ORDER
V.T. Raghavachari, Member (J)
1. Notice dated 9-5-1986 was issued to the appellants (M/s. Kerala State Electricity Board) and various other persons, under which they were called upon to state why duty amounting to Rs. 75,29,822.60 paise ought not to be demanded from the Kerala State Electricity Board in respect of PSC/PCC poles and RCC poles manufactured by them (falling under Item 60 CET) and why action should not be taken against all of them for imposing penalty, etc. The appellants replied contending that they were not the manufacturers of the poles, but it was only their contractors (to whom also the show cause notice had been issued) who were the manufacturers. Under order dated 17-11-1986 the Collector of Central Excise, Cochin rejected the said contention. He held that the appellants were the manufacturers of the poles and were, therefore, h’able to pay excise duty. Taking note of the claim for exemption in respect of some of the RCC poles (under Notification 179/77) the Collector held that they were liable to pay appropriate duty in respect of the poles manufactured by them during the period 1981-82 to 1984-85. He did not impose any penalty on the appellants or the contractors. This appeal is against the said order.
2. We have heard Shri Shriram Panchu, Advocate for the appellants and Smt. Saxena for the Department.
3. In the grounds of appeal a contention had been raised that principles of natural justice had been violated in the proceedings before the Collector since the Collector, who took into consideraion the replies sent by the Contractors (many of whom claimed that they were not the manufacturers but only the Kerala State Electricity Board) did not furnish the appellants with copies of those replies and held his proceedings in adjudication separately with reference to the Contractors. Before us Shri Panchu submitted that he would not press that ground (since that may result in a remand only) but would submit arguments on the merits and would invite us to render our decision on the merits of the issue. Accordingly, we are not going into the contention regarding violation of principles of natural justice.
4. Another contention raised before the Collector and also in the grounds of appeal, is that these poles are not goods and no excise duty would be liable to be paid thereon. This contention had been overruled by the Collector in view of the decision of this Tribunal in the case of the Andhra Pradesh Electricity Board 1984 Vol. 16 ELT 579. Shri Panchu submitted that in view of the said decision he would not address us on the said question, though he does not abandon that contention. Following the said decision we hold that the poles are excisable commodities.
5. The main argument of Shri Panchu was that the Contractors were the actual manufacturers of the poles and the liability for payment of duty, if any, was only on the manufacturers and that the appellant Board was not the manufacturer and was under no liability to pay excise duty. In support of this contention he relied upon several tapes in the tender specifications , the subsequent agreements executed between the Board and the Contractors and certain other material. The said contention had been raised before the Collector also. The Collector had overruled this contention relying again on the decision in (supra) and also on the facts of the present case. Shri Panchu submits that the Collector was in error in relying on the said decision since in the said case the Andhra Pradesh State Electricity Board had accepted that they were manufacturing the poles but only contended that the poles were not excisable articles. Shri Panchu submits that the terms of the agreements between the appellant-Board and the Contractors would establish that the Contractors were not the hired labour of the appellants (as wrongly concluded by the Collector) but were independent Contractors manufacturing in their own right though on the orders of the Board. Smt. Saxena, supporting the conclusion of the Collector, pointed out that the entire work of casting the poles was to be done not merely to the specifications of but under the supervision of the officers of the Board who would be supplying the raw materials also and hence it was the Board that was the manufacturer and not the contractors.
6. In order to appreciate the respective rival contentions it would be necessary to look into the terms of the agreement (following the tender conditions and the quotations in terms of the tender). Para 5.03 of the schedule to the notice calling for the tender no doubt stipulates that the casting of the poles will be done under the departmental supervision. In para 8 of the letter accepting the tender the Contractor has been intimated that the poles should be manufactured in accordance with the specifications of the Board. Under para 10(xi) the poles are directed to be marked with KSEB monogram and other particulars and in para 10(xiii) the casting is directed to be done under the departmental supervision. It is also not in dispute that the cement and steel required for the manufacture of poles was to be provided by the Board as also the electricity on payment of the usual charges. It is also agreed that in two places the yard of the Board was made available to the contractor for carrying out his work. But in this connection it is pointed out by Shri Panchu that in respect of these two places the right to make use of the Board’s property was also taken into consideration in fixing the tender amount, the amount being suitably different in the case of other contractors who were to use their own places.
7. The Collector has relied mainly on the fact that cement and steel were to be supplied by the Board and the casting of the poles was to be done under the supervision of the officers of the Board. So far as the supply of cement and steel is concerned the submission for the Board is that they were getting these materials from the respective statutory authorities at controlled rates and were, therefore, utilising the same by supplying the same to the contractors in order to keep down the price. It is further argued that it was for the purpose of safeguarding that the cement and steel obtained at controlled rate is not misused by the contractors that the stock of such cement and steel was being kept under the custody of the departmental officers in the respective yards and the duty of these officers was to issue these commodities in suitable quantities to the contractors as and when required. This explanation as to the presence of the officers in the yards is entirely acceptable. The supervision in the matter of casting of the poles was also only to see that the raw materials supplied was being actually used. Therefore, the above fact of the presence of the officers in the yards, and the casting in their presence, would not lead to the conclusion that the Contractors were working merely as hired labour under the Board.
8. On the other hand, there are conditions which would establish that the agreement between the Board and the Contractors was on principal to principal basis. For instance, the liability for loss, if any, due to damage to the poles arising out of faulty electric supply was to rest with the contractors only. Similarly the cost of the poles lost by destructive testing. There is also a clause allowing for escalation in rates. There is also a provision for levying of penalty on the contractors for late delivery of the poles. These conditions would be inconsistent with the Board itself being the manufacturer. It may also be noted that except for supply by the Board of cement and steel, the contractors were to make their own arrangements in respect of not merely other raw materials but the machinery required for preparing the cement mix, casting thereof, shuttering and other implements. It is pointed out for the Board that the outlay in respect of these materials would be substantial and would have to be borne by the contractors only. Except for supervision at the time of casting the officers of the Board did not, and could not in terms of the agreement, control the actual working of the contractors or their workmen with reference to the hours of work, daily out put, etc.
9. It is with reference to the above material that it has to be decided whether the appellant Board were the manufacturers liable to pay duty or the contractors. It may be noted that even in the show cause notice the Board is described as a “primary manufacturer”, the contractors being described as “secondary manufacturers”. This would in a way indicate that the excise authorities were also aware of the fact that the actual manufacturing operations were being carried out by the contractors only. As earlier mentioned, the Department relies on the fact that the Board was supplying cement and steel as also electricity; and was supervising the work of the casting of the poles and there was an embargo on the sale of the unusable poles. It has been already seen that the supply of the cement and steel was only for ensuring that proper materials so used. The supervision at the time of casting was also for that purpose only. Electricity was being supplied under the normal terms and conditions as would apply to any other individuals. The contractors were to invest their own money in the other machinery and material required for the manufacturing operations. The contractors were entitled to work at their own schedule though they were bound to manufacture a minimum quantity during a stipulated period. Loss arising during the course of manufacture, either due to failure of electricity leading to defective poles or for destruction at the time of testing, was to be borne by the contractors only. The contractors were liable to penalty also. These terms, when taken together would establish that the contractors were independent workmen and not the hired labour of the Board.
10. This Tribunal considered similar, though not exactly similar, cases in its decisions in the case of Multi Trade Overseas Corporation 1987 Vol. 30 ELT 980; Super Printers (1987 Vol. 30 ELT 745) and VXL Ltd. (1988 Vol. 14 ECR 200). The Tribunal held that the mere fact that raw materials were being supplied by the customer and that the same were to be utilised in the manufacture of articles to the specifications of the customer and that the manufactured articles were to be returned to the customer would not…those reasons only, make the customer the manufacturer rather than the actual manufacturer of the product. Applying the same ratio, and in view of the discussion earlier, we hold that in the present instance also the manufacturers of the poles were the contractors and not the Appellant Board. We, therefore, held that the demand for payment of excise duty by the Appellant Board was not justified.
11. In view of the above conclusions it is unnecessary to consider the question of limitation raised by the appellant.
12. The appeal is accordingly allowed and the impugned order is set aside with consequential relief, if any.