1. The facts of the case in brief are that M/s. Metal Box India Limited, (hereinafter called the appellants) are the manufacturers of various types of packaging material. During the period 1st March, 1974 to 14th March, 1976, the appellants supplied base paper to M/s.
Industrial Packaging for the purpose of manufacturing waxed paper. M/s.
Industrial Packaging after manufacturing waxed paper to the extent of 46,557 Kgs. returned the said waxed paper to the appellants after charging conversion charges. The appellants did not pay excise duty on the waxed paper so got manufactured from M/s. Industrial Packaging.
Show cause notice was, therefore, served upon the appellants asking them as to why penalty under Rule 173Q should not be imposed and excise duty of Rs. 69,494.56 should not be demanded or realised under Rule 9(2) of the Central Excise Rules, 1944 in respect of 65,441.3 Kg. of such waxed paper.
2. In reply to the said show cause notice the appellants stated, inter alia, that they had no facility for manufacture of waxed paper and as such they did not apply for the excise licence nor they held licence for manufacture of the said waxed paper; that on request of some of their big customers, they used to procure suitable paper from paper mills, print them on their printing machines and used to send the said printed paper to M/s. Industrial Packaging for manufacture of waxed paper and that the appellants used to pay conversion charges plus appropriate excise duty to M/s. Industrial Packaging for the job done by them and that during the period in question they paid to M/s.
Industrial Packaging, Rs. 70,124.63 towards the excise duty and that the mere fact that the appellants supplied the base paper for converting the same into waxed paper by M/s. Industrial Packaging should not in their own opinion make the appellants as 'manufacturer' as pointed out in the show cause notice. Two decisions one of Andhra Pradesh High Court reported in 1979 E.L.T. J 600 and the other of Allahabad High Court reported in 199 E.L.T. J 597 were also relied upon by the appellants wherein it was held that a customer cannot be treated as manufacturer merely because he has supplied raw material to the actual manufacturer.
3. The authorities below, however, did not accept the contention of the appellants and relying upon the decision of the Hon' ble Supreme Court in the case of Shree Agency reported in 1977 E.L.T. J 168 held that the appellants are the manufacturers of the goods in question and are liable to pay duty. The order regarding imposition of penalty was, however, set aside by the Central Board of Excise and Customs, who heard the first appeal.
4. Not satisfied with the order passed by the Board, the appellants filed Revision Application before the Government of India, Ministry of Finance, Department of Revenue, which now stands transferred to this Tribunal to be heard as an appeal.
5. We have heard Shri N. Mukherjee, Advocate, for the appellants and Shri A.S. Sundar Rajan, J.D.R., for the department and gone through the record.
6. Shri Mukherjee, the learned Counsel for the appellants submitted that the appellants cannot be called manufacturers of the waxed paper which, in fact, had been manufactured by M/s. Industrial Packaging in their factory. He cited two decisions one of Andhra Pradesh High Court in the case of Andhra Rerolling Works, Hyderabad v. Union of India (1979. E.L.T. J 600) and the other of Allahabad High Court in the case of Gangadhar Ramchandra v. Collector of Central Excise, U.P. (1979 E.L.T. J 597) in support of his contention that a customer cannot be treated as manufacturer merely because he supplied raw materials to the actual manufacturer. According to him, it is the owner or occupier of the factory where the manufacturing process takes place, who is the manufacturer and not a person who merely brings the raw material for manufacturing of the product. He also drew our attention towards the decision of Special Bench 'C' of this Tribunal in the case of Collector of Central Excise v. Modoplast (P) Ltd. [1985 (21) E.L.T. 187] in support of his contention that mere supplying raw materials to another for the manufacture of goods will not make the raw material supplier its manufacturer if the dealings are on principal to principal basis and unit is not fake or dummy. According to Shri Mukherjee, the appellants and M/s. Industrial Packaging are two different and independent units and it is not the case of the department that M/s.
Industrial Packaging is a fake or dummy unit. Shri Mukherjee submitted that the decision of the Hon'ble Supreme Court in the case of Shree Agency's (Supra) upon which the authorities below have put reliance is not at all appliable in the present case.
7. The learned Departmental Representative countered the arguments advanced by Shri Mukherjee, the learned Counsel for the appellants by submitting that it is not a case where the appellants actually supplied raw materials and got the job work done. Here, the appellants did the printing work themselves in their own factory and then sent base paper for waxing. According to the learned Departmental Representative, waxing is a process of manufacture and the appellants should pay excise duty on the manufactured goods i.e. waxed paper as M/s. Industrial Packaging did the waxing work at the instance of the appellants and returned the goods back to the appellants. In the presence of the decision of the Hon'ble Supreme Court in Shree Agency's case (Supra), the decisions of the Hon'ble Andhra Pradesh High Court and Hon'ble Allahabad High Court have no force. An unreported decision of this Tribunal in the case of Britannia Biscuit Co. Ltd., Madras v. Collector of Central Excise, Madras (Order No. 204 to 207/84-D, dated 19-4-84) was also cited by the learned Departmental Representative in support of his contention.
8. The main question to be considered in this appeal is whether the appellants could be deemed to be manufacturers of the waxed paper- packing material. Section 2(f) of the Central Excises and Salt Act, 1944 defines 'manufacture' and reads that "the word 'manufacture' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods but a person who manufactures excisable goods on his own account is also a manufacturer". The appellants do not fall in any of the categories. They do not, as far as the waxed paper in dispute is concerned, manufacture it with their labour. Further they themselves do not manufacture the waxed paper which is the excisable product.
Therefore, the positive provisions in the definition of the word 'manufacture' do not assist the Department. But the definition is an inclusive one and it has yet to be seen whether the appellants are manufacturers for the purpose of the Act on account of other provisions of the Act or the Rules. The Section (6 ?) provides that no person shall engage in the production or manufacture of excisable goods without previously obtaining a licence. Admittedly, the appellants have not obtained nor were they required to obtain any licence for the manufacture of waxed paper by M/s. Industrial Packaging. M/s.
Industrial Packaging were already having an excise licence for the manufacture of waxed paper on its own account. This section indicates that it is the licence holder who is the manufacturer and not any other person who brings his raw material for being subjected to manufacturing process in the factory.
9. The provisions of Rules 43 and 44 also indicate the same thing. Rule 43 requires every manufacturer, who intends to manufacture excisable goods for the first time, to give notice in writing to the Collector and further requires every such manufacturer to give notice in writing.
Apparently, the appellants were not required to give these notices in respect of the factory where the waxed paper was manufactured; it was the owner of M/s. Industrial Packaging, the actual manufacturer of the goods, who are required to give the notice. Rule 44 requires the Collector to require a manufacturer to make a proper declaration of the factory premises and equipment. The appellants could not have been required to make any such declaration in respect of the factory of manufacturer involved in this case.
10. Though the broad wordings of Section 2(f) (iv) indicate that only he, who is actually carrying on the manufacturing activity, is the manufacturer but if a person acts through an agent and the latter carries on the manufacturing activity, it is the principal who should be held as the manufacturer. There is nothing on record to prove nor it is the case of the Department that M/s. Industrial Packaging is agent of the appellants. Their dealings are from principal to principal basis.
11. Another case where a person purporting to carry on a manufacturing activity will not be treated as a manufacturer would be where he is a mere nominee or a facade for another. The other person should be considered as the manufacturer.
12. In the case of Shree Agency (Supra) upon which the authorities below have put much reliance, the Hon'ble Supreme Court was approached by way of Special Leave under Article 136. There were concurrent findings of the Assistant Collector, the Collector and the Central Government as the Revisional Authority, holding that the appellants, though they did not own any factory, were manufacturers. The appellants' contention that it used to sell yarn to the weavers and buy cloth from them was not accepted. It was found by the authorities that the so-called proprietor-weavers had no interest in the production of cloth and did not even maintain proper accounts of consumption of raw material and production of cloth. Large amounts were also advanced to the weavers. The authorities held that, "it passes comprehension why a commercial concern engaged with profit making motive should first advance large sums of money to the individual factory owners, receive their ontire production, supply sized beams of yarn, get the cloth processed at Bombay, make sales and charge no forwarding commission, no bailing expenses and no transport charges." The conclusion reached by the authorities was that undoubtedly the appellants "had actually engaged themselves in production of cotton fabrics at the different factories." Accepting the view of the authorities, the Court held that the appellants were manufacturers within the contemplation of the Act.
13. The facts of the present case arc quite different from the facts of the case of Shree Agency. Here the appellants supplied raw material i.e. printed base paper to M/s. Industrial Packaging, who manufactured the waxed paper and received the conversion charges from the appellants. Manufacturing process was done not under the control and supervision of the appellants but in the factory premises of M/s.
Industrial Packaging under their own supervision. After the manufacture of the waxed paper the same was returned to the appellants by accepting conversion charges. M/s. Industrial Packaging maintained accounts of the raw material supplied by the appellants, kept record of the finished product i.e. waxed paper, wax consumed in such manufacture and charged amount from the appellants accordingly. How can a supplier of materials become a manufacturer on his own account, on the ground of his having given his material to the owner of the factory, who generally carries on manufacturing activity in his own factory and charges his supplier for his manufacturing work The authorities below have wrongly applied the decision in the case of Shree Agency (Supra) to the facts of the present case.
14. The decision of this Tribunal in the case of M/s. Britannia Biscuit Co. Ltd, Madras (Supra) also does not help the Department in the present circumstances of the case. In that case the manufacturing activity was being done under the control and supervision of the appellants. The appellants had a right to reject the containers not conforming to their standards. The work order did not specify as to what would happen to the rejected material. The work order also did not refer to the scrap which was bound to arise. In those circumstances, the Tribunal found that the appellants were the actual manufacturers.
Each case has to be judged on its own merits.
15. This is a case where the appellants only supplied raw materials and the actual manufacturing process was done by M/s. Industrial Packaging, who charged conversion charges. Following the decisions of the Hon'ble Andhra Pradesh High Court and Allahabad High Court in the cases of Andhra Rerolling Works, Hyderabad v. Union of India (1979 E.L.T. J 600) and Gangadhar Ramchandra v. Collector of Central Excise, U.P. (1979 E.L.T. J 597) respectively, and the decision of this Tribunal also in the case of Collector of Central Excise, Madras v. Modoplast (P) Ltd. [1985 (21) E.L.T. 187 (Tribunal)], we set aside the order of the authority below and allow the appeal.