TMI Blog1990 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... designs depending upon requirements of the customers. The pieces which thus come into existence as a result of this process are known as electrical laminations. They were, at the relevant time, chargeable to excise duty under Tariff Item No. 28A of the First Schedule to the Central Excises Salt Act, 1944. 3.Apex Electricals was formerly purchasing C.R.G.O. sheets or ready-made laminations from the market. As it did not possess any facility either for slitting or for cutting the said sheets, it used to get both the jobs performed by others on job work basis when it purchased C.R.G.O. sheets from the market. In 1979 it got an import licence and imported C.R.G.O. sheets. In respect of the C.R.G.O. sheets imported by it in the year 1979-80, it had got the slitting work done at Bombay. It had entered into agreements with the following six parties for getting the slitted sheets cut into smaller sizes : M/s. Prolite Engineering Company,1. M/s. Ashish Stampings,2. M/s. Sangma Engineering Works,3. M/s. Mayur Engineering Works,4. M/s. Kaveen Engineering Company, and5. M/s. Amar Engineering Company.6. These parties (hereinafter referred to as "the processors") were either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notices were issued to the other six processors. On 27-11-1984, the Collector of Customs and Central Excise, Vadodara, passed an order directing Apex Electricals to pay the duty of excise at appropriate leviable rate under Tariff Item 28A, on electrical laminations manufactured by the aforesaid six processors for Apex Electricals on the basis that they had really manufactured those laminations for and on behalf of Apex Electricals and thus Apex Electricals manufactured and illicitly removed the goods. He also imposed a penalty of Rs. 15 lacs on Apex Electricals. Aggrieved by that order, Apex Electricals has filed Special Civil Application No. 1083 of 1985. 5.What is contended on behalf of the petitioners in all these petitions is that the view taken by the respondents that Apex Electricals is really a loan-licensee, and that the six processors, who were manufacturing electrical laminations, as ordered by Apex Electricals, were manufacturing the same for and on behalf of Apex Electricals is erroneous as it is based upon misconception of facts and misconception of law. It was urged that the six processors are really independent entities and looking to the nature of the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led in Special Civil Application No. 1083 of 1985 what was implied in the order passed by the Collector has been specifically stated by saying that the said processors were dummies of Apex Electricals. 7.The question which arises for consideration is whether the view taken by the respondents that Apex Electricals was the real manufacturer of the electrical laminations manufactured by the six processors for Apex Electricals in the year 1979-80 and thereafter can be said to be proper and legal. It is now well settled that if, as a result of any process carried out by a processor on job work basis, a new commercial commodity comes into existence, then that process amounts to manufacture under the Act, and in such a case the processor/job worker will become liable to payment of excise duty on the goods manufactured by him. In such cases ownership of the goods is not relevant for deciding who is the real manufacturer. In these cases, it is not in dispute that the process employed by the six processors resulted in manufacture of electrical laminations, a distinct commodity commercially known as such, and separately chargeable to excise duty under Tariff Item 28A. What was, however, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Electricals only for no other party. 9.It is in this context that the we have to consider whether for the reasons stated by the Collector in his adjudication order, the six processors can be properly described as dummies and Apex Electricals can be said to be the real manufacturer. The answer to this question can be found by looking to the true nature of the transactions between the parties. In order to find out the true nature of the transactions, the circumstances narrated above would be quite relevant and they ought to have been considered by the excise authorities. A perusal of the adjudication order passed by the Collector discloses that these relevant circumstances were not considered by him. As against those relevant and more important circumstances, the Collector relied upon the circumstances which we have stated earlier in this judgment while pointing out what were the reasons for the excise authorities to come to the conclusion that Apex Electricals was the real manufacturer. In our opinion all those circumstances, even taken cumulatively, cannot be regarded as sufficient for coming to the conclusion that the transactions between the parties were not on principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the job work. 11.The next circumstance relied upon by the respondents, viz. that those processors had purchased machineries between October 1979 and January 1980 would not justify the inference that they had done so for and on behalf of Apex Electricals. As pointed out above, processors had purchased required machineries independently, without any financial help from Apex Electricals. If on a reasonable anticipation that they would be able to obtain orders from Apex Electricals they had purchased the machineries during that period, it cannot be said that they had done so at the instance of or with the help of Apex Electricals. Around an established industry, small units are usually set up to meet with the requirements of the established industry, and for that reason and also for the reason that they cater to the needs of the established industry, it cannot be said that they are not independent entities or manufacturers. 12.Next circumstance relied upon by the respondents is that all of them were supplied C.R.G.O. sheets by Apex Electricals and none of them had tried to obtain the same from the Steel Authority of India. Reliance on this circumstance discloses that the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that, that circumstance also indicated that the six processors really manufactured electrical laminations for and on behalf of Apex Electricals or the circumstance that the rate was the same had induced him to take that view. There was no material with the respondents to show that for doing such job other manufacturers were paid higher rates. 14.Therefore, it will have to be held that all the circumstances which have been relied upon by the respondents are neither individually nor collectively sufficient to come to the conclusion that the said six processors were dummies of Apex Electricals and in reality they were manufacturing electrical laminations for and on its behalf. If there had been any material to show that Apex Electricals was connected financially or otherwise with any of those six processors, or that it had a say in the management of those processors, or that it was rendering financial or technical help to those for doing the job work entrusted to them, then that would have been a different thing. In these cases, the processors appear to have come into existence on their own, were managed independently and were carrying on the job work entrusted to them also in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oil manufactured by those other oil mills out of the oil-seeds supplied by it was allowed to be removed by the excise authority without payment of any excise duty since the total quantity of oil produced by each oil mill was within the exemption limit. Subsequently, the excise authorities took the view that the vegetable non-essential oil manufactured by the petitioner was also liable to excise duty in respect of the oil manufactured by those oil mills out of the oil-seeds supplied by the petitioner. The petitioner had, therefore, after pursuing his alternative remedy filed the petition in Allahabad High Court. After referring to the definition of word "manufacture" as contained in Section 2(f) of the Act, the Allahabad High Court observed as under : "Two things have to be noticed in this definition. The first is that a person who manufactures excisable goods through hired labour is the manufacturer of those goods. The second is that a person who manufactures excisable goods on his own account is also a manufacturer if the goods are intended for sale. The petitioner does not fall in any of these categories. It does not, so far as the oil in dispute is concerned, manufacture it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant facts to the excise authorities in their applications made for seeking exemption. In March 1980 statements of the partners or owners of those processors were recorded by the excise authorities. On 7-3-1980 statement of the Managing Director of Apex Electricals was also recorded. After gathering all the relevant facts, the concerned officer had granted exemption on 17-3-1980. Therefore, the show cause notice issued to Apex Electricals and the action taken pursuant thereto on the basis that relevant and material facts were suppressed by Apex Electricals and those six processors cannot be said to be legal. As pointed out above, the only fact which was not disclosed by those six processors was that they were going to manufacture laminations for Apex Electricals. They were neither required to disclose the same nor questioned about it before their statements were actually recorded by the excise authorities. Therefore, the department was not justified in proceeding on the basis that there was suppression or concealment of true facts and, therefore, the show cause notice could be issued within the larger period of five years. As we have found that there was no justification for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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