TMI Blog1984 (5) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... it was also noticed that the value of these bulbs was not included, while computing the exemption limit of ₹ 5 lakhs in terms of Notification No. 71/78, dated 1-3-1978 and No. 80/80, dated 19-6-1980, which the factory was allowed to avail. After further investigation a show cause notice was issued on 5-9-1981 as to why a penalty should not be imposed and why duty of ₹ 51,682.63, due on electric bulbs manufactured and cleared to M/s. Revathi Agencies during 1978-79, 1979-80 and 1980-81 should not be demanded under Rule 9(2) in terms of proviso to sub-rule (1) of Rule 10 and proviso to Section 11A as made applicable to Rule 9(2) by Notifications No. 267/77, dated 6-8-1977 and No. 3/81, dated 14-1-198J, respectively. After the reply and giving due opportunity by way of personal hearing, the Additional Collector came to the conclusion that M/s. Revathi Agencies are to be treated as a wholesale dealer only, in respect of BIJLITE and REVLITE bulbs manufactured by the appellants, and they cannot, by any stretch of imagination, be treated as a manufacturer. In these circumstances, the appellants are held to be the manufacturer and only with a view to avoid payment of Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made directly by the appellants and 8% commission is paid. This is not loaded on the prices of the bulb but is met from the profit of the company. M/s. Revathi Agencies approached the appellant to manufacture Bijlite and Revlite brands and they agreed to do so out of the own raw materials but with those brand names as a loan licensee under Central Excise Law. This was being done from 17-2-1979 to 31 31-1-1981 thus, from 1-2-1973 onwards Lustre Lampion bulbs were being manufactured, from 1-1-1978 to 7-11-1978 Bijiee brand from 17-2-1979 to 31-1-1981 Bijlite and Revlite brands were manufactured by the appellants. The Superintendent said M/s. Revathi Agencies should apply for L4 licence and they did so, enclosing appellants letter dated 19-1-1979. Therefore, they gave a declaration on 27-2-1979 that no manufacture elsewhere was being got done. On 1-3-1979 the Superintendent informed them that the value of proposed transactions being less than 80% of the ₹ 5 lac exemption limit, there was no need for a licence and a declaration under Notification 111/78, dated 9-5-1978 should be filed. M/s. Revathi had also filed a declaration on 10-3-1979 under Notification 305/77, dated 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey would not be a loan licensee but this is not correct. Even for Patent and Proprietary Medicines, where this concept originated, no de jure manufacturer supplies the raw materials. The Agreement of 17-2-1979 contains a condition to allow 1% deduction towards breakages/fusages and this has been misconstrued to be a normal trade discount. This is a normal trade practice for fragile goods. Moreover the appellants prices varied from ₹ 2.05 to ₹ 2.50 whereas M/s. Revathi were from ₹ 1.80 to ₹ 2.00, which would not have been possible if the relationship was between buyer and seller. The 1% allowance was therefore very restrictive. (3) With regard to certain credit notes being given to M/s. Revathi and since these were also given to other dealers, Revathi were mere wholesale dealers, the reasoning is wrong. Since they were paying for raw materials, convention requires supply of good quality and also credit in respect of goods short delivered, damaged or otherwise becoming useless. The system of credit notes cannot decide whether M/s. Revathi Agencies are de jure manufacturers or merely a wholesale dealer intentionally created by the appellants. (4) It is stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged and it is illegal in terms of Rule 173Q. (9) Only when Rule 9(1) is contravened does Rule 9(2) come into operation. Since annual statements were being regularly received on behalf of Revathi Agencies, the clearances were not clandestine. Rule 9(2) would not also apply since written instructions of the concerned officer were given. (10) The entire proceedings are not based on facts or evidence but presumptions and assumptions and even under Rule 9(2) the demand for ₹ 57,682.63 P is barred by limitation. On these grounds the order deserves- to be set aside. 4. Shri Bhatnagar for the appellants and S/Shri Kunhi krishnan, Lakshmi Kumaran and S.N. Khanna, for the respondent were heard at length on 16/17-2-1984, 26-4-1984 and 16-5-1984. Shri Bhatnagar reiterated the contentions in the written appeal. He stated that Notification No. 305/77 required that a person who gets his goods manufactured by another manufacturer need not take out a licence, if he authorises the manufacturer to comply with all procedural formalities and rules in respect of the goods manufactured and furnishes information for determining the value under Section 4. Accordingly, a declaration was made on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no clandestine removal and the special period in Rule 10 or Section 11 could not be invoked. He cited 1983 E.L.T. 1674 in this regard and argued that there was no occasion for imposing any penalty. 5. Shri Kunhikrishnan referred to the reply to the show cause notice which shows that the raw materials were of the appellant who also manufactured the bulbs and only the brand name was of the so-called loan licensee. The trade mark owner cannot be treated as a manufacturer under Section 2(f). He cited 1978 E.L.T. J 78 and 1980 E.L.T. 263 to support his contention. Under Notification No. 71/78 no manufacturer could clear goods free of duty in excess of ₹ 5 lakhs. In Notification No. 80/80 this was made more specific and the emphasis was on the factory from which clearances were made, even if it was run by a different manufacturer at different times. He contended that there was no res judicata in the matter of assessment [1962 (2) S.C.R. (644)] and 1983 ECR 455-D (C.E.G.A.T). The onus for establishing the claim for exemption lay on the party claiming it [1959 (35) I.T.R. 3136 and 1983 E.L.T 162 (C.E.G.A.T.)]. The order gives details of the clearances on behalf of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause notice dated 5-9-1981, was issued more than six months after the last operative date, namely, 31-1-1981, hence all the demands from 6-2-1979 upto this date, were time-barred. 7. At the final hearing, Shri Khanna pointed out that on 5-12-1978 the appellants exceeded the limit of ₹ 5 lakhs under Notification No. 71/78. Revathi Agencies were being given 8% commission and on 15-12-1978 they took out a L. 4 loan licence, evidently to help the appellants avail of further exemption up to ₹ 5 lakhs. They did not supply raw material, technical know-how, specifications etc. so they could not be treated as a manufacturer and Notification No. 305/77 was not applicable, more so, as the appellants did not comply with the Act/Rules. It is clear from the facts that the appellants were the manufacturer and M/s. Revathi are a mere buyer of their goods. Since the appellants failed to comply with the rules, the five year extended period was clearly attracted and penalty was justified. Shri Bhatnagar conceded that the appellants did not discharge the liabilities undertaken on 19-1-1979, but they were misled because their declaration was returned saying Notification No. 305/77 was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellants. We have given careful consideration to the pleadings of both parties. There is considerable force in the argument of Shri Khanna that it is not only for wilful mis-statement or suppression, that the extended period under Sec. 11 or Rule 10 could be invoked but contravention of any of the provisions of the Act or Rules, with intent to evade payment of duty. In this case, rules have been undoubtedly contravened and goods were manufactured without proper accounting and were improperly cleared. It is true that the department was informed by M/s. Revathi Agencies that it would get its goods manufactured by the appellants, but there was wilful non-compliance with the mandatory requirements ; and what may well have started as a legal attempt to avoid payment of duty and get the benefit of exemption twice, has in fact turned out to be an attempt to evade payment of duty, by availing of an unauthorised and inadmissible exemption. In this view of the matter, the limit of six months would not be attracted but the longer period. We would, therefore, uphold the order to this extent. At the same time, we cannot ignore the fact that the departmental officers had been informed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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