and manufactures the goods and under the agreements, affixes the trade marks on the goods. The goods are manufactured by the seller on its own account and the seller sells the goods with the trade marks affixed on them to the buyer. This ruling of the Hon’ble Supreme Court is clearly applicable to the facts of this case and answers the points raised by the ld. Commissioner in his order.
22. In view of the findings given by us, the appeals succeed and the impugned order is set aside and appeals allowed.”
16. We notice that this Bench in the case of R. Venkatachalam v. CCE – 2000 (115) E.L.T. 192 likewise held that 9 units cannot be clubbed with the main unit merely because there is no common telephones, common business, common employees, and like allegations made in the present case. The Tribunal upheld the assessee’s contention that 9 units therein were not dummy units nor they were in the nature of hired labour of the main noticee. Even grounds of limitation has been answered in assessee’s favour. This judgment
of the Tribunal has since been affirmed by the Apex Court as noticed in extracted from 2000 (118) E.L.T. A242. The Commissioner’s (Appeal) before the
Apex Court has since been rejected. In view of the findings and the judgments cited above, we uphold the contention raised by the Ld. Sr. Counsel
and do not find any merit in this appeal and hence this appeal is rejected.