TMI Blog2023 (11) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... al manufacturer subject to the condition that the principal manufacturer gives a declaration/ undertaking to pay the duty. The authorities below have erred in observing that in terms of the definition of manufacture under section 2 (f)(iii) of Central Excise Act, the appellant appears to be involved in 'deemed manufacture' and thereby liable to pay excise duty - reference made to the decision of the Larger Bench of this Tribunal in MAYO INDIA LTD. VERSUS COMMISSIONER OF C. EX., AURANGABAD [ 1999 (3) TMI 636 - CEGAT NEW DELHI] , where the appellant entered into agreement for manufacture of medicine as per their specifications, requirement and bearing their trademark and brand name for which they supplied the raw material. The learned Counsel for the appellant has alternatively relied on the Notification No. 214/86-CE dated 25.3.1986 to say that incidental activity of manufacture carried out by vendors on behalf of the appellant was as job workers then the liability has to be on the job worker and the appellant cannot be made liable to pay the duty - it is felt that no reliance can be placed on the notification since the raw material supplied by the appellant was not un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome footwear items falling under Chapter 64 from various vendors were sold after affixing their brand name Fab India without payment of duty. The appellant was therefore liable to pay excise duty of Rs. 6,08,901/-. Further, during the course of the audit it was also observed that the appellant had received an amount of Rs. 47,20,817/- in view of penalties from their vendors during the period October, 2014 to June, 2017 and as per the provisions of Section 66E of the Finance Act, 1994 were liable to pay service tax amounting to Rs. 7,04,381/-. Accordingly, show cause notice dated 15.05.2020 was issued towards demand of Rs. 6,08,901/- towards excise duty under Section 11A of the Central Excise Act, 1944 and Service Tax amounting to Rs. 7,04,381/- with consequential interest and penalty under the respective provisions. 3. The Adjudicating Authority relying on the definition of manufacture under Section 2(f)(iii) of Central Excise Act and in terms of the various clauses of the agreement executed by the appellant with their vendors concluded that the activity of affixing Fab India label, MRP tags, barcode on the footwear amounts to deemed manufacture as the label, tags and ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lised by termination of contract. Clause 14: Correct bar codes must be affixed on the productions as per specifications. Fabindia reserves the right to impose a penalty in case wrong price tags are affixed to production that result in a loss to the company. Clause 15: Packing instructions must be followed. The packaging of the product should ensure that the item reaches the store in perfect saleable condition. Please review the packing details with the category/ Quality teams of Fabindia . 7. The learned Counsel for the appellant has referred to several decisions, Diamond Cements Ltd., vs. Commissioner of Central Excise, Bhopal -2012 (283) ELT 226 (Tri. Del.), Mayo India Ltd., vs. Commissioner of C. Ex. Aurangabad -1999 (113) ELT 1036 (Tri.) and Burman Laboratories Ltd., vs. Commissioner of Central Excise, Indore -2000 (122) ELT 52 (Tri.). The law on the issue is well settled that excise duty is on the manufacture of goods and the liability to pay is on the manufacturer. In terms of the definition of 'manufacture' as provided in section 2 (f) of the Act, a person who undertakes any of the activities specified therein is a manufacturer and as interpreted, a j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of the manufacturers. There is no allegation contained also in the show cause notice that the appellant and the manufacturers of the product were related persons. The Apex Court in the case of Ujagar Prints v. UoI -1988 (33) ELT 535 (SC) has held that excise duty is on the manufacture of goods and is levied, upon the manufacturer in respect of the commodity taxed. The question whether the producer is or is not the owner of the goods is not determinative of the liability. The Supreme Court held that processors of fabrics become liable to pay excise duty because they cause the manufacture of the goods. This was the view of the Supreme Court in the case of Kerala State Electriity Board and in the case of CCE v. M.M. Khambhatwala -1996 (84) ELT 161 (SC). The Appellate Tribunal in the case of CCE, Bombay-II v. Hab Pharmaceuticals -1996 (87) ELT 704 held that according to Section 2(f) of the Central Excise Act, a brand name holder or supplier of raw material does not become manufacturer; that the brand name holders and the actual manufacturers are independent units. Similar views were held by the Tribunal in the case of Card Cure Engineering Co. Vs. CCE, Coimbatore -1996 (86) ELT 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant does not provide any raw material or labels to these vendors. 11. On the second issue of non-payment of Service Tax on fine and penalty received by the appellant from their vendors in lieu of deficiency in supply of goods on account of quality or late delivery, the learned Counsel submitted that it was not on account of any independent activity but is in the form of mechanism for settlement of price of goods. Since the vendor is not rendering any services to the appellant, the receipt of penalty towards supply of goods does not amount to agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act . The appellant is not liable to pay the service tax thereon. The provisions of Section 65B(44) of the Finance Act provides that service means any activity carried out by another for consideration, and includes the declared service. The term declared service has been defined under Section 65B(22) of the Finance Act as any activity carried out by a person or another person for consideration and declared as such under Section 66E. Section 66E of the Finance Act, 1994 sets out the declared services and the same reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity carried out by a person for another for consideration. Explanation (a) to Section 67 provides that consideration includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance. 15. A perusal of the contents of the agreement executed by the appellant with their vendors does not show that the agreement is for providing any services for which any consideration has to be paid and as noticed in South Eastern Coalfields Ltd., (supra) the contract may provide for penalty provisions for breach of the terms of the contract b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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