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TMI Blog1977 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the manufacturing programme drawn up by the seller and the buyer. These resins were to be manufactured as per the buyer's standard and they were to be supplied at prices which were to be agreed upon between the seller and the buyer from time to time. The buyer was, under the contract, given a right to test a sample of each batch of these goods and it was only on approval by the buyer that the goods were to be released for sale to the buyer. The agreement obtains at present. A similar agreement took place between the buyer and the seller on June 1, 1975 in respect of Epoxy Resins; and the terms of this agreement are similar to the terms of the earlier agreement. It appears that in relation to the products to be manufactured under these two agreements said to be sold to the buyer use of certain trade-marks was to be made which trade-marks were the property of the foreign company i.e. Ciba of Basle. Therefore, on December 7, 1971 a tripartite agreement came to be made between the buyer, the seller and the foreign company in respect of the four trade-marks viz. Aerolite, Melocol, Melolam and Dresicart. The foreign company which was the owner of these trade-marks as well as the sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the powers under Section 36 (2) of the Act, and after giving an opportunity to the seller to be heard, the Central Government set aside, the orders in appeal passed by the Collector and restored the orders of price approval passed by the Assistant Collector. As refund of certain amounts arising out of the Collector's order was already sanctioned to the seller, the seller was directed to repay that amount to the department. It is this order at Annexure `P' dated July 30, 1975 passed by the Central Government which is challenged in the present petition. 4. The Central Government held the buyer to be the manufacturer of the goods in question, and therefore, restored the orders passed by the Assistant Collector. The short question which arises for determination in this petition is : who is the manufacturer of these goods covered by the aforesaid agreements, and whether the Central Government has committed an error of law in holding that the buyer and not the seller was the manufacturer ? 5. It appears from the impugned order, more particularly from paragraphs 11, 12 and 13 thereof that for the purpose of arriving at its decision, the Central Government relied upon the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word "manufacturer" shall be construed accordingly. It reads as under : * * * * The definition of 'manufacture' for the purpose of examining the aforesaid question can be divided into two parts. The first part would read "manufacture" includes any process incidental or ancillary to the completion of a manufactured product; .. . . . and the word 'manufacturer' shall be construed accordingly; "shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engage in their production or manufacture on his own account". 7. At the hearing of this petition, it was conceded on behalf of the respondents that it relied upon the second part of the definition of 'manufacturer' and more particularly the latter portion thereof which contemplates a person who engages in the production of the excisable goods on his own account. The contention on behalf of the Respondents was that on the basis of the aforesaid features on which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards strictly as an agent for and on behalf of Buyer and not on his own account. Thus, the said Trade Marks shall be used or deemed to have been used exclusively by the Buyer and Ciba-Geigy the Registered Proprietor of the Trade Marks and not by the seller. The seller agrees not to sell or otherwise deal in, directly or indirectly, goods bearing the said trade marks or any other marks similar thereto save and except for the explicit purpose of fulfilling seller's obligations under the agreement dated the 24th March, 1971 and not otherwise." 9. Clause 3 confers on the buyer a right to revoke the authority given to the seller under Clause 1 for the purpose of affixing the said trade marks without assigning any reason. We have already reproduced the factors taken into consideration by the Central Government for arriving at its conclusion different from that arrived at by the Appellate Collector and on that basis for reversing the orders of the Appellate Collector and those of the Assistant Collector. The first consideration or the reason was that the goods are manufactured on behalf of the buyer only and this reasoning was sought to be fortified by the term of the consequential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standard specifications, the same seems to have been taken from Paragraph 9 of the written reply dated April 22, 1976 by the seller to the show cause notice issued by the Central Government. The relevant portion of that paragraph may be reproduced : "In the very nature of things, in the manufacture of chemicals from time to time for diverse reasons the goods are not in accordance with the said quality. Such instances have occurred on several occasions in the past. Whenever such instances have occurred, we are left with four alternatives viz., (i) to reprocess the goods to bring them up to the requisite quality, if possible, (ii) if that is not possible to sell the goods to the buyers for a different purpose, if they are compatible with the specifications of a different product and provided that the buyer has a need for that product, (iii) sell the said goods to other as sub-standard goods at a lower prices, (iv) destroy them. On several occasions in the past, we have been compelled to adopt each of the aforesaid alternatives ...... The fact that the buyers had a right to reject goods and the fact that the buyers have exercised this right conclusively proves beyond the shadow of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction or manufacture thereof on his own account. The clause relating to the trade mark is nothing but an authority conferred by the buyer on the seller to affix the trade marks on or in relation to the contract products as an agent for and on behalf of the buyer and not on his own account. This would only show that the seller did the work of affixing the trade mark on the goods not on his own account but an agent for and on behalf of the buyer. 11. The seller could not use the said trade mark in view of the said clause for any other purpose or on account of any one else other than the buyer. It is not understood how this clause had anything to do with the question whether the buyer was the manufacturer of the goods in question. In the facts of this case we find that this factor which entered consideration of the Central Government for arriving at its ultimate conclusion was not a relevant factor at all. It was urged on behalf of the department that the term in this clause that the said trade mark shall be used or deemed to have been used exclusively by the buyer and not by the seller, will show that the goods in question were manufactured by the buyer. The attempt was to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider connotation than the word 'manufacture'. The words 'not only' and `but also' are used to emphasis the intention of the Legislature to include in the definition those who engage themselves in the production or manufacture on their account of goods intended for sale." Those observations do not advance the case of the department in any way, because these observations also clearly show that the manufacturer would include not only a person who employs hired labour in the production or manufacture of goods, but also any who engages in the production or manufacture of goods on his own account if the goods are intended for sale. Some assistance was also sought to be derived on behalf of the department from certain observations made by the Supreme Court in S.B. Sagar Mills v. Union of India AIR 1968 Supreme Court, 922 at page 928 in Paragraph 14. These observations read as under : "14. The Act charges duty on manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity of that person, and includes a certification trade mark registered as such under the provision of Chapter VIII". "There is nothing in this definition which can assist us in solving the problem. But one thing must be pointed out that even this definition speaks of a mark which has to be used in relation to the goods" and the purpose of the trade mark is merely to indicate connection in the course of trade between the goods and the person having a right to use the trade mark. In fact, Section 9 of the said Act which prescribes requisites for registration of the trade mark, says that the trade mark shall not be registered in part A of the register unless it contains or consists of at least one of the following particulars, namely : "(a)* * * * * (b)* * * * * (c)* * * * * (d) One or more words "hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been given to the manufacturer of these goods. The order is vitiated by an error of law apparent on the face of the record. Therefore, it is required to be struck down. 14. In A.K. Roy v. Voltas Ltd. - 1977 E.L.T. (J 177) it was observed in Paragraph 18 as under : "If a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the 'wholesale cash price, for the purpose of Sec. 4(a) of the Act if the agreements were made at arms length and in the usual course of business." 15. In the present case, it is not in dispute that the agreement in question were made at arms length and in the usual course of business. In the aforesaid decision, following an earlier decision of the Supreme Court in Union of India v. Delhi Cloth and General Mills, 1977 E.L.T. (J 177) it is laid down in Paragraph 21: "The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing oper ..... 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