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PETITIONER: COLLECTOR OF CENTRAL EXCISE,BARODA .

       Vs.

RESPONDENT: M/S. M.M. KHAMBHATWALA

DATE OF JUDGMENT:       09/05/1996

BENCH: VENKATASWAMI K. (J) BENCH: VENKATASWAMI K. (J) MANOHAR SUJATA V. (J)

CITATION:  1996 SCC  (5) 100        JT 1996 (5)   515  1996 SCALE  (4)466

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T K.VENKATASWAMI, J.      This appeal  is preferred  against  the  order  of  the Customs, Excise  and Gold  (Control) Appellate Tribunal, New Delhi  (hereinafter   referred  to  as  ’the  CEGAT)’  dated 27.7.87.      The short  point that  arises for  our consideration in this appeal  is whether  the appellant was right in treating the respondents  as manufacturers of agarbatti, amlapodi and dhup etc.  even though  they were  manufactured  in  various premises of  the household ladies outside the factory of the respondents.      Briefly the facts are as follows :      During   the   year   1980-81   the   respondent   were manufacturers of  goods falling  under erstwhile Tariff Item 14F of  the Central  Excise Tariff  under a  Central  Excise Licence obtained  for the  purpose, The  total clearances of such goods during the said year amounted to Rs.14,88,268.00. In addition they were also manufacturing goods falling under Tariff Item 68 in their own factory and were availing of the exemption from duty and licensing control under Notification No. 105/80-CE  dated 19.6.80. The value of such goods during the relevant  year manufactured amounted to Rs. 3,21,605.00. Apart from  the above  two items,  respondents were  getting agarbatti, amlapodi  and dhup etc. falling under tariff Item 68 manufactured  on their behalf without the aid of power in the premises,  other than  their factory premises. The total of such  goods manufactured from outside during the relevant year amounted to Rs. 26.754.00.      In  the   classification  list  No.1/81  dated  22.6.81 effective from  13.4.1981 filed  under Tariff  Item 14F  the respondents claimed  exemption   for the  first clearance of Rs. 7.5  lakhs under Notification No. 80/80-CE dated 19.6.80 for the  year 1981-82.  As the  value of total clearances of goods falling  under 14F and those manufactured from outside

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the factory  on their  behalf without  the aid  of power  as mentioned above  during the  previous  year  namely  1980-81 exceeded Rs.  20 lakhs, the Superintendent of Central Excise issued a  Show Cause  Notice on  29.5.81  calling  upon  the respondents to  explain why  the exemption  claimed by  them under Notification  No. 80/80-CE  in respect  of Tariff Item 14F goods  should not  be disallowed.  After considering the explanation, the  Assistant  Collector  of  Central  Excise, Ahmedabad by  order dated  5.3.82 withdrew  the  above  Show Cause Notice  on the  ground  that  the  clearances  of  all excisable goods  did not exceed Rs. 20 lakhs in the previous year namely 1980-81. This view was taken on the footing that the value  of agarbatti, amlapodi and dhup etc. manufactured on behalf  of the  respondents in  premises other than their factory premises  were not  to be  included in  the value of total clearances.      That order  of the Assistant Collector was taken up for review by  the Collector  of Central  Excise,  Baroda  under Section 35A of the Central Excises and Salt Act and a notice dated 5.8.82  proposing to set aside the Assistant Collector Order was  given. After  considering the  reply to  the Show Cause Notice,  the Collector  set aside  the  order  of  the Assistant  Collector  holding  inter  alia  that  the  total clearance of  goods falling  under Item  14F and  the  goods falling under  Tarrif Item  68 including  those manufactured from  outside   the  factory   exceeded  Rs.  20  laths  and consequently the  respondents were  not entitle to exemption from duty in the respect of first clearance of Rs. 7.5 lakhs of the  goods falling  under Tariff Item 14F during the year 1981-82. Aggrieved  by that,  the respondents  preferred  an appeal to  the CEGAT  and the  CEGAT after  considering  the submissions   placed   before   it   by   the   Departmental Representative and  the counsel  for the  assessee and after verifying the  records  came  to  the  conclusion  that  the decision reached  by the Collector while reviewing the order of the  Assistant Collector  was not correct and, therefore, set aside  the Collector’s  order and  restored the order of the Assistant Collector.      Aggrieved by  that the present appeal has been filed by the revenue.      The learned counsel appearing for the appellant placing heavy reliance  on the  fact of  the respondents having paid ’wages’  to   the  house-hold   ladies   for   manufacturing agarbatti, amlapodi  and dhup  etc. contended that the goods manufactured by  such house-hold  ladies though in their own premises must be taken as manufactured in the factory of the respondents. It  is not  in dispute that levy of excise duty is attracted  on the  incident  of  manufacture.  Therefore, counsel on  both sides paid much attention to this aspect to substantiate their respective contentions.      The learned  counsel  appearing  for  the  respondents, however, submitted  that though  respondents paid  ’wages’to the house-hold  ladies, it  was on  the basis  of number  of pieces manufactured,  that no power was used by those ladies for manufacturing  those goods  and there was no supervision over the  manufacture of those goods and that the goods ? so manufactured were  sold from  the premises  of  the  cottage manufacturers. It is further emphasized that those goods did not go  to the  factory premises  of the  respondents. It is contended by  the learned  counsel that the manufacturers in this   case   are   undoubtedly   the   house-hold   ladies, notwithstanding the  fact that raw-materials for manufacture of those  goods were  supplied by  the respondents.  In  the facts and  the circumstances  of the  case, according to the learned counsel  for  the  respondents,  by  no  stretch  of

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imagination the  respondents could  be the  manufacturers of goods manufactured  by house-hold ladies as mentioned above. He also  contended that the error committed by the Collector of Customs  was that he proceeded on the assumption that the house-hold  ladies   manufactured  the   goods   as   ’hired labourers’ which  assumption is  contrary to  the undisputed facts available  in this case. In support of his submission. he placed  reliance  on  two  judgments  of  this  Court  in Ujjagar Prints etc. vs. Union of  India & Others (1988 (38) ELT 535) and Empire  industries Ltd. and Others vs. Union of India and Others (1985 (20) ELT 179).      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 admitted  facts  which  we  will  set  out  immediately  the respondents cannot  be considered  as manufacturers  in  the premises of house-hold 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  pockets and  such pockets 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.  CEGET  after  considering  the materials before  it concluded  that the respondents are not the  manufacturers   of  agarbatti,   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 questions 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.      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  even      under the Central Excise."      In Ujjagar  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.      On the  facts of  this case  and in  the light  of  the pronouncements of this Court on the question of liability to

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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.      The appeal  fails  and  is  dismissed  accordingly.  No costs.