of Central Excise, Baroda . Vs. M/S. M.M. Khambhatwala 
INSC 708 (9 May 1996)
K. (J) Venkataswami K. (J) Manohar Sujata V. (J) K.Venkataswami, J.
1996 SCC (5) 100 JT 1996 (5) 515 1996 SCALE (4)466
appeal is preferred against the order of the Customs, Excise and Gold (Control)
Appellate Tribunal, New
referred to as 'the CEGAT)' dated 27.7.87.
short point that arises for our consideration in this appeal is whether the
appellant was right in treating the respondents as manufacturers of agarbatti, amlapodi
and dhup etc. even though they were manufactured in various premises of the
household ladies outside the factory of the respondents.
the facts are as follows :
the year 1980-81 the respondent 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.
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-CE dated 19.6.80. The value of such goods
during the relevant year manufactured amounted to Rs. 3,21,605.00.
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.
classification list No.1/81 dated 22.6.81 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-CE dated 19.6.80 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
as mentioned above during the previous year namely 1980-81 exceeded Rs. 20 lakhs,
the Superintendent of Central Excise issued a Show Cause Notice on 29.5.81
calling upon the respondents to explain why the exemption claimed by them under
Notification No. 80/80-CE in respect of Tariff Item 14F goods should not be
disallowed. After considering the explanation, the Assistant Collector of
Central Excise, Ahmedabad by order dated 5.3.82 withdrew the above 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.
order of the Assistant Collector was taken up for review by the Collector of
Central Excise, Baroda under Section 35A of the Central
Excises and Salt Act and a notice dated 5.8.82 proposing to set aside the
Assistant Collector Order was given. After considering the reply to the Show
Cause Notice, the Collector set aside the order of the Assistant Collector
holding inter alia that the total clearance of goods falling under Item 14F and
the goods falling under Tarrif Item 68 including those manufactured from
outside the factory exceeded Rs. 20 laths and consequently the respondents were
not entitle to exemption from duty in the respect of first clearance of Rs. 7.5
lakhs of the goods falling under Tariff Item 14F during the year 1981-82.
Aggrieved by that, the respondents preferred an appeal to the CEGAT and the
CEGAT after considering the submissions placed before it by the Departmental
Representative and the counsel for the assessee and after verifying the records
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
by that the present appeal has been filed by the revenue.
learned counsel appearing for the appellant placing heavy reliance on the fact
of the respondents having paid 'wages' to the house-hold ladies for
manufacturing agarbatti, amlapodi and dhup etc. 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. It is not in dispute
that levy of excise duty is attracted on the incident of manufacture.
Therefore, counsel on both sides paid much attention to this aspect to
substantiate their respective contentions.
learned counsel appearing for the respondents, however, submitted that though
respondents 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 the respondents. It is contended by the learned
counsel 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 the respondents. In the facts and the circumstances of
the case, according to the learned counsel for the respondents, by no stretch
of imagination the respondents could be the manufacturers of goods manufactured
by house-hold ladies as mentioned above.
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 his submission. he placed reliance on two
judgments of this Court in Ujjagar Prints etc. vs. Union of India & Others
(1988 (38) ELT 535) and Empire industries Ltd. and Others vs. Union of India
and Others (1985 (20) ELT 179).
have considered the submissions advanced before us by the learned counsel on
both the sides. We find force in the arguments of the learned counsel for the
respondents: on the admitted facts which we will set out immediately the
admitted facts which we will set out immediately the respondents cannot be
considered as manufacturers in the premises of house-hold ladies as described
above without the aid of power. 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 pockets and such pockets were sold from
the premises of the house-hold ladies and they did not go to the factory
premises of the respondents. No doubt the sale proceeds went to the respondents
but that will 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. CEGET after considering the materials before it
concluded that the respondents are not the manufacturers of agarbatti, amlapodi,
dhup etc. Manufactured by various cottage type manufacturers on job work basis.
On the facts narrated above, we do not think that the assumption of the
Collector that the respondents got the goods in questions manufactured by 'hired
labourers' can be sustained. On the other hand we find, on the facts.
house-hold ladies are the manufacturers of the 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 the respondents to deny the exemption claimed.
Empire Industries (supra) this Court held:
taxable event for Central Excise is the manufacture of excisable goods and the
moment there is a transformation into a new commodity commercially known as a
distinct and separate commodity having its own character, use and name, whether
be it the result of one process or several processes "manufacture' takes
place and liability to duty is attracted. The sale or the ownership of the end-
product is absolutely irrelevant for the purpose of taxable even under the
Central Excise." In Ujjagar Prints (supra) the Constitution Bench had held
that the view taken in Empire Industries (supra) case is an eminently plausible
view and does not suffer from any fallacy.
facts of this case and in the light of the pronouncements of this Court on the
question of liability to excise duty, we do not think that there is any case
for interference with the order of the CEGAT.
answer the point against the appellant.
appeal fails and is dismissed accordingly. No costs.