ORDER
K.S. Venkataramani, Member (T)
1. This appeal is directed against the order dated 12-12-1989 passed by the Collector of Central Excise, Vadodara by which the Collector has confirmed the demand of duty of Rs. 10,06,260.84P in respect of moulding powder falling under S.H. 3901.10 Central Excise Tariff Act, 1985 for the period from 27-1-1987 to November, 1987; confirmed demand of duty of Rs. 32,681.40) in respect of master batches manufactured and removed during the period from 28-1-1987 to 15-11-1987; imposed a penalty of Rs. 5 lakhs under Rule 173Q(1) of Central Excise Rules, 1944; confiscated 3000 kgs. of moulding powder seized from the factory premises; appropriating Rs. 25,000.00 towards value of the goods; and ordered confiscation of land, building, plant and machinery but giving an option for redemption against fine of Rs. 1,00,000/-; and also appropriating Rs. 25,000/- towards value of 3108 kgs. of moulding powder seized and confiscated.
2. Briefly, the facts are that the appellants manufacture LLDPE water tanks falling under sub-heading 3926 of the Central Excise Tariff Act, 1985, for the manufacture of which, they get certain intermediate products manufactured/processed by outside agencies, the details of which are as under :
(i) In one case the starting material was plastic granules which were purchased by the appellants from open market and were imported from foreign countries. These granules were then sent to the following parties for getting them pulverised/converted into powder form:
(a) M/s. Grindwell Plastic Pvt. Ltd., Halol;
(b) M/s. Atom Plast, Bombay; and
(c) M/s. Industrial Resins & Plastics, Udhna.
(ii) In the other case, the starting material was carbon black purchased by the appellants from the open market and were sent to the following parties for manufacture of master batches:
(a) M/s. Silver Plastic, Bulsar.
(b) M/s. Hiral Plastics, Vapi.
(iii) The LDPE granules powder fall under S.H. 3901.10 and the master batches fall under S.H. 3206.90.
(iv) The transportation cost of both the raw materials and the processed intermediate products between the appellant’s factory and the job worker’s premises was borne out by the appellant.
3. As a sequel to intelligence collected to the effect that the appellants were getting their plastic granules pulverised/manufactured in the form of ‘powder’ from the manufacturing noted above, the departmental officers visited the factories of the appellants and the job workers and on scrutiny of the record found that the appellants had not discharged duty liability on the intermediate products, namely the pulverised plastic granules converted into powder form and the master batches. There was also a seizure of 3000 kgs. of moulding powder from the appellants’ premises and 3180 kgs. of moulding powder belonging to the appellants from the premises of M/s. Grindwell Plastic Pvt. Ltd. Statements were also recorded from the various functionaries of the job workers firms. Sh. Chandubhai Manilal Patel, Accountant of M/s. ‘Grindwell in a statement on 23-11-1987 said that their Director, Sh. K.K. Chokshi is sitting in the office premises of the appellants at Baroda and that the raw-materials and moulding powder always belong to the appellants and also that Sh. K.K. Chokshi is also the Director in the appellants’ firm and their entire production programme is guided by him. Miss Sirinben Sirazbhi Patharia, typist in ‘Industrial Resins’, in a statement on 24-11-1987, said that their factory was engaged in manufacture of polyester resin and conversion of LDPE granules into moulding powder form. She also said that they are receiving LDPE granules from different customers and converting into moulding powder and that the ownership of the granules and moulding powder always remain with the customers. Sh. N. Ganesan, Works Manager of the appellant firm gave a statement on 25-11-1987 in which he said that they were purchasing LLDPE granules and sending them to various pulverising units, named above for converting into powder form, on job charge basis and the ownership of the raw-material and finished products remained with them. He also said that they were getting master batches manufactured from M/s. Silver Plastics on job work basis by supplying carbon black and LLDPE granules on labour charges. Sh. Kamleshbhai R. Shah, Proprietor of M/s. Hiral Plastics, in a statement on l-12-1987, said that they are engaged in colouring of LLDPE granules on job work basis for the appellants, M/s. Grindwell Plastics for which the raw-materials were supplied by the two parties. He also said that they do not undertake job work of any other unit except the above two. In a statement on 7-3-1988, Sh. P.S. Shah, Chief Accountant of the appellant firm, said, inter alia, that the units from whom they got the job work done in preparing plastic granules into powder and master batches, have been hired for their own manufacturing activity on labour basis. After further investigation, proceedings were instituted against the appellants and the job work in units by a show cause notice issued on 29-5-1988 in which duty was demanded in respect of:
(a) 57966.00 kgs. of LLDPE powder valued at Rs. 21,92,467.10 P processed and received from M/s. Grindwell Plastic Pvt. Ltd. duty involved Rs. 6,57,740.10 P and the period being August to November, 1987.
(b) 30380.500 kgs. of LLDPE powder valued at Rs. 11,61,735.77 P processed by and received from M/s. Industrial Resins and Plastics – involving duty of Rs. 3,48,520.74 P and period being 27-1-1987 to 15-9-1987.
(c) 2520 kgs. of master batches valued at Rs. 1,39,284.00 P processed by and received from M/s. Silver Plastics’ Vapi – involving duty of Rs. 13,928.40 P and the period being 28-1-1987 to 15th November, 1987.
(d) 4900 kgs. of master batches valued at Rs. 1,87,530.00 P processed by and received from Hiral Plastics, Vapi – involving duty of Rs. 18,753.00 P and the period being 28-1-1987 to 15th November, 1987.
(e) Apart from demand, the SCN also contain a proposal for imposing penalty under Rule 173Q and also confiscation of the goods seized as under :
(a) 3000 kgs. of moulding powder valued at Rs. 99,000.00 P seized from the Appellant’s factory.
(b) 3180 kgs. of moulding powder valued at Rs. 1,02,564.00 P seized from the factory of M/s. Grindwell Plastic Pvt. Ltd.
4. The Collector, ultimately adjudicated the case by the impugned order which is now being contested in this appeal. Sh. Willingdon Christian, the Ld. Counsel appearing for the appellants, submitted that the appellants are a Public Limited Co. listed in the Stock Exchanges. There was no ground, according to the appellants, for holdirig that the job workers’ units were only dummies of the appellants. The Collector, in his adjudication order, has chosen to rely upon the decision of the Tribunal in the case of H. Guru Instruments (P) Ltd., Calcutta v. Collector of Central Excise, Calcutta – 1987 (27) ELT 269 (Tribunal) to say that the appellants as the supplier of raw-materials to the other units, is the real manufacturer from whom the duty is demandable. On the other hand, the Ld. Counsel relied upon the Tribunal’s decision in the case of Prasad Engineering Works v. Collector of Central Excise, Hyderabad -1987 (31) ELT 247 (Tri.) which was to the effect that merely because certain units produce goods out of raw materials supplied, the persons supplying these raw-materials cannot be taken to be the manufacturer so long as the transaction is at arms length and in its decision, the Tribunal has considered the case of H. Guru Instruments and distinguished it. Similarly in the Multi Trade Overseas Corporation and Anr. v. Collector of Central Excise, Cochin -1987 (30) ELT 980 (Tribunal), the Tribunal had held that the supplier of raw-material would not be the manufacturer but it would only be the person who actually does the conversion of the raw-material into the manufactured product unless the person is proved to be a mere dummy for the raw-material supplier. Here also, the Guru Instruments case was considered. Apart from this, the Ld. Counsel also referred to the decision of the Tribunal in Techma Engineering Enterprise, Calcutta v. Collector of Central Excise, Calcutta – 1987 (27) ELT 460 (Tribunal) and in Meteor Satellite Ltd. & Telstar Electronics, Ahmedabad v. Collector of Central Excise, Baroda -1985 (22) ELT 271 (Tribunal) on the same lines. He submitted that there was a large number of other decisions which had been listed by him on the same lines. Therefore, merely because the appellants, herein, supply the raw-materials to the units which convert them and return the intermediate products on job work basis, will not make the appellants the manufacturer for the purpose of demand duty on the goods. He also relied upon the Notification 119/75 wherein the job workers using raw-materials supplied by the manufacturers were exempt from duty. The Ld. Counsel, further, argued that the job working units cannot be considered to be mere hired labour for the appellants for which he relied upon Techma Engineering Enterprise case (supra). On the other hand, the appellants and the job workers are independent entities. The appellants’ case is, further, distinguishable from the Guru Instruments case because unlike in that case there is no brand name and ISI marking and marketing link up between the other units and the appellants which were present in that case. Even if there was a common Director as between the appellants and M/s. Grindwell, that will not, by itself, be a criterion for holding the two as one firm for which he relied upon Sagar Corporation, Hyderabad v. Collector of Central Excise, Hyderabad – 1990 (15) ETR 806 in this regard. The appellants believed bona fide that they were not the manufacturers and as they had not wilfully withheld any information from the Department, the show cause notice dated 20-5-1988 for the period January – November, 1987 was time-barred.
5. The Ld. Counsel, further, submitted that the other issue involved is whether the pulverising would amount to manufacture, which, he submitted, is now not being pressed.
6. Sh. M. Jayaraman, Ld. SDR, appearing for the respondent, argued that the ratio of the Guru Instruments case fully applies to the facts of the present because the ownership of the raw-material and returned converted products admittedly, remain with the appellants and the job workers only were paid the labour charges. There was also the evidence by way of statement of the appellants’ employees and the other functionaries of the job working units to show that the other units were only hired for the manufacturing activity of the appellants on labour charges. Notification 119/75 will have no application where the job workers are merely hired labour as in the case of the appellants. There was also no intimation to the department regarding sending out and receiving back of the raw-materials by the appellants. Therefore, there was a clear case of suppression of facts. The transaction with the other units, in this case, had in fact been disclosed only on the visit of the officers to the appellants premises. Therefore, the demand for duty from the appellants and penalty imposed on them is justified.
7. The submissions made by the Ld. Counsel and the Ld. SDR, have been carefully considered. The issue is whether the appellants, M/s. Fusion Polymers Ltd., can be regarded as the manufacturers of moulding powder and master batches. The issue would revolve upon the nature of relationship between the appellants and the units which did job work for them. The two units, M/s. Silver Plastics and M/s. Hiral Plastics were the ones to whom the appellants sent carbon black and LLDPE granules for manufacture of master batches. The evidence on record clearly indicates that these two units were in the nature of hired labour undertaking manufacturing operations only for the appellants. Sh. K.R. Shah, Proprietor, Hiral Plastics, in his statement had said that they do not undertake job work for any other unit. In fact, M/s. Hiral Plastics and M/s. Silver Plastics in their reply dated 30-5-1988 to the show cause notice had said that as they had no other work in their factory, they had started extrusion work of the appellants on labour charges and that the raw-materials were received from the appellants in the appellants’ own vehicles and after processing the goods were carried back in the like manner and the processing in their factory was carried out under the supervisory staff of the appellants. Therefore, the Collector’s finding that these two units were merely hired labour during the operations for the appellants, is sustainable on evidence. As regards the other unit, M/s. Grindwell Plastics, their surrogate status is clear when it is seen that as per the statement of Mr. Chandubhai Manilan Patel, Accountant of M/s. Grindwell Plastics, dated 23-11-1987, the Director of M/s. Grindwell, Mr. K.K. Chokshi is also a Director in M/s. Fusion Polymers Ltd. and the entire programme was guided by Shri Chokshi, who was sitting in the office of the appellants at Baroda. It is also evident from the state of Sh. C.R. Nanavati, Internal Auditor of Fusion Polymers that they direct and supply raw-materials of M/s. Hiral Plastics for the manufacture of master batch in the name of M/s. Grindwell Plastics and accordingly, Hiral Plastics had manufactured master batch in the name of M/s. Grindwell. So also, in the case of the other units, M/s. Industrial Resins and Plastics they were merely being paid labour charges for the conversion of plastic granules into powder form. The fact is further confirmed by the statement of Sh. P.S. Shah, Chief Accountant of M/s. Fusion Polymers Ltd., when he said on 7-3-1988 that the other units from whom they got job work are hired for their own manufacturing activity on labour basis and also that the appellants were incurring all the transportation charges from their premises to job workers and back to their factory and that they are even supplying raw-material for packing LLDPE granules and LLDPE powder. In the circumstances, it will be reasonable to hold on the evidence that the ratio of the Guru Instruments decision of the Tribunal (supra) has correctly been applied to the facts of the case by the Collector. The observation of the Tribunal in that case is – “however, in the case before us, it is the appellants, who were owners of the raw-materials and components throughout and at the end, they took away all the goods fabricated on their behalf by paying only job charges to M/s. I.E.C. This was not the case of manufacture and sale on principal to principal basis but of one unit employing another unit on hired labour basis.” We have seen that in this case also the ownership of the raw-materials remained throughout with the appellants who had sent it to the units who work only for the appellants and that these were hired for doing the appellants’ manufacturing operation, as confirmed in the statement of Chief Accountant of the appellants. In the Prasad Engineering Works case, cited by the appellants, the Tribunal, on evidence, found that the appellants in that case cannot be said to be surrogates of the raw-materials suppliers which cannot be said in the present case before us.
As regards the ratio of the Techma Engineering Enterprise case in that case it was laid down that a hired labourer is one who hires himself out to work for and under the control of another for wages, and applying this criterion in the present case, it has been seen that the other units were doing only this for the appellants. It is also noteworthy that the appellants have not put forth any evidence by way of formal contract between the other units and them in order to show that the transaction between them was on principal to principal basis. Therefore, on an overall consideration of the evidence on record, the findings of the Collector in the impugned order are well founded. Duty has correctly been demanded from the appellants. The fact also remains that the appellants were a unit exempted from Central Excise Licensing Control and the transactions relating to the sending of the raw-material and the receipt of the intermediate excisable products used in the manufacture of LLDPE moulded tanks was disclosed only on the gathering intelligence by the departmental officers and on their visit to the appellants’ and the job workers’ premises, and as such, suppression of facts can be said to be established invoking longer period of demand under proviso of Section 11A Central Excises & Salt Act, 1944, However, considering all the facts and circumstances of the case and as the appellants do not seem to have come to any adverse notice on any earlier instance, this will be a fit case for affording some relief in the matter of fine and penalty and accordingly, the personal penalty is reduced to Rs. one lakh, and fine in lieu of confiscation of land, building, plant and machinery, etc. is also reduced to Rs. 50,000/-. The order of the Collector is modified only to the above extent, it is otherwise upheld.
S.L. Peeran, Member (J)
8. I have gone through the order prepared by my learned Brother, Sh. K.S. Venkataramani, Member (Technical) who has applied the ratio of the ruling given by this Tribunal in the case of H. Guru Instruments (P) Ltd., Calcutta v. Collector of Central Excise, Calcutta -1987 (27) ELT 269 (Tribunal) (supra) and has held that the appellant is a manufacturer in respect of the goods sent to three parties in question and the duty demand made by the Department is valid. I could not pursuade myself to agree to the reasons given by him.
9. The Show Cause Notice, dated 20.5.1988 comprises of 27 pages. The relevent allegation against the appellants is found in the Paras 15,16 and 17 of the Show Cause Notice. It is made out therein that moulding powder got manufactured by the appellants by supplying raw materials i.e. LLDPE granules during the period from August, 1987 to November, 1987 on payment of labour charges, from the different manufacturing units is said to have been done on their behalf. It has been made out that moulding powder and ‘Master batches’ classifiable and chargeable to duty under Chapter/Sub-heading 3901.10 and 3206.90 respectively manufactured and removed by the different manufacturing units (job workers) from their factories where the goods manufactured and removed for and on behalf and on account of appellants and goods actually belonged to the appellants who were the manufacturers within the meaning of definition under Section 2(f) of the Act. It is also alleged that the appellants and the manufacturing units (Job Workers) had by recourse to fraud, wilful mis-statement and suppression of facts and with deliberate and wilful intention to evade payment of duty illicitly manufactured and removed the goods viz. moulding powder falling under Chapter 3901.10 totally valued at Rs. 33,54,196.87 during the period from 7-1-1987 to Nov., 1987 and master batch falling under Chapter/Sub-heading 3901.90 totally valued at Rs. 3,26,814.00 has been done without obtaining any Central Excise Licence for manufacture thereof and without following any Central Excise Procedure and without payment of Central Excise duty leviable thereon. It has also been alleged that the appellants had manufactured 6108 kgs. of ‘moulding powder’ valued at Rs. 201564 illicitly removed without obtaining Central Excise licence in form L4 as required which was seized from their factory premises and the factory premises of M/s. Grindwell Plastic Pvt. Ltd., Baroda on 25-11-1987 and 23-11-1987. The appellants have, therefore, been charged for contraventions under various Acts and Rules. The learned Collector has confirmed the demand by applying the ratio of H. Guru Instruments Pvt. Ltd. and held that the appellants are the manufacturers of the goods in question. He has held that the appellants employed other parties named in the Show Cause Notice who were job workers on hired labour basis for manufacture of moulding powder and master batches.
10. The defence of the appellants in this connection has been that they used certain intermediate products manufactured/processed by outside agencies, the details of which have been given by them as below :-
“(i) In one case, the starting material was plastic granules which were purchased by the appellants from open market and were imported from foreign countries. These granules were then sent to the following parties for getting them pulverised/converted into powder form :-
(a) M/s. Grindwell Plastic Pvt. Ltd., Halol;
(b) M/s. Atom Plast, Bombay; and
(c) M/s. Industrial Resins and Plastics, Udhna.
(ii) In the other case, the starting material was carbon black and LLDPE granules which were purchased by the appellants from the open market and were sent to the following parties for manufacture of master batches.
(a) M/s. Silver Plastic, Bulsar.
(b) M/s. Hiral Plastics, Vapi.
(iii) The LDPE granules powder fall under S.H. 3901.10 and the master batches fall under S.H. 3206.90.
(iv) The transportation cost of both the raw-materials and the processed intermediate products between the Appellant’s factory and the job worker’s premises was borne out by the Appellant. The said job workers used to raise their invoices for the job work charges and apart from these payments, there was no other consideration moving from one party to another, nor was there any flow of finance, directly or indirectly, in any form from one to another.
(v) It is submitted that each of the job workers unit is independent legal entity and having no relation or connection what-so-ever with the Appellant except the business relationship with regard to the job work carried out as explained hereinabove.”
In the grounds of appeal, the appellants have submitted that except for the fact of supply of raw materials by them, there is no allegation or evidence for any relationship or agency between the appellants and job workers and they have submitted that they cannot be held as ‘manufacturers’ and no liability for payment of duty can be pinned on them. They have submitted that hired labour is one who hires himself out to work for and under the control of another for charges. In this connection, the concerned job workers were not only independent but were engaged in their own manufacturing activities and moreover the said job workers were carrying out the job work with their own plant and machinery with their own labour and in their own factory. The production was carried out by the said job workers according to their production schedule, budget and plant capacity. They have contended that simply because the said job workers manufactured the goods for the appellants out of raw materials supplied by them, such job workers could not be said to have hired themselves out. They have submitted that the ratio of Shree Agencies case relied on by the Tribunal in the case of H. Guru Instruments Pvt. Ltd. (supra) is not applicable to the facts and circumstances of this case as it was held by Hon’ble Supreme Court in Shree Agencies that the job workers were dummy manufacturers. In this case there was no allegation from the department that the job workers were dummy manufacturers or concerns set up by the appellants as a camouflage arrangement or relationship of agency between the appellants and the job workers.
11. Shri Willingdon Christian, learned Advocate has relied upon numerous judgments in support of this case. He has also argued that the demand raised by the Department was time-barred. The following are the citations relied upon by him :-
1. Gangadhar Ram Chander 1979 (4) ELT 597 (All.) 2. Andhra Rerolling Mills affirmed in 1986 (25) ELT 3 (SC) 3. Philips India Ltd. 1980 (6) ELT 263 (All.) 4. Poona Bottling Co. 1981 (8) ELT 289 (DEL.) 5. Abdul Latif 1985 (22) ELT 758 (Mad.) 6. Lucas Indian Service Ltd. 1984 (3) ETR 746 7. Monoplast (P) Ltd. 1985 (5) ETR 526 8. Metal Box India Ltd. 1985 (6) ETR 770 9. Shakti Udyog 1986 (8) ETR 507 10. Kalsi Tyres 1986 (26) ELT 631 11. Standard Motors Products India Ltd., 1986 (24) ELT 155 (Tribunal) Madras v. Collector of C. Ex., Madras 12. Techma Engg. Enterprise 1987 (27) ELT 460 13. Super Printers, Hyderabad v. 1987(10)ETR (1) Collector of C. Ex., Hyderabad 14. Prasad Engineering Works v. Collector 1987 (31) ELT 247 (Tri.) of C. Ex. 15. Mahavir Metal Inds., Bombay v. 1987 (28) ELT 85 (Tribunal) Collector of C. Ex. 16. Multi Trade Overseas Corporation v. 1987 (30) ELT 980 (Tribunal) Collector of Central Excise, Cochin 17. Goa Bottling Co. Pvt. Ltd. v. UOI 1988 (28) ELT 215 (Bom.) 18. Tata Engineering & Locomotive Co. 1988 (35) ELT 617 (Patna) Ltd. v. UOI 19. Taggas Indl. Development Ltd. v. 1989 (39) ELT 151 (Tri.) Collector of Central Excise, Kanpur 20. Kerala State Electricity Board v. 1990 (47) ELT 62 (Tri.) Collector of Central Excise 21. Ciba-Geigy India Ltd. v. UOI 1989 (25) ECR 428 (Bom.) 22. Sugar Corporation, Hyderabad v. 1990 (15) ETR 806 Collector of Central Excise, Hyderabad
12. In the context of the allegations and the submissions made by the party, we have to examine as to whether the ratio of M/s. H. Guru Instruments Pvt. Ltd. case will apply to the facts of this case. It has to be further observed that MA. H. Guru Instruments case has not been followed in the case of Prasad Engineering Works (supra) and Super Printers (supra) case. In the case of H. Guru Instruments Pvt. Ltd. (supra) the appellants supplied raw materials to M/s. I.E.C. and the latter manufactured synthetic and industrial instruments as per specifications of the appellants. The instruments so manufactured bore a brand name and ISI mark of the appellants, and they were also marketed by the appellants just as similar instruments manufactured in their own large scale factory. In the facts and circumstances of the case, it was held that the status of M/s. I.E.C. was no better than that of hired labour as they received only job charges.
13. In the case of Prasad Engg. Works it was held that “The very fact that the appellants manufactured the goods on the raw materials supplied by the various customers and according to their specifications would not ipso facto either make the appellants the agents of the raw material suppliers or their nominees. The ratio of the Division Bench ruling of the Madras High Court referred to supra and the other decisions relied upon by the learned Counsel for the appellants would clearly bear out that it is the appellants who are manufacturers of the goods in question and not the raw material suppliers.” It has been further held that “In the instant case it cannot be gain-said that there is absolutely no connection whatever between the two units namely the units supplying the raw material and the appellants who are manufacturing finished goods. Therefore, on consideration of the facts and circumstances of this case in relation to the goods manufactured by the appellants and following the ratio decidendi in the various rulings referred to supra we are inclined to hold that the appellants were entitled to the benefits of the notification cited supra…” The Bench did not follow the ruling of M/s. H. Guru Instruments Pvt. Ltd. case.
14. In the case of Multi Trade Overseas Corporation, the Tribunal held at para 18 as follows :-
“It is, therefore, seen that in almost all the above cited decisions it has been held that the raw material supplier would not for that reason become the manufacturer of the processed product even if the processing may be done to his specification, with a right of rejection also, unless it is established that the processor was a mere dummy for the raw material supplier and the alleged agreement for receipt of conversion charges was a mere make believe, the transaction between the two not having been on principal to principal basis. It has been held that except in cases falling under the exception mentioned above the processor would be the actual manufacturer and not the raw material supplier. It has, therefore, to be verified whether on the facts established in these appeals the appellants are proved to be a mere dummy for the supplier of the loose tea or whether the appellants are independent legal entities who had entered into a contract with the suppliers of the loose tea for packaging thereof on receipt of the necessary charges therefor, the transaction between the raw material suppliers and the appellants having been on principal to principal basis.”
15. Again, in the case of Super Printers, Hyderabad v. Collector of Central Excise, Hyderabad, at para 6, it has been held as follows :-
“It is with reference to the ratio of the said decision that the facts in the present case are also to be appreciated and conclusion drawn. As earlier mentioned, the appellants were functioning as printers even before the contract with ITC was entered into. They had been carrying on their work on their own plant and machinery from long before the said agreement. Even after the said agreement they were carrying out the work of printing of cigarette slides on behalf of other customers. Except to the extent that the printing of cigarette slides for ITC was to be done by the appellants to the specifications and printing details laid down, M/s. ITC, with a right of rejection in the ITC for substandard material, M/s. ITC had no right of control and supervision over the actual day today work of the appellants. The supply of the board, ink and slide bromides, as well as the first set of cutting and creasing rollers and printing gluts, by the ITC was for the reason that the work to be done by the appellants on that material was to manufacture a product suitable for the ITC only. Hence the supply of these materials would not amount to ITC having control over the manufacturing activities of the appellants. The clause for return of the cutting and creasing rollers and printing gluts to ITC (on the expiry of the agreement) was evidently for the reason that except for the work to be done under the said agreement these items would not be useful to the appellants. Evidently M/s. ITC were anxious to see that these items were not put to use by the appellants for manufacture of slides for their competitors.”
16. Again in the case of Techma Engineering Enterprise, Calcutta v. Collector of Central Excise, Calcutta (supra), it has been held at para 11 as follows :-
“It is submitted by M/s. Techma that an independent contractor or manufacturer cannot be called a hired labourer. We are in agreement with this. We understand a hired labourer as one who hires himself out to work for and under the control of another for wages. Thus, a person who manufactures cans and who has machinery in his house can, without himself manipulating or working the machinery, hire labourers to make/manufacture cans by turning, manipulating, working the sheets in the machinery, to produce and turn out cans. Such a man is a man who hires labour to manufacture cans and so engages himself in their manufacture. He is directly and visibly involved in the process of manufacture, in the act of forming and manipulating and fabricating cans from sheets either manually or with the aid of machinery. That person may manufacture the cans for himself or for another, but he engages in their production on his own account. But because he undertakes to make cans for another customer for a consideration, he cannot be said to have hired himself out to other persons for the manufacture of cans or that the customer engages in the manufacture of cans. The difficulty in the interpretation given by the Collector is that there will be two manufacturers in such a case, the so-called person who engages himself and the person who actually manufactures the goods, the hired labourer.”
17. In the case of Lucas Indian Service Ltd., Madras v. Collector of Central Excise, Madras, the Tribunal has held that “Mere supplying the raw materials to another for the manufacture of goods in accordance with one’s drawings and specifications does not make the supplier a manufacturer of such goods unless it is proved that manufacture was done by the factory owner in the capacity of a dummy company.”
18. In the case of Metal Box India Ltd., Calcutta v. Collector of Central Excise, Calcutta, the Tribunal held at para 15 as follows :-
“This is a case where the appellants only supplied raw materials and the actual manufacturing process was done by M/s. Industrial Packaging who charged conversion charges. Following the decision of the Hon’ble Andhra Pradesh High Court and Allahabad High Court in the case of Andhra Rerolling Works, Hyderabad v. Union of India 1979 (4) ELT J-600 and Gangadhar Ramchandra v. Collector of Central Excise, UP 1979 ELT J-597 respectively and the decision of this Tribunal also in the case of Collector of Central Excise, Madras v. Modoplast (P) Ltd. [1985 (21) ELT 187] (Tribunal), we set aside the order of the authority below and allow the appeal.”
18A. In the case of Tata Engineering & Locomotive Co. Ltd. v. UOI (supra), Patna High Court has held that Company having right to supervise the fabrication process so as to satisfy about quality of material used and to guarantee manufactured product according to specifications of its customers, it has been held that body builders manufactures on its own account and not for and on behalf of appellant in that case. It was held that the appellant was not manufacturer of body built on chassis by the body builders as envisaged by Section 2(f) of the Act.
19. In the case of Meteor Satellite Ltd. v. Collector of Central Excise, 1985 (22) ELT 271 (Tribunal), the Tribunal has held at paras 16 and 19 as follows :-
“16. Another ground which weighed with the Collector in his findings is that Meteor had sold some machinery to Telstar. It is not alleged that this sale was under-valued or not bona fide. Sales have been duly accounted for in the Accounts Books of the parties and Meteor has shown a profit for the same. It is also noticed that Telstar, besides purchasing the machinery from Meteor also purchased machinery from other sources. Out of total machinery costing Rs. 16,803.34, Rs. 96.048/- was from Meteor and Rs. 65,755/- from others. This would not therefore weigh against Telstar. The Collector for his findings also relied on the fact that M/s. Telstar for certain period sold its entire production to M/s. Meteor. It is in evidence that earlier Telstar had also sold its products to other buyers. The appellants have explained why sales arrangement were necessary with Meteor. The appellants were using brand name of Meteor and Meteor had better sales organisation. From this fact it would not be proper to hold that manufacture by Telstar is by or on behalf of Meteor.”
“19. The appellants have filed various documents like deed of partnership, papers showing M/s. Telstar’s manufacturing activities prior to August, 1980, sales tax and small scale industries certificate from M/s. Telstar, Factory Act Licence, plant and machinery purchased, balance sheet, Income-tax assessment and Chartered Accountant’s certificate. There is nothing to show that profit made by Telstar flowed back to Meteor. Considering all the factors, the transactions between Telstar and Meteor, be held to be on principal to principal basis. Telstar cannot be said to be an agent of Meteor. There is no evidence that Meteor had any financial involvement in the affairs of Telstar, nor is there any evidence for its activity were controlled by Meteor. For all these reasons the Collector’s findings that goods produced by Telstar was for and on behalf of Meteor cannot be sustained.”
20. In the case of Philips India Ltd. and Ors. v. Union of India and Ors. reported in 1980 ELT. 263 (All.) the Allahabad High Court has held at para 10 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 or 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 camouflage for the buyer of goods produced, that the latter can be considered to be a manufacturer.”
21. In the case of Sagar Corporation, Hyderabad v. Collector of Central Excise, Hyderabad (supra), it has been held at para 6 as follows : –
“Admittedly, it is not the case of the department that the appellants are a dummy and a faked unit and were working under the direct control or supervision of the supplier of raw material and the transactions were not on principal to principal basis. Both the appellants and M/s. Lions Pencils (Pvt.) Ltd. are independent units having distinct and separate identity having differing management, and having no control and supervision over the other. The appellants own their factory and have an industrial licence in their own name and manufacture goods as an independent contractor with the raw material supplied by Lions Pencils (Pvt.) Ltd. Collector of Central Excise, Madras v. Modo Plast (P) Ltd. -1987 (21) ELT 187. It is also not the case of the respondents that the appellant is an agent of Lions Pencils (Pvt.) Ltd. [Metal Box India Ltd. v. Collector of Central Excise -1986 (23) ELT 187]. Therefore, we are of the view that the appellants are independent manufacturers and they are liable to pay duty on the pencils manufactured by them.”
22. In the case of Pimpri Gases v. Collector of Central Excise as reported in 1990 (49) ELT 474 (Tri.), it has been held at para 11 as follows : –
“As far as constitution of both the firms is concerned, it is not in dispute that M/s. Sanghi Gases is a partnership firm which has two partners and they are admittedly the wife and son of Sh. R.K. Sanghi and Sh. R.K Sanghi is the Proprietor of M/s. Pimpri Gases. But, then, only because they are very close relatives, it cannot be said that there is any commonality of financial interest between the two firms. As far as common use of staff and telephone is concerned, even though what has been found by the Collector, is factually correct, then also it would not prove that both the units were one in eyes of law. This issue is already decided in followig cases cited by the appellants : –
1. Jaswant Sugar Mills Ltd., Meerut v. UOI and Ors. -1981 (8) ELT 177 (Del.) – wherein considering the effect of a person being a partner in one firm and proprietor of another firm in connection with Section 2(f) of the Act and Notification No. 13/65, in para 11, the High Court has held has under : –
“The ‘manufacturer’ is a person or entity who is direcly controlling or is responsible for the manufacture of a product. As such, the petitioner could not be said to be a ‘manufacturer’ in a firm at Bijnor where he was only a partner when compared to the factory at Meerut where he was the sole proprietor. Therefore, for the purpose of the firm at Meerut, he would be a distinct person from what the petitioner qua manufacturer of sugar was at Bijnor. Therefore, the production of sugar at Bijnor and Meerut mills could not be clubbed together for grant of rebate under the aforesaid notification.”
2. Jagjivan Das & Co. (supra) wherein, the Tribunal was considering effect of circumstances such as use of common premises and common use of some machinery etc., telephone telegraphic address, conveyance of partners, etc. in connection with Section 2(f) of the Act and the Tribunal has held as under : –
“Giving of a common telephone as address by the three firms which consist of relations, when telephones are difficult to get in bigger cities, use of table space by one firm in the shop-cum-office of another, which is a common practice in commercial towers; use of a common telegraphic address, which is used by a number of shops in the same complex, location of three factories in the same compound within the knowledge of the Excise authorities, commonness of partners; occasional use of buffing machine of one firm by others, and mutual financial transactions without charging of interest, etc. are not conclusive circumstances to show that the clearances of the appellants were for and on behalf of the others.”
3. Shree Packaging Corporation (supra) – Here the facts were common storage of raw-materials and employment of work force of one firm and another in certain circumstances and the Tribunal has held that these are not such circumstances which would prove that the firms were not independent.
23. In the case of Shakti Engineering Works v. Collector of Central Excise as reported in 1989 (40) ELT 95 (Tribunal), the Tribunal has held in paras 10,11 and 14 as follows: –
“10. The point for determination in this appeal is whether the department was justified in clubbing the clearances of the two units. Before coming to a conclusion, we have to find out whether the two units are distinct legal entities. It is seen from the records that Shakti Engg. Works was registered as a small scale unit in 1961. The partnership deed of M/s. Shakti Engg. Works dated 30-8-1976 indicates the names of the 3 partners and their respective shares. It is a self-contaied document with all relevant clauses. The certificate of Registration issued under the Punjab General Sales-tax Act discloses that M/s. Shakti Engg. Works has been registered under the provisions of that Act. The Income Tax: clearances for the two firms appear to be distinct and separate. When we come to M.G. Industries the partnership deed indicates that they are carrying on business in terms of prior partnership dated 18-12-1975. In this connection, we may point out that Shakti Engg. Works appear to have been carrying on partnership business from 1974. The Balance Sheet, Registration for a Dealer under the Punjab General Sales-tax Act, certification of Registration as a small scale unit and also the certificate of annual installed capacity relating to M.G. Industries are separate. They have been assessed to Income Tax separately. These are factors which make out that these are two distinct legal entities. Of course, it is open to the department to establish that these units have been created with a view to evade tax liability or that in reality there were no two firms. We must say that such a proof is wanting in this case. We may also observe that there is no such allegation in the show cause notice or a finding to that effect. These aspects of the case persuade us to hold that these two units are distinct legal entities.
11. The main ground on which the authorities below have come to the conclusion that the clearances should be clubbed is on the basis that one of the partners was described as Karta of joint family. This factor, according to the Department will have no material bearing and that the two units should be considered as the same manuacturer for the purpose of clubbing the clearances. In this connection, we have to state that an ordinary partnership is composed of distinct individuals who enter into a contract to carry on business either for a limited or during their pleasure. Section 5 of the Partnership Act lays emphasis that the relationship of partnership arises from contract and not from status. It is, therefore, obvious that partnership arises only from an agreement and is not created by status or obtained by birth. If a Karta or a Managing Member of the joint family or any other adult enters into a partnership with outsiders, the other members of the family do not ipso facto become partners. But only such of the member who has in fact entered into a contractual relation with the outsider would be the partner. This is corollary arising out of Section 5 because partnership arises out of a contract between the parties and not as a result of any status. So far as the outsider is concerned, Karta alone is recognised as a partner. Bus as between the partners, the question whether the Karta acted in his individual capacity and for his own benefit or he did so representing his joint family and for their benefit would depend on the facts and circumstances of each case. So one cannot decide the issue mainly on the basis of the provisions of the Partnership Act. If the adult member of the copercenary or the other member are able to show that the Karta or Managing Member entered into a partnership showing an intention that he was doing so on behalf of the joint family then the question would be different in respect of the matters arising inter se between them.
14. Even assuming that the members of the HUF cannot be recognised as partners, then the ratio of the decision of the Tribunal in 1983 ELT 1994 would apply to the present facts. The commonness of partners alone cannot be the basis to hold that one of the units was a dummy or a camouflage created to evade tax liability. In this decision it is laid down that a person who happens to be a partner in plurality of firms cannot be said to own a sum total of the powerlooms possessed by the firms nor can a plurality of partnership firms treated as one entity because of common partners. The ratio of that decision would, therefore, squarely apply. Hence having regard to the legal position and the authorities cited above, we are of the view that the two firms are distinct and independent firms and their clearnaces ought not to be clubbed.”
24. Having examined the entire case law on this subject, it has to be seen whether the appellants have set up four job workers as camouflage or as a dummy concern to get their intermediate products manufactured/processed on them. The department has not alleged in their Show Cause Notice as pointed out by the appellants that these 4 units were dummy concerns and had been set up solely to deny the provisions of law in so far as the paying of excise duty is concerned. There is no evidence on record to show that they are dummy concerns and that they were working under the direct control or supervision of the appellants and the transactions were not on principal to principal basis. The appellants are a limited concern incorporated under Companies Act while M/s. Grindwell Plastic Pvt. Ltd. and M/s. Industrial Resins and Plastics are incorporated as Private Limited Companies under the Companies Act and M/s. Silver Plastic and M/s. Hiral Plastics are independent units. The Department has not brought out any nexus between these concerns and units set up with fraudulent intent to evade duty. In view of this, the appellants’ contention that all are independent units and carrying out independent manufacturing activity has to be upheld. The consistent rulings of the Tribunal and Courts as noted above are fully applicable to the facts of this case. The ratio of H. Guru Instruments case is not applicable to the facts and circumstances of this case and the learned Collector was not justified in applying the ratio of it. The Collector has also failed to notice subtle distinction drawn by the Tribunal and Courts in the above rulings on the aspect in issue. In view of the matter, the appeal has to be allowed by accepting the appellants contention.
25. The impugned order is set aside and ordered accordingly.
In view of the separate orders recorded by the two members, the following point of difference has arisen:
“Whether appellants M/s. Fusion Polymers Ltd. could be regarded as manufacturers of moulding powder and master batches or not for the purpose of demanding duty thereon from them holding that the other units are only hired labour of M/s. Fusion Polymers; or
Whether the appellants and other units are independent entities having principal to principal transactions and not dummies created by the appellants and as such no duty is demandable from the appellants.”
The point of difference is referred to the President in terms of Section 129C(5) of Customs Act, 1962.
Jyoti Balasundaram, Member (J)
26. In terms of Section 129C(5) of Customs Act, 1962, the President of the Tribunal, in view of the importance of the question raised, has referred the appeal for hearing to me for deciding the point of difference so as to arrive at a conclusive decision by the Tribunal. Accordingly I heard Shri Willingdon Christian, Advocate for the appellants and Shri M. Jayaraman, learned SDR for the Department.
27. The point of difference is as follows :
“Whether appellants M/s. Fusion Polymers Ltd. could be ragarded as manufacturers of moulding powder and master batches or not for the purpose of demanding duty thereon from them holding that the other units are only hired labour of M/s. Fusion Polymers; or
Whether the appellants and other units are independent entities having principal to principal transactions and not dummies created by the appellants”.
28. The facts leading to the present appeal have already been set out in the order recorded by the learned Member (Technical) and it is not necessary to repeat the same. The learned Member (Technical) has taken the view that the appellants. are to be regarded as the manufacturers of moulding powder and master batches, on the evidence on record that the nature of relationship between them and the units doing job work is that of hired labour. He has held that the ratio of the decision of the Tribunal in the case of H. Guru Instruments P. Ltd. (supra) applies to the facts of the case. The learned Member (Judicial) has held that there is no evidence on record to show that the four job workers are dummy concerns and that they were paid wages for the work under the direct control or under the supervision of the appellants and the transactions were not on a principal to principal basis. He has held that the ratio of H. Guru Instruments (supra) is not applicable to the facts of this case. The learned Member (J) has discussed the entire case law on the subject.
29. The learned Counsel for the appellants, Shri Willingdon Christian submitted that the Collector has rested his conclusion on four factual grounds:
(i) that the job workers were employed by the appellants as hired labour;
(ii) the dealings between the appellants and the job workers were not on a principal to principal basis;
(iii) ownership of the goods remained with the appellants; and
(iv) the decision of the Tribunal in H. Gum Instruments covers the case against the appellants.
The learned Counsel assails all the four findings.
30. On the other hand the learned SDR seeks to support the findings of the adjudicating authority and contends that the fact that Grindwell Plastics were doing job work exclusively for the appellants establishes that Grindwell is acting only as hired labour for the appellants. Therefore, he submits that the citations of the learned Counsel regarding independent contractors are not relevant to this case. Regarding job work done by Hiral Plastics, the learned SDR’s contention is that Hiral Plastics does job work only for Grindwell Plastics and the appellants which conclusively establishes the nature of relationship between the appellants and Hiral Plastics as that of hired labour. In view of the fact that the relationship between the appellants and the job workers is that of hired labour, the learned SDR submits that the decision in H. Gum Instruments case applies on all fours to the facts of this case.
31. I have considered the submissions of both sides.
32. The scope of the term “hired labour” has been discussed by the Tribunal in the case of Techtna Engineering Enterprise, Calcutta v. Collector of Central Excise, Calcutta reported in 1987 (27) ELT 460 wherein it has been held that a hired labourer is one who hires himself out to work for and under the control of another for wages. The Bombay High Court, in the case of Chetan B. Thadani v. Union of India and Ors. reported in 1987 (30) ELT 287 (Bom.), has held that the mere fact that goods manufactured bear the trade mark of the customer and the entire production is supplied to such customer and the manufacturer has no interest in the commercial sale of product would not lead to such conclusion that the dealing between the two is not at arms length, even if there is no written agreement. In view of the above judgment of the Bombay High Court, the finding of the learned Member (Technical) that the absence of a formal contract between the appellants and the job workers shows that the transaction between them was not on a principal to principal basis, cannot be sustained. There is no independent evidence on record to show that the transactions were not on a principal to principal basis. In view of the above discussions the Collector’s findings on the first two factual aspects enumerated above have to be set aside. Regarding the third factual ground, there is a plethora of case law to the effect that ownership of the goods is not linked up with either manufacturing activity or excisability. In the case of Mahavir Metal Industries v. Collector of Central Excise, Bombay reported in 1987 (28) ELT 85 (Tribunal), the Tribunal has held that a mere return of the goods by the job workers to the person who had sent the raw material after completing the job work cannot be called as manufacture on his behalf. In the case of Standard Motors Products (I) Ltd., Madras v. Collector of Central Excise, Madras reported in 1986 (24) ELT 155 (Tribunal) the Tribunal has taken the view that a manufacturer cannot be said to be one for and on behalf of the other merely because he has received raw material for such manufacture. In the case of Shakti Udyog, Jallandhar v. Collector of Central Excise, Chandigarh reported in 1986 (25) ELT 423 (Tribunal), the Tribunal has held as follows: “Ownership does not make a man a manufacturer any more than giving a piece of cloth to be made into a shirt turns one into a tailor. These two activities must not be mistaken as they are separate even when they coverage on the same person. Owning and manufacturing are distinct roles”.
33. In view of the case law discussed above, the Collector’s finding on ownership is also set aside.
34. Having held that the relationship between the appellants and the job workers is not one of hired labour, I hold that the decision in H. Guru Instruments (supra) will not apply to the facts and circumstances of this case.
35. Hence, I concur with the view of the learned Member (J).
36. The point of difference having been resolved as in paragraph 35 (page 29), the file may be placed before the original Bench for further orders.
37. In view of the majority decision, the impugned order is set aside and the appeal is allowed.