1. This matter was originally an appeal before the Central Board of Excise & Customs which has been transferred to this Tribunal to be dealt with as if it were an appeal before us.
2. This appeal arises out of the order dated 3-5-82 of the Addl.
Collector of Central Excise wherein the Addl. Collector imposed a penalty of Rs. 5,000/- on the appellants under Rule 173Q of the Central Excise Rules, 1944 and demanded duty amounting to Rs. 62,899.21 on the Electrical Laminations cleared during the period from 1-4-80 to 11-3-81. He also appropriated the cash security of Rs. 2.300/- furnished by the appellants.
3. The facts of the case are that the appellants manufacture, among other things, ignition coils falling under Tariff Item 68. Electrical stampings and laminations form a component in the manufacture of ignition coils. The appellants obtain these from M/s. Madras Electrical Manufacturing Co. Admittedly the appellants supply cold rolled steel strips with diagrams and specifications to Madras Electrical Manufacturing Company. The Central Excise authorities considered that these stampings and laminations belonged to the appellants and were manufactured by the Madras Electrical Manufacturing Co. (hereinafter called the second Company) on behalf of the appellants.
4. In these circumstances, a show cause notice was issued and after considering the reply of the appellants and the submissions made during personal hearing, the Collector held that the laminations manufactured by the second Company were as per the specifications of the appellants and the raw materials required for the above product was supplied by them. According to the Collector's findings, the second Company were not manufacturing the goods in question to anyone else and the entire stampings and laminations manufactured by them were returned to the appellants with the waste material. Only labour charges were paid by the appellants to the second Company. Taking all these facts together, the Collector held that in terms of Section 2(f) of the Central Excises and Salt Act, 1944 the appellants were the real manufacturers of the electrical stampings and laminations. Other consequences followed.
5. In the appeal before us, the appellants pleaded that they are not the manufacturers of stampings and laminations in terms of Section 2(f) of the C.E. & S. Act and that the Order of the Original authority is vague and arbitrary. Besides, the appellants in their reply to the show cause notice and submissions at the time personal hearing cited certain case laws including the judgment passed by the Madras High Court on 6-1-1981 in the matter of Abdul Latif and Ors. v. Asstt. Collector of Central Excise and Ors.. They submitted that the Collector did not consider this case law at all though he took note of the same in his order. They relied on this order and claimed that their case is on all fours with this judgment. According to the appellants, merely supplying raw material to the sub-contractor and getting the finished goods manufactnred by him does not amount to the supplier of raw material becoming a real manufacturer. They further submitted that the second Company is an independent unit in itself irrespective of the fact whether the goods are manufactured out of their own material or from the materials supplied by others.
6. On behalf of the Department, Shri Lakshmi Kumaran, S.D.R., submitted that while the appellants' case may on all fours be with the judgment of the Madras High Court, the decision of the Supreme Court in Shree Agency case [AIR 1972 S.C. 710=1977 E.L.T. (J 177). S.K. Bhattacharjee governs the facts of the present case, he conceded that this case was not cited before the Madras High Court but wanted us to consider the citation while deciding this matter.
7. In reply, the learned Counsel for the appellants submitted that the Supreme Court judgment (Shree Agency) has no relevance to the facts of this case and this was not considered by the Madras High Court as it had no relevance. It was not even cited for the same reasons.
9. The question for decision in this matter is whether in the given circumstances, the appellants are the manufacturers of electrical stampings and laminations or not. If they are, whether the demand is hit by time-bar of six months under Section 11A of the Central Excises Act and whether the penalty imposed and the appropriation of security money were correct.
10. The facts are not in dispute and the appellants have admitted that they supplied the raw material, specifications and diagrams to the second Company. It is also not in dispute that the waste material is brought back to the appellants and that they pay to the second Company only fabrication charges. The appellants' case is that the second Company is an independent unit registered under the Companies Act having its own sales tax number and income tax number. They further submitted that the manufacture of stampings and laminations by the second Company is within the knowledge of the Central Excise Department.
11. We have considered with great respect the judgment of the Madras High Court which has been cited by the appellants. In this matter, the petitioners were small scale industrial unit manufacturing goods under Tariff Item 68 of the C.E.T. The raw materials are supplied by the large consumers and the good are made according to the specifications of these large consumers on payment of conversion charges. On behalf of the Government, it was argued before the High Court that the petitioners were not manufacturing the goods but were manufacturing them on behalf of M/s. Bharat Heavy Electricals Ltd. The Hon'ble High Court of Madras held that this fact has no relevance to the construction of Notification No. 176 of 77-Central Excise. Considering the arguments, the Hon'ble High Court, inter alia, observed as follows: - " ...The expression 'by or on behalf of a manufacturer' occurring in the notification does not present any difficulty. What is contemplated by that expression is that the clearance for home consumption can be made by the manufacturer himself or by somebody else on behalf of the said manufacturer. In these cases, the goods in question being goods fabricated by the petitioners and falling under item 68 of the First Schedule to the Central Excises and Salt Act, 1944, for the purpose of attracting the applicability of the notification, it is immaterial whether they are cleared for home consumption by the petitioners themselves or on behalf of the petitioners by Messrs Bharat Heavy Electricals Limited. What is necessary to point out is that Mr. U.N.R. Rao contended that the notification will apply only to such cases where the manufacturer himself purchases raw materials, manufactures the finished goods and sells the finished goods to third parties. We do not find any language in the notification imposing any such restriction on the eligibility for exemption ..." 12. We note that the High Court of Madras considered the question of who is the manufacturer while examining the eligibility of some petitioners to the benefits of Notification No. 176 of 77. All the same the relevancy of the judgment to the facts of the present case cannot be ignored. The facts are similar as the appellants too supplied the raw material, etc., to the second Company, who manufactured the goods solely for the appellants. Therefore, we are of the opinion that the appellants have correctly argued that decision of the Madras High Court is applicable to their matter.
13. We have also considered the judgment of the Hon'ble Supreme Court [1972 S.C. 780- 1977 E.L.T. (J 168)]. In this matter, the Asstt.
Collector, the Collector and the Central Government held that the appellants did not own any factory but were the real manufacturers under Section 2(f). It was discovered by the Central Excise authorities that the so called 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. The conclusion reached by the authorrties was that the appellants were actually engaged in the production of cotton fabrics at different factories and, therefore, they were the real manufacturers.
14. It view of this, the facts of the present case are distinguishable from the facts of the case of Shree Agency. The appellants used certain other methods to act as dummy manufacturers to get the benefit of certain exemptions. In the present case, it has not been found that the second Company is a dummy one and that the actual capital and profits belonged to the appellants. The appellants are a public limited company and before the Collector they have argued that the second Company is an independent unit by itself. This has not been controverted. The finding that the appellants were the manufacturer was based solely on the ground that they supplied the raw materral, specification and diagrams, and that the entire production of the second Company was intended for the appellants only. In the absence of any finding to the contrary, this plea of the appellants that the second Company was an independent unit has to be accepted. There is no ground at all to hold that the second Company is a dummy of the appellants. In this context, we respectfully refer to the judgment in Hind Lamps \. Union of India - 1978 E.L.T. (J 78) where it was held that where a manufacturing company sold to agents who purchased the entire production that would not lead to the conclusion that the manufacturing company was a dummy company or that it was not the manufacturer. Similarly, supply of diagrams and specifications or raw material does not amount to becoming the manufacturer unless it is proved that such manufacture is done in the capacity of a dummy company only which is not the case in the instant appeal.
15. In view of this, we accept the appellants' submission that the facts in their appeal are on all fours with the judgment of the Madras High Court. Accordingly, we allow the appeal.