Liability to pay duty on Agarbatti, amalpodi & dhup etc made outside factory premises

PJ/Case Laws/2011-12/1381

Case: COLLECTOR OF CENTRAL EXCISE, BARODA v/s M.M. KHAMBHATWALA

Citation: 1996 (84) E.L.T. 161 (S.C.)

Issue:- Agarbatti, amlapodi and dhup etc made in various premises of the household ladies outside the factory on behalf of Assessee who was providing raw material - sale proceeds went to him – Whether assessee can be held to be manufacturer and excise liability raised against him?

Brief Facts:- Respondents were manufacturers of goods falling under erstwhile Tariff Item 14F of the Central Excise Tariff under a Central Excise Licence obtained for the purpose. The total clearances of such goods during the said year amounted to Rs. 14,88,268.00. In addition they were also manufacturing goods falling under Tariff Item 68 in their own factory and were availing of the exemption from duty and licensing control under Notification No. 105/80-C.E., dated 19-6-1980. The value of such goods during the relevant year manufactured amounted to Rs. 3,21,605.00. Apart from the above two items, respondents were getting agarbatti, amlapodi and dhup etc. falling under Tariff Item 68 manufactured on their behalf without the aid of power in the premises, other than their factory premises. The total of such goods manufactured from outside during the relevant year amounted to Rs. 26,754.00

In the classification list No. 1/81, dated 22-6-1981 effective from 13-4-1981 filed under Tariff Item 14F the respondents claimed exemption for the first clearance of Rs. 7.5 lakhs under Notification No. 80/80-C.E., dated 19-6-1980 for the year 1981-82. As the value of total clearances of goods falling under 14F and those manufactured from outside the factory on their behalf without the aid of power during the previous year 1980-81 exceeded Rs. 70 lakhs, the Superintendent issued Show Cause Notice on 29-5-1981 to the respondents for disallowing exemption claimed by them under Notification No. 80/80-C.E. in respect of Tariff Item 14F. The Assistant Collector by order dated 5-3-1982 withdrew the Show Cause Notice on the ground that the clearances of all excisable goods did not exceed Rs. 20 lakhs in the previous year namely 1980-81. This view was taken on the footing that the value of agarbatti, amlapodi and dhup etc. manufactured on behalf of the respondents in premises other than their factory premises were not to be included in the value of total clearances.

In review by the Collector under Section 35A of the Central Excises and Salt Act, a notice dated 5-8-1982 was issued proposing to set aside the Assistant Collector’s Order. The Collector set aside the order of the Assistant Collector holding inter alia that the total clearances of goods falling under Item 14F and the goods falling under Tariff Item 68 including those manufactured from outside the factory exceeded Rs. 20 lakhs and consequently the respondents were not entitled to exemption from duty in respect of first clearance of Rs. 7.5 lakhs of the goods falling under Tariff Item 14F during the year 198l-82.

Aggrieved by that, the respondents preferred an appeal to the Tribunal. Tribunal came to the conclusion that the decision reached by the Collector while reviewing the order of the Assistant Collector was not correct and, therefore, set aside the Collector’s order and restored the order of the Assistant Collector.

Revenue is in appeal before the Supreme Court.

Appellant’s Contention:- Revenue t placed reliance on the fact of the respondents having paid ‘wages’ to the house hold ladies for manufacturing agarbatti, amlapodi and dhup etc. and contended that the goods manufactured by such house hold ladies though in their own premises must be taken as manufactured in the factory of the respondents.

Respondent’s Contention:- Respondent argued that though they paid `wages’ to the house hold ladies, it was on the basis of number of pieces manufactured, that no power was used by those ladies for manufacturing those goods and there was no supervision over the manufacture of those goods and that the goods so manufactured were sold from the premises of the cottage manufacturers. It is further emphasized that those goods did not go to the factory premises of them. It is contended that the manufacturers in this case are undoubtedly the house hold ladies, notwithstanding the fact that raw-materials for manufacture of those goods were supplied by them. In the facts and the circumstances of the case, by no stretch of imagination the respondents could be the manufacturers of goods manufactured by house hold ladies as mentioned above. He also contended that the error committed by the Collector of Customs was that he proceeded on the assumption that the house hold ladies manufactured the goods as ‘hired labourers’ which assumption is contrary to the undisputed facts available in this case. In support of their submission, respondent placed reliance on two judgments of this Court in Ujagar Prints etc. v. Union of India and Others [1988 (38) E.L.T. 535] and Empire Industries Ltd. and Others v. Union of India and Others [1985 (20) E.L.T. 179].

Reasoning of Judgment:- The Supreme Court held that the respondents cannot be considered as manufacturers of agarbatti, amlapodi and dhup etc. manufactured in the premises of house hold ladies. The undisputed facts are that the respondents supplied raw materials for rolling incense sticks etc. to outside manufacturers and paid wages to them on the basis of number of pieces manufactured. Such manufacture was without the aid of power. There was no supervision over the manufacture. Incense sticks were put in packets and such packets were sold from the premises of the house hold ladies and they did not go to the factory premises of respondents. It was noted that the sale proceeds went to the respondents but this fact did not change the character of manufacture. If the conclusion is that the house hold ladies were the real manufacturers then the decision of the Tribunal cannot be faulted. It was held that the Tribunal after considering the materials before it concluded that the respondents are not the manufacturers of agarbati, amlapodi, dhup etc. manufactured by various cottage type manufacturers on job work basis.

On facts, the Supreme Court held that the assumption of the Collector that the respondents got the goods in question manufactured by `hired labourers’ cannot be sustained. On the other hand the Supreme Court found that the household ladies are the manufacturers of goods in question and the liability to excise duty will be attracted on their manufacture of the goods and therefore, it cannot be clubbed with the goods manufactured in the factory premises of respondents to deny the exemption claimed.

Decision:- Appeal dismissed.

Comment:- This is very old case but it is still very relevant. When the goods are manufactured on principal to principal basis then the duty liability will be of manufacturer, even though he is manufacturing the same on job work basis.

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PJ/Case Laws/2011-12/1381

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