ORDER
M. Santhanam, Member (J)
1. This appeal has been filed against the order of the Collector of Central Excise, Bombay dated 24-11-1982. The brief facts of the case are as follows:-
2. The appellants carry on business mainly of making stainless steel utensils in their factory at Chembur. The raw materials are purchased from various dealers, including MMTC of India and got re-rolled on job work basis to required guage for the manufacture of stainless steel utensils. The goods became excisable after the introduction of the residuary Tariff Item No. 68 during 1975. Since the products were covered by Exemption Notification No. l76/77-CE dated 18-6-1977 the same position continued. The appellants stated that the goods manufactured by them or on their behalf during the preceding financial year did not exceed Rs. 30 lakhs as set out in the Notification. On 16-7-1977 the Range Superintendent wrote to the appellants to produce all their accounts to determine the eligibility for the exemption. The appellants furnished the declaration of stocks as on 17-6-1977. The value of the stainless steel sheets (pattas) got re-rolled were not included to compute the total turnover. So the appellants wrote to the department on 2-9-1977 that their earlier request for alloting a PLA Number may be cancelled. The Superintendent was satisfied that the appellants were eligible for exemption under the Notification. The appellants continued to avail the exemption during 1977-1978 and 1978-1979 as the value of the clearances did not exceed Rs. 30 lakhs.
3. On 6-7-1978, the Divisional Excise officers visited the appellants’ factory and took up investigation whether exemption under the aforesaid Notification was correctly availed. The appellants’ produced a Certificate from the Chartered Accountant indicating the value of clearances. On 23-4-1980, the appellants were directed to show cause for alleged contravention of Central Excise Rules on the ground that they were wrongly availing the exemption under the Notification by suppression of facts. There was a demand for duty amounting to Rs. 2,02,434.42 for the period 18-6-1977 to 29-12-1978. The Collector of Central Excise, Bombay-II, after hearing the appellants, accepted the appellants’ plea in respect of a portion of a show cause notice concerning the related person. However, he held that there was a suppression of facts in the statistics of job work relating to re-rolling of stainless steel sheets and also utensils; during both the years. He ordered payment of duty amounting to Rs. l,71,599.35 and also imposed a penalty of Rs. 5,000/-. Hence the appeal.
4. Shri Taraporvala, the learned counsel for the appellants submitted that the value of clearance in respect of stainless steel utensils was determined as Rs. 25,03,277.01 including sales tax of Rs. 78,353.02. He relied on the decision of the Bata Shoe Company (P) Ltd. v. The Collector of Central Excise and Ors. 1985 (1) SCALE page 127. In that decision the Hon’ble Supreme Court has observed that in determining the question of availability of exemption under the Notification concerned in that Writ Petition (Notification No. 171/67 dated 24th July, 1967), the first essential step is to determine the value of the article in the manner prescribed in section 4 of the Act. The learned counsel urged that the amount of sales tax should be excluded in determining the clearance value. In regard to the stainless steel utensils (job work by appellants) the value of clearance was determined as Rs. 8,46,141.18. A sum of Rs. 53,909.88 being the sales tax, had also been added in the clearance also filed before us the invoices for the job work done by them to show that the sale tax had been paid and that they were entitled to the reduction of the amount of sales tax notionally added by the department. The third contention of Shri Taraporvala related to the clearances of the job workers as manufacturers. The figures are:
(i) S.S. (Pataas) – Rs. 12,30,105.03 and
(ii) S.S.(Flats) – Rs. 87,124.05
It was urged that these figures represented the value of the job work done by third parties and should not (?) be included in the value of the appellants’ clearances in determining the eligibility for exemption. It was pointed out that the appellants should not be held to be manufacturers in respect of this clearance. Except for the supply of the raw materials the job workers had actually carried out the manufacturing process for producing Pataas, etc. and there was no connection or relation between the appellants and the job workers. They were dealings on principal to principal basis. There was no finding that the job workers were the agents of the appellants. In support of this proposition, he placed reliance on 1986(23) E.L.T. 187 (Tribunal) =1985(6) E.T.R 770 (Metal Box India Limited, Calcutta v. Collector of Central Excise, Calcutta) where the Tribunal has held that under section 2(f) (iv) only he who was actually carrying on the manufacturing activity was the manufacturer but if a person acted through an agent and the later carried on the manufacturing activity, it was the principal who should be held as the manufacturer. In that case the appellants had supplied raw materials and the actual manufacturing process was done by another firm who charged conversion charges. The learned counsel stated that the mere fact that the appellants supplied the raw materials to the job workers would make them manufacturers. Separate gate passes have been issued and excise duty has been paid by the job workers qua their manufacturers. He stated that a sum of Rs. 4,40,516.35 should be reduced for the period from 1-4-1977 to 16-6-1977 as the goods were totally exempted under an earlier Notification No. 105/76 dated 16-6-1976.
5. Regarding the sales tax, Shri Verma, the learned SDR has nothing further to add in view of the decision of the Supreme Court cited by the appellants. On behalf of the department it was urged that Notification No. l76/77-CE referred to manufacture “by or on behalf of” and the appellants should be held to be manufacturers both in respect of the job work done by them as also the job works done by others on their behalf. He relied on the decision reported in 1984(18) E.L.T (652) (Shri Hanuman Metal Industries, 3agadhari v. Collector of Central Excise, Delhi). In that decision it was held that the brass circles manufactured by the appellants did not fall under Item 68 and hence the value of the raw materials supplied by the customers should also be included in the assessable value. He also cited the ruling reported in 1984(18) E.L.T 657 (Oriental Talc Products Pvt. Ltd., Udaipur v. Collector of Central Excise, Jaipur). On the facts of that case, it was held that there was no provision in Notification No. 176/77 dated 18-6-1977 to take into account only the job charges to determine the total turnover. It was the total turnover which was to be taken into account for the purpose of taking the benefit of the Notification. The learned SDR urged that the appellants supplied the raw materials and got the job work done by the others and hence the entire value had to be taken into consideration for the purpose of determining the clearance value. The concept of manufacture in the Notification was different from the definition of that term in the main Act. The classification list did not disclose the job work done by others and hence the department was at liberty to include the clearances for a larger period.
6. The points for determination in the appeal are:
(i) whether the amount of sales tax should not be taken into account for determining the clearance?
(ii) whether from the total clearances for the purpose of exemption under Notification No. 176/77 dated 18-6-1977 the value of clearance by the appellants of stainless steel utensils as on job work should be excluded; and
(iii) whether the value of clearance of stainless steel sheets on job work basis by other should be included in the value of clearances of the appellants?
7. Regarding the issue of sales tax, we find that a sum of Rs. 78,353.02 in respect of stainless steel utensils and a notional sum of Rs. 53,909.88 in respect of S.S. utensils (3ob work by appellants) have been included to determine the eligibility or otherwise of the exemption under the Notification. In the Bata Shoe Company (P) Limited case the Supreme Court has categorically laid down that “value” should be calculated according to the provisions of Section of Central Excises and Salt Act, 1944. Under Section 4(d) (ii) ‘value’, in relation to any excisable goods, does not include the amount of sales-tax, if any, payable on such goods. Hence it follows that the sales tax actually paid in respect of S.S. Utensils and the notional addition of sales tax in respect of the job works done by the appellants cannot be included to determine the total value of the clearance. We must also point out that the appellants have filed additional documents which indicate that they did not collect sales tax in regard to the job work done by them, The Miscellaneous application for receipt of Additional documents is allowed and they support the case of the appellants.
8. The provisos to Notification No. 176/77 cited supra read as follows:
“Provided that this exemption shall not be applicable to a manufacturer if the total value of all excisable goods cleared by him or on his behalf in the preceding financial year had exceeded rupees thirty lakhs;
Provided further that the exemption contained in this notification shall apply to the first clearance for home consumption by, or on behalf of the manufacturer referred to in this Notification, from one or more factories, upto a value not exceeding rupees thirty lakhs during a financial year subsequent to 1977-1978, and upto a value not exceeding rupees twenty four lakhs during the period commencing on the 18th day of June, 1977 and ending on 31st day of March, 1978″.
The lower authorities have included a sum of Rs. 12,30,105.03 and Rs. 87,124.05 being the value of job work done by others, in arriving at the clearance value of the appellants. Regarding the job work done by the appellants to third parties, the appellants contend that only the notional additional sales tax should be excluded. We have already held that in arriving at the clearance value, all sales taxes should not be included. We have to decide whether the appellants should be deemed to be manufacturers in respect of the job work done by others qua the raw materials supplied by the appellants. The Notification refers to ‘manufacturer’ and ‘cleared by him on his behalf. The term ‘manufacturer’ has been defined under Section 2(f) of the Act as follows:-
“Manufacture” includes any process incidential or ancillary to the completion of a manufactured product:…and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.”
It is thus clear that the term “manufacturer” has to be understood in its natural meaning and two categories of persons are contemplated under the definition – (i) persons who manufacture the goods themselves on their own account and (ii) person who get the goods manufactured through hired labour. The appellants no doubt supplied raw materials to the third parties and we do not agree that in respect of those products or manufacture of pattaas the appellants should be held to be the manufacturers. There is no finding that the third party factories are dummy institutions created with a view to evade excise duty. Except for the supply of the raw materials (flats) and making payments for the job work done, the actual manufacturing activity was carried on by the third parties. There is no control, connection or relation between the appellants and the third parties. Shri Taraporvala rightly urged that the goods sent to the job worker were sent back to the appellants under proper gate passes and on payment of central excise duty by the job worker. Under those circumstances we cannot describe the job worker as an agent or the clearances made by him as being “on behalf of the appellants”. The mere return of the goods by the job workers to the person who had sent the raw materials after completing the job work cannot be called as manufacturer on behalf of the appellants. We also notice that the appellants have sent a letter as early as 2-8-1977 wherein they have stated that the process of rolling was done through other processors and not at their premises. They have emphasised that while taking delivery of such processed materials, they were paying excise duty to the processors against Form G.P.I. These facts have not been controverted in the impugned order. There is no finding that the appellants are agents or nominees of the third parties. The job worker is a manufacturer qua the goods and the value of those clearances cannot be added to determine the eligibility of the exemption notification vis-a-vis the appellants. In 1980 E.L.T 263 (Philips India Limited and Ors. v. Union of India and Ors.) the Allahabad High Court had an occasion to consider the term “manufacture on behalf of”. Paragraph 10 of the judgement is as follows:-
“In a case where a company requiring certain goods places orders for manufacturing articles according to its requirements, such a company cannot be said to have hired any labour and also does not have any control over the working of the manufacturing concern, hence such a company will not be considered to be a ‘manufacturer” within the definition of the term given in Section 2(f) of the Act. A person placing orders for manufacturing of articles would only be a buyer and thus cannot be the manufacturer. Simply because the goods manufactured in accordance with the requirements of the buyer, complying with his standard, the same would not make him a manufacturer inasmuch as such a person does not engage himself either in manufacture or production of goods on his own account. He does not incur any financial involvement needed for manufacturing or producing the goods and also does not have any control or supervision over the manufacturing process. Manufacturing company was not a dummy company nor a buyer placing orders for its manufacturing could be considered to be a manufacturer. It is only if those who own a factory are a dummy concern or a comouflage for the buyer of goods produced that the latter can be considered to be a manufacturer.”
This decision re-inforces the contention of Shri Taraporvala that the appellants should not be deemed to be the manufacturing company in the absence of any finding that the third parties were dummy companies. The Tribunal has held in 1986(23) E.L.T 187 (Tribunal) 1985 (6) E.T.R 770 (Metal Box India Limited, Calcutta, v. Collector of Central Excise, Calcutta) that the mere fact that the appellants supplied the base paper for converting the same into waxed paper by another packaging firm should not make the appellants as “manufacturer” for paying the excise duty on such packing material. The decision reported in 1984 (18) E.L.T 657 (supra) has no application to the present facts, for there is an observation that the interpretation for the concept of job charges and job worker was available under T.I. 68 and not for any other Tariff Item. The item concerned therein was brass circle which did not fall under T.I, 68. The decision in the Oriental Talc Products Pvt. Limited, Udaipur also has no application to the present facts, because the appellants therein were two units – one at Banswara and another at Udaipur and the question arise whether the total clearance of both the units was more than Rs. 30 lakhs. As the total turnover of both the units was more than Rs. 30 lakhs the exemption was denied.
9. We also notice that there is a decision in appeal No. ED(SB) 134/ 84-B dated 21-5-1985 ( Super Traders, Bombay v. Collector of Central Excise, Bombay, 1986 (24) E.L.T 338) where the Tribunal considered the application of Notification No. l76/77-CE. From the facts of that case we find that manufacture of the stainless steel strips was done on behalf of the appellants. In paragraph 14 of that judgement the admitted fact shows that the resultant product did not enter the factory of the appellants. The appellants bought flats/billets and got them rolled by the others factories and the resultant products were sold therefrom. In view of this distinguishing factor the Tribunal came to the conclusion that the manufacture was done on behalf of the appellants. That decision will not apply to the present facts. We also find from the decision in 1985 (21) E.L.T 187 (Collector of Central Excise, Madras v. Modoplast (P) Limited, Coimba-tore) that the Tribunal has considered the question whether the supplier of raw materials should be considered as manufacturer of the goods making them liable under Notification No. 80/80-CE. Following the earlier decision of the Tribunal in Lucas India Service Limited, Madras v. Collector of Central Excise, Madras (1984 (16) E.L.T 415) the Tribunal held that mere supplying the raw materials to another for the manufacture of goods in accordance with one’s drawings and specifications did not make the supplier a ‘manufacturer of such goods unless it was proved that manufacture was done by the factory owner in the capacity of dummy company. We respectfully agree with the ratio laid down in the above cases as they apply on all fours to the facts of the present case.
10. We also notice that the lower authorities had included a sum of Rs. 4,40,516.35 relating to an earlier period 1-4-1977 to 16-6-1977 and the goods were totally exempted at that time under Notification No. 105/76 dated 16-6-1976. The appellants are rightly entitled to the following deduction:
(i) Sales Tax on S.S. Utensils Rs. 78,353.02
(ii) Sales Tax on S.S. Utehsils
(Job work by Appellants) Rs. 53,909.88
(iii) S.S. (Pataas) sheets
(Job work by others) Rs. 12,30,105.53
(iv) S.S. Flats (Job works by others) Rs. 87,124.05
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TOTAL: Rs. 14,49,491.98
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If the above items are deleted from the total clearance for the purpose of exemption as determined by the Collector that is Rs. 44,41,266.41 the balance would be Rs. 29,91,774.43) which would be well within the exemption limit contemplated under the Notification.
11. In the result, the impugned order is set aside and the appeal is allowed.
Syiem, Member (T)
11A. I agree with my learned brother's analysis of this dispute and his conclusions.
12. This notification exempts goods “cleared for home consumption on or after the first day of April in any financial year, by or on behalf of the manufacturer from one or more factories.” It is necessary that the clearance should be by or on behalf of a manufacturer. In respect of the goods made for Mahavir Metal Industries by the job workers, Mahavir Metal Industries cannot be said to be the manufacturer. A manufacturer is relevant only in respect of goods manufactured by him; in respect of goods manufactured by others he is not a manufacturer – he may be a customer or a dealer but he will not be a manufacturer. He could even be a totally disinterested person in respect of those goods; but a manufacturer he will not be. To speak of the manufacturer when the goods are made by somebody signifies nothing and conveys an idea that can be translated into any meaningful prediction or intelligible purpose. Furthermore, the notification exempts not goods as such but goods cleared by or on behalf of a manufacturer. A function is served to read this as referring to the goods manufactured by the manufacturer and cleared either by him or on his behalf, but none to understand it as referring to goods manufactured by a manufacturer but cleared on behalf of another, who, in such a case, will not be a manufacturer in respect of those goods. To illustrate: goods A, B and C are manufactured by Mr. X; A(?) can be cleared by Mr. X himself, while B and C can be cleared by somebody else on his behalf, it being seen that B and C are manufactured by X himself except that the clearances are made by somebody else on his behalf. (This is, of course, a rare phenomenon and one can say it is not seen in the central excise). The manufacturer is, even then, the person who clears the goods he manufactures.
13. Where goods are known to have been manufactured by what is popularly called a dummy, that is to say, a man set up by another to manufacture goods with the latter actually holding control on all operations, it is possible to say that the first man, the controller, is not only the clearer but also the manufacturer of the goods. He stays behind the scenes only because he wants to evade taxes, but he is, in fact, the manufacturer of the goods manufactured by him and cleared on his behalf, whoever may do the front work for him.
14. In the case we have before us, the people who did the re-rolling job work for Mahavir Metal Industries appear to be people whose relation to them is only that of seller and buyer. The Collector writes about this as goods “got re-rolled by others for them on job work basis.” The show cause notice records as one of the facts of the case that the thicker gauge sheets were “got re-rolled on job work basis from various re-rollers in India” and that such re-rollers recovered central excise duty for the job work. (This excise duty must have been full duty unless exempted otherwise; there is no job work exemption on steel products). It is clear from this that the re-rollers were independent people who were under central excise supervision, if not holders of central excise licences. When they made the goods, they were the manufacturers and will be treated as all manufacturers under the law are. They will not be allowed to take the finished goods out of their factory without compliance with all the formalities of central excise such as payment of duty if payment is not exempted, preparation of gate passes etc. etc. as may be required under the law. If they do not, they will be subjected to all the rigours that the law provides therefor. But whatever they do, they do the manufacture and clearances for themselves and they are totally and irrevocably answerable under the central excise law for all that they manufacture under the L4 Licences. They cannot, for example, plead that they manufactured and cleared on behalf of Mahavir Metal Industries and, even if they really did so, they would still be answerable for any offences that may be committed by them in respect of the goods, under the central excise law.
15. There is no evidence of any kind anywhere to show that the job workers cleared the goods on behalf of anybody else and I, for one and not clear how they could have cleared goods on behalf of Mahavir Metal Industries. They did not do so, Mahavir Metal Industries did not say so and it is only now that the central excise says that they cleared the goods on behalf of another (What it?) means I am not able to understand. Aclearance is a clearance and stands on its own two feet – it is a legal clearance or an illegal clearance. There is no such thing under the law as clearance on behalf of another, when this latter did not manufacture-on the other hand, a man who manufactured cannot clear the goods on behalf of another. What the notification wants to do seems to be to limit the bounty to people who own goods cleared into home consumption less than 30 lacs rupees. Instead it marked out clearances and so had to adopt the difficult measurement of clearance “by or on behalf of”, “clearance by” are part of the law and tradition of central excise; “clearance on behalf of” is unknown and unrecognized. And even if they are done experimentally, the law has no place for them, and consequently “clearances on behalf” will always be illegal clearances. But the story will have to await another time. It is not even claimed by the department that the clearances by the job workers were illegal clearances or that they infracted any central excise law, that the true manufacturer, was really Mahavir Metal Industries who kept itself behind the scene, or that the excise duty liability had not been discharged, or that the excise duty liability had not been discharged, or that this or that law had been (infracted?). Therefore, the clearances by the job workers cannot be clearances on behalf of Mahavir Metal Industries but must be clearances on their own behalf and. cannot be added to the clearances by Mahavir Metal Industries,