1. This is an appeal against an order passed by the Addl. Collector of Central Excise, Bangalore on 9-9-1983, wherein he imposed penalty of Rs. 3,000/-, confiscated Steel Furniture (subject to redemption on payment of fine of Rs. 5,000/-) and demanded from the appellant duty amount of Rs. 47,000/- (approx. as the demand is stated not to have been quantified) in the impugned order.
2. The background of the matter is that Shri Abdul Rasheed appellant is the Proprietor of M/s. Quality Steel Industries (hereinafter referred to as "Quality"). He was held to be also the real manufacturer in respect of M/s. Unity Steel Industries. It was further held by the Addl. Collector that the appellant's wife is only lender of name to Shri Rasheed and that both units are one and the same in so far as the manufacture and proprietory interest was concerned. For these reasons it was held that the units are not entitled to the concession of Notification No. 80/80-C.E. Consequently the demand for duty and the confiscation were ordered and the penalty imposed. The prayer before us is to set these aside.
3. We shall be examining in detail these and some other points which appellants have raised in the memorandum of appeal. It will be appropriate to refer to the Collector's order at this stage to see the grounds on which he decided that the two units namely Unity and Quality were one and the same and that their clearance had to be clubbed for the purposes of Notification No. 80/80. Reasons for the Collector's decision can be broadly listed as follows: (i) Smt. Inayathunnisa, wife of the appellant, executed a General Power of Attorney in favour of her husband who is carrying on manufacturing activities of both units.
(ii) The land and building where the Unity factory is situated is owned by Shri Abdul Rasheed the appellant and was taken on lease in 1970. The land where Unity is housed was purchased by the appellant on 10-9-1982 on behalf on his minor children. The advance money for the transaction was paid by Quality.
(iii) Steel furniture manufactured by Unity are painted in the Unity painting Section which is adjecent to Quality from where power is drawn for painting by Unity. There is no separate power connection and no charges were paid by Unity to Quality for using the power.
(iv) Almirahs manufactured by Unity are marketed in the name of 'QUALITY' brand.
(v) The land was taken on rent of Rs. 150/- for painting section of the Unity and the advance was paid by Quality. Even after Shri Rasheed's purchase of land no rent was paid by Unity to the new owners of land i.e. Shri Rasheed.
(vi) Unity did not have the required facilities to manufacture Steel folding chairs as they have only one hand-pressing machine in their factory but they cleared the folding chairs manufactured by Quality Steel Industries in their name.
(vii) The telephone installed in Unity is in the name of Shri Abdul Rasheed. Unity never paid any money to Quality for the use of the telephone as per. the statement dated 16-10-1982. Shri Abdul Rasheed, Appellant cor-raborating two other statements deposed that he bifurcated his unit into two to avail of the exemption and express his readiness to pay Central Excise duty. The Collector considered this as an admission of the two units being one and the same.
(viii) There was no gift deed and evidence of payment of gift tax in respect of money said to have been gifted by Shri Abdul Rasheed and his father-in-law to Smt. Inayathunnisa. The Collector therefore held that capital investment in Unity belongs to Shri Rasheed only.
She did not have any independent source of income to start the industry.
(ix) Considering these points and all the statements recorded and other documentary evidence the Collector held that procurement of raw-material, planning of manufacture of Steel furniture, sales accounting etc. were being done by Shri Rasheed who was the real manufacturer of the goods and that his wife was only the lender of name.
4. In the memorandum of appeal and during the course of hearing the following arguments were advanced: (i) The appellants' wife Smt. Inayathunnisa set up a new unit for the manufacture of Steel furniture in premises No. 22/15,6th Cross, H. Siddaiah Road, Bangalore which was earlier vacated by the Quality Steel Industries. A Central Excise Licence No. L.48/77 was obtained by her in the name of Unity Steel Industries.
(ii) Declaration under Notification No. 111/78 C.E., was being submitted by both Units. Unity Steel Industries (here-in-after refer to as Unity) was maintaining accounts in Form R.G.I and was submitting monthly returns and Annual returns like R.T. 12 etc. In terms of Notification No. 80/80 no Central Excise Duty was being paid.
(iii) Unity paid rent to Smt. B.L. Jayamma directly. However, receipts were obtained from the owner in the name of Shri Abdul Rasheed (appellant) as it was he who took the land on lease. This amount was debited to Unity Steel Industry.
(iv) Power connection was initially obtained in the name of the appellant who originally occupied the premises but electricity charges were paid by Unity directly to the State Electricity Board and the amount so paid were debited to Unit's account.
(v) Similarly the Telephone was installed when the appellant occupied the premises and continued to remain there till Unity came into existence.
(vi) Unity had its own workers and power connection and completed all the processes of manufacture of Steel furniture upto 31-3-1982.
Purchase of raw-material, sales of furnitures and incurring of other expenses were done by Unity.
(vii) The Proprietrix Smt. Inayathunnisa gave a Power of Attorney in favour of her husband (appellant) to carry on all the transactions in respect of Unity. The appellant did not receive any payment for his services to Unity on account of "conscentious objection".
(viii) Sales Tax assessment and income-tax were being assessed separately for Unity and Quality.
(ix) Each unit had an indenpendent staff and workers and were rendering Central Excise Returns.
(x) The two units were located in two places at a distance of 70 metres from each other and the capital for the business belongs to the two individuals Smt. Inayathunnisa and Sh. Rasheed.
(xi) Smt. Inayathunnisa started her factory out of funds gifted by her husband during the course of a number of years and this was accepted by the Income-tax department. The two units maintained separate account.
(xii) Raw-materials for Unity and Quality were being stored in their respective premises till September, 1982 when for want of adequate space the goods were unloaded at the premises of Quality for temporary storage but they were kept separately.
5. For these reasons it was argued that both the units, Unity and Quality were independent of each other and were entitled to the concession of Notification No. 80/80. Their clearances should not have been clubbed.
6. On behalf of department Shri K.C. Sachar, the Learned Representative referred to the various statements recorded during the course of investigation and to the findings arrived at by the Collector. He submitted that the appellant is the real manufacturer and the capital belonged to him as also the profits accruing from Unity. The entire manufacture in Quality and Unity are on behalf of Shri Rasheed only and therefore for the purpose of the Notification 80/80 the production have to be clubbed.
7. We have considered the arguments put forward by both sides. The following questions arise for our consideration: (i) Were the clearances from Unity by or on behalf of Shri Rasheed, proprietor of Quality? (ii) Were the two units independent for the purposes of Notification 80/80-CE? (iii) Were these demands for duties pertaining to the period 1980-81 and 1981-82 time barred? ' 8. As the first two questions are inter-related and inter-dependent, we discuss them together. As mentioned earlier the appellant advanced many points about the telephone bills, electricity bills, payment of rent, use of Quality key-holes for Almirahs manufactured by Unity, etc. But the main argument which is to be considered in depth is the one that the two units are independent of each other and therefore, both of them are entitled to the concession provided in the Notification No.80/80-C.E., separately. That the two units have been separately registered for the purpose of Sales Tax and Income Tax is not disputed.
However, we do not think that merely registering the units separately would give a right to the appellant to claim that the two units are independent for the purpose of Notification No. 80/80 and that they can claim the concession given thereunder separately. This notification extends the concession to goods cleared for home consumption by or on behalf of a manufacturer from one or more factories. Therefore, the real question to be decided is whether clearances from Unity (as also Quality) were by or on behalf of Shri Rasheed or not.
9. This brings us to the question as to who is a manufacturer. It is the accepted position that one who actually carries on the manufacturing activities is the manufacturer. This term does not refer merely to the ownership of a factory where goods are manufactured but covers a person who employs labour in the production and manufacture of goods. The words "who engages in their production" do not mean to cover only the owner of the factory.
10. The test to be applied is to find out who is actually engaged in the manufacture of goods. We note in this context a decision of the Supreme Court under the Sales Tax Act. In C.S. T. v. Sukhdev (AIR 1969 S.C. 499/501) wherein the Court was concerned with the meaning of the words 'Manufacture' and 'Manufacturer'. The Court took the view that a 'manufacturer' was "a person by whom or under whose direction and control the articles or materials are made." It has to be therefore held that according to law a person though not owning a factory in his own name and though he himself does not do the manufacturing process would still be a manufacturer if he got goods manufactured by others under his direction and control.
11. It is with this position in mind that we refer to some of the facts in the matter. In 1970 Shri Rasheed established Quality at 22/15,6th Cross, H. Siddaiah Road, Bangalore. He obtained the land on lease from Smt. Jayamma on 1-3-1977. Quality was shifted to another premises (about 75 meters away) and the appellants' wife set up a new unit at 22/15,6th Cross, H. Siddaiah Road, Bangalore and obtained a C.E.licence. The appellant says that the rent for the premises occupied by Unity was paid directly by them to Smt. Jayamma but receipts were obtained from her in the name of the appellant for the reason that he held the lease on the land. Similarly the telephone originally installed for Quality was left behind in the premises to be used by Unity. It is said that the charges are debited to Unity and a certificate by a Chartered Accountant has been filed for us. It appears to be an adjustment between the two units and original receipts from Telephones, Electricity Deptt. the Land-lord etc. have not been produced before us. We also note that the Chartered Accountant's certificate was issued after the Collector passed the order.
12. These matters are of some importance but of a minor nature. In our opinion the General Power Of Attorney given by Smt. Inayathunnisa (wife) to her husband Shri Rasheed (appellant) is of much more significance in deciding as to whether the clearances from Unity were or were not on behalf of the appellant. This Power of Attorney gives very wide powers to the appellant to act on behalf of Unity. All affairs of Unity, including financial, legal proceedings, tax affairs, accounting matters management of the entire responsibility of her firm and sale, exchange, lease or disposal of any of her property belonging to Unity are some of the powers conferred by this Power of Attorney.
This Power of Attorney does not leave much doubt as to who was the real person looking after Unity. It is also obvious and not disputed that the Central Excise documents for Unity were being signed by the appellant. The reasons given for this is that the proprietrix being a Muslim lady gave a General Power of Attorney in favour of her husband.
13. We also note that as recorded by the Collector in his order Smt.
Inayathunnisa in a statement dated 19-10-1982 deposed that she does not know anything about the day-to-day affairs of M/s. Unity and that her husband Shri Rasheed looks after the day-to-day transactions and holds a Power of Attorney.
14. The appellant relied much on the registration by comml. tax authorities and Income Tax authorities and argued that Unity having been registered separately should be considered as an independent unit.
We are unable to accept this argument. The provisions of each law differ. The purpose of each statute is different. In the present context a notification has been issued where certain concessions were given to Small Scale Industries and as mentioned earlier this concession was based on the value of clearances by or on behalf of a manufacturer. Being separately situated and being separately registered under other laws does not constitute a ground for us to hold that the two units are independent units and that the clearances from the two units are on behalf of different persons. The evidence to the contrary is convincing. Many circumstances show that it is Shri Rasheed on whose behalf and by whom the goods are being cleared both from Quality and Unity.
15. The appellant denied that he ever admitted in his statement that both the units are one and the same. We perused the statement of the appellant given on 16-10-1982. We take particular note of the following which appear in this statement: "There are no separate Accountant or supervisor like Quality in the Unity Steel Industries. Since I am holding the general power of attorney, I am looking after the entire business of Unity Industries." 'The raw material required for both the units are purchased in different bills but the material is stored in the premises of Quality Steel Industries and issued to the workers as and when required. For purposes of tax concession Mrs. Inayathunnisa my wife is made as proprietorix of M/s. Unity Steel Industries but in practice I am looking after the entire affairs of both the units." "I admit that with an intention to avail of the exemptions provided under the Central notifications and also for Income Tax purposes the units are bifurcated into Quality and Unity Steel Industries but in reality though my wife is proprietrix of M/s. Unity Steel Industries, I am looking after the both the Units. Since I was under the impression that the units are separate I was entitled to Central Excise duty exemption if it is considered both the units are one and the same and if I have to pay any Central Excise duty that may be demanded I am prepared to pay the same. I assure you that I will also obtain the required Central Excise licence and observe all the formalities. Though there are two units they are coming under small scale industries. The industry has to compete in the market for survival and I am having a big family with minor children, a lenient view may kindly be taken for the acts of omission and commission." 16. These extracts do not leave any doubt that whatever be the other circumstances regarding capital, registration under other laws etc., Shri Rashid was the person on whose behalf production clearance, sales etc. all took place. These are by him and for his benefit which is to say for the benefit of his own and that of his family consisting of his wife and 11 children. We therefore, answer the first question in the affirmative and second question in negative.
17. The appellant has submitted that demands for duties pertaining to the period 1980-81 and 1981-82 were time-barred. In support of this plea the appellant argued that as there was no clandestine removal of goods, Rule 9(2) could not be applied. As the appellant maintained Central Excise Accounts and submitted returns there cannot be any question of such clandestine removal and consequently only normal time limit applies and not the extended time limit of 5 years under Section 11A of the Central Excises & Salt Act. In support of his argument the appellant cited a decision of the C.E.G.A. Tribunal, New Delhi, in the case of Pyrites Phosphates & Chemicals Ltd., New Delhi v. Collector of Central Excise, Delhi [1983 (13) E.L.T. 1192 (CEGAT)] and two other decisions including one of the Supreme Court in the case of N.B.Sanjana and Ors. v. Elphinston Mills (and not 'Elephantine' as mentioned by the appellant) AIR 1971 S.C. 2039. We have examined the case law cited. It is true that the position in respect of Rule 9(2) is that where there is no clandestine or surreptitious removal of goods, the demand cannot be raised under Rule 9(2) of the Central Excise Rules. In this case it is not disputed that in respect of both the units licences were obtamed and goods were being openly produced and returns were filed. The mere fact that the appellant did not volunteer to the department that his wife was the proprietrix of Unity cannot make the removal clandestine and this cannot be considered as suppression of facts, or mis-statement with a view to evade Central Excise duty. We, therefore, consider the pleas of the appellant and the evidence placed before us in this regard and hold that the demand for duty if any should be confined to the period of six months provided under Section 11A of the CES Act. We thus accept the appellant's arguments in this regard and answer the third question in the affirmative.
18. The next question before us is whether the confiscation of some Steel Furniture was correct in law. This confiscation was ordered by Collector who held that Rules 9(1), 52(a), 53,173G, 174 & 226 of Central Excise Rules were violated in connection with the goods. We had already held that Rule 9(1) would not apply to the goods in the circumstance of the case. The appellant submitted that the seized steel furniture was manufactured in September and October '82 and not during the earlier years. The appellant argued that in 1982-83 the value of the combined clearances of the two units Quality and Unity, upto the date of seizure was only Rs. 5,02,711.00. They argued that as clearance in 1982-83 did not exceed the prescribed exemption limit and as the goods had not been cleared out of the factory and were accounted for in R.G. 1 Register, there was no ground for confiscation. They denied any offence having been committed in respect of the goods.
19. We considered these pleas with reference to the Collector's orders and papers filed before us. The appellant has a strong point to urge, that even if the value of the production of both the units is combined there could not have been a case for confiscation as during 1982-83 the combined clearances of the two units did not exceed the prescribed limit at the time of seizure of the goods. We must also observe that the Collector did not record sufficient evidence and justification for the confiscation of these goods. We, therefore, accept the appellant's pleas in this regard and set aside the confiscation. This question is thus answered in the appellant's favour.
20. This brings us to the last question about the sustainability of the penalty imposed on the appellant. The penalty is under Rules 9(2), 173Q(1) and 226 of the Central Excise Rules. Rule 9(2) is not applicable for the reasons we had already recorded earlier. The other Rules are also not applicable as we had held that there was no suppression of fact and the appellant had maintained accounts. No specific and detailed grounds are given as to why the appellant was penalised. It appears to us that the appellant was under the impression that by fragmenting his unit and creating a new one in the name of his wife he could avail of the benefit of the Notification No. 80/80-C.E.in respect of both the units. We had held that he is not so entitled and upheld the Collector's Orders in this regard. We do not however find justification for imposing a penalty. We, therefore, set aside the penalty.
21. To sum up, we order that the production of both the units namely Quality and Unity should be clubbed for the purposes of Notification No. 80/80. Any demand as a consequence will be limited to the normal time limit under Section 11A of CES Act. We set aside the confiscation of the goods as also the penalty imposed on the appellant. The appeal is thus partly allowed.