Union of India & Ors Vs. Clbatul
Limited [1985] INSC 209 (27 September 1985)
PATHAK, R.S.
PATHAK, R.S.
BHAGWATI, P.N. (CJ) SEN, AMARENDRA NATH (J)
CITATION: 1986 AIR 281 1985 SCR Supl. (3) 95
1985 SCC (4) 535 1985 SCALE (2)770
CITATOR INFO :
F 1987 SC 61 (1) R 1989 SC 516 (3) APL 1990
SC 202 (7)
ACT:
Central Excises and Salt Act, 1944 -
Sub-s.(2) of s. 36 Manufacture of Goods - Joint programme of seller and buyer
Goods manufactured by seller - Supplied to buyer - Who is manufacturer -
'Wholesale` price charged by seller - Whether true basis for determination and
levy of Excise Duty.
HEADNOTE:
The respondent - Cibatul Ltd. (the
"seller") entered into two agreements with Ciba Geigy of India Ltd.
(the "buyer") for manufacturing Resins by the seller. The joint
manufacturing programme indicated that the Resins were to be manufactured in
accordance with the restrictions and specifications constituting the buyer's
standard and supplied at prices to be agreed upon from time to time. The buyer
was entitled to test a sample of each batch of the goods and after its approval
the goods were to be released for sale to the buyer. The products would bear
certain trade-marks being the property of the foreign company Ciba Geigy of
Basle. Tripartite agreements were also executed between the buyer, the seller
and the foreign company, recognizing the buyer as the registered or licensed
user of the trademarks, authorising the seller to affix the trade- marks on the
products manufactured "as an agent for and on behalf of the buyer and not
of his own account" and the right of the buyer being reserved to revoke
the authority given to the seller to affix the trade-marks. - The respondent
filed declaration for the purposes of the levy of excise under the Central
Excises and Salt Act, 1944 showing the wholesale prices of different classes of
goods sold by it during the period May, 1972 to May, 1975.
The declaration included the wholesale prices
of the different Resins manufactured under the two aforesaid agreements. The
Assistant Collector of Customs revised those prices upwards on the basis that
the wholesale price should be the price for which the buyer sold the product in
the market. According to the Assistant Collector the buyer was the manufacturer
of goods and not the seller- 96 The Collector of Central Excise allowed the
appeals of the respondent and accepted the plea that the wholesale price
disclosed by the seller was the proper basis for determining the excise- duty.
The Appellate orders were, however, revised
by the Central Government under sub-s.(2) of s.36 of the Act and the orders
made by the Assistant Collector were restored.
According to the Central Government the buyer
is the person engaged in the production of the goods and the seller merely
manufactures them on behalf of the buyer and that under the agreements the
seller is required to affix the trade-marks of the buyer on the manufactured
goods and that indicates that the goods belong to the buyer.
The orders of the Central Govt. were
challenged under Article 226. The High Court held that the goods were
manufactured by the seller as its own goods, and therefore, the wholesale price
charged by the seller must form the true basis for the levy of excise duty.
Dismissing the appeals of the Union of India,
^
HELD: 1. The High Court was right in
concluding that the wholesale price of the goods manufactured by the seller is
the wholesale price at which it sells those goods to the buyer, and it is not
the wholesale price at which the buyer sells those goods to others. [101 D-E]
2. The relevant provisions of the agreements
and the other material on the record show that the manufacturing programme is
drawn up jointly by the buyer and the seller and not merely by the buyer, and
that the buyer is obliged to purchase the manufactured product from the seller
only if it conforms to the buyer's standard. For this purpose the buyer is
entitled to test a sample of each batch of the manufactured product and it is
only on approval by him that the product is released for sale by the seller to
the buyer.
It is apparent that the seller cannot be said
to manufacture the goods on behalf of the buyer. [100 B-C; F]
3. It is clear from the record that the
trade-marks of the buyer are to be affixed on those goods only which are found
to conform to the specifications or standard stipulated by the buyer. All goods
not approved by the buyer cannot bear those trade-marks and are disposed of by
the sellers without the 97 advantage of those trade-Larks. The trade-marks are
affixed only A after the goods have been approved by the buyer for sale by the
seller to the buyer. The seller owns the plant and machinery, the raw material
and the labour and manufactures the goods and under the agreements, affixes the
trade-marks on the goods. The goods are manufactured by the seller on its own
account and the seller sells the goods with the trade-marks affixed on them to
the buyer.
Union of India v. Delhi Cloth and General
Mills, [1963] Supp. 1 S.C.R. 586, 592, 598, South Bihar Sugar Mills Ltd., etc.
. Union of India and Others. [1968] S.C.R. 21 at 31, Union of India and Others
v. Free Indian Dry-Accumulators Ltd. [1983] Excise Law Taxes 733 at 734 and
Union of India and others etc. etc. v. Bombay Tyre International Ltd. etc.
etc. [1983] Excise Law Times 1896,
inapplicable.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2619 of 1977.
From the Judgment and Order dated 25.6.1977
of the Gujarat High Court in Special Civil Application No. 1324 of 1976.
AND Civil Appeal No. 4399 of 1985 From the
Judgment and Order dated 14.12.1976 of the Gujarat High Court in Special Civil
Application No.. 68 of 1975.
K. Parasaran, Solicitor General, N.C.
Talukdar, Suraj Udai Singh, Dalveer Bhandari, C.V. Subba Rao and R.N. Poddar
for the Appellants.
N.A. Palkhiwala, J.C. Bhatt, D.B. Engineer,
B.H. Antia, Ravinder Narain, O.C. Mathur, Kamal Mehta, Talat Ansari, Mrs. A.K.
Verma, Ashok Sagar, hiss Rainu Walia, Sukumaran and D.N. Misra for the
Respondent.
The Judgment of the Court was delivered by
PATHAK, J. These appeals by special leave are directed against the judgments
and orders of the Gujarat high Court allowing two writ petitions preferred by
the respondent challenging the levy of excise duty. As they raise identical
questions of law for consideration they are disposed by a common judgment 98
The respondent is a company limited by shares. of the total share capital, 65
per cent is owned by Atul Products Limited, 30 per cent belongs to a foreign
company known as Ciba Geigy of Basle in Switzerland and the remaining 5 per
cent to Ciba Geigy of India Limited. The respondent Cibatul Limited (referred
to shortly as the "seller") entered into an agreement with the Ciba
Geigy of India Limited ("the buyer") on March 24, 1971 under which
certain specified products, which included U.F. Resins and M.F. Resins, were to
be manufactured by the seller in accordance with a manufacturing programme
drawn up jointly by the seller and the buyer. The resins were to be
manufactured in accordance with restrictions and specifications constituting
the buyer's standard, and they were supplied at prices agreed upon between the
seller and the buyer from time to time. The buyer was entitled to test a sample
of each batch of these goods, and it was only after it had given its approval
that the goods were to be released for sale to the buyer. Another agreement
between the two took place on June 1, 1975 in respect of Epoxy Resins and the
terms of the agreement were similar to the terms of the earlier agreement. It
was understood that the products manufactured under the two agreements would
bear certain trade marks which were the property of the foreign company, Ciba
Geigy of Basle. In this connection, on December 7, 1971 a tripartite agreement
was executed between the buyer the seller, and the foreign company in respect
of four trade-marks, Aerolite, Melocol, Melolam and Resicart. The foreign
company, which owned these trade-marks, as well as the seller recognised the
buyer as the registered or licensed user thereof. The buyer authorised the
seller to affix the said trade-marks on the products manufactured under the
first contract, and the seller was to do so "as an agent for and on behalf
of the buyer and not of his own account." The seller had also agreed to
refrain from selling or dealing in, directly or indirectly, goods bearing the
said trade-marks or any other marks similar thereto save and except for the
explicit purpose of fulfilling the seller's obligations under the first
agreement. The buyer reserved the right to revoke the authority given to the
seller to affix the trade-mark. A similar tripartite agreement was executed
between the three parties on December 1, 1973 in respect of the second
agreement between the buyers and the seller, namely, that relating to Epoxy
Resins. The trade-mark concerned was Araldite.
The respondent filed a declaration for the
purposes of the levy of excise under the Central Excises
and Salt Act, 1944 showing
the wholesale prices of different classes of goods sold by it 99 during the
period May, 1972 to May, 1975. The declaration included the wholesale prices of
the different resins manufactured under the two aforesaid agreements. The
Assistant Collector of Customs revised those prices upwards on the basis that
the wholesale price should be the price for which the buyer sold the product in
the market. The Assistant Collector proceeded on the footing that the buyer was
the manufacturer of the goods and not the seller. The respondent appealed to
the Collector of Central Excise. The appeals were allowed by the Collector, and
he accepted the plea that the wholesale price disclosed by the seller was the
proper basis for determining the excise duty. The appellate orders were,
however, revised by the Central Government under sub-s.(2) of s. 36 of the Act,
and the orders made by the Assistant Collector were restored. The respondent
filed a writ petition in the Gujarat High Court against the orders of the
Central Government, and the High Court held that the Central Government was
wrong and the appellate Collector was right on the question as to the liability
of the seller to excise duty.
The basis on which the Central Government
proceeded in holding that the wholesale price of the goods should be the
wholesale price charged by the buyer is that the goods were manufactured by the
seller on behalf of the buyer, specially as they were embossed with the
trade-mark of which the buyer alone was the registered user in India, that the
two agreements between the seller and the buyer envisaged that the goods were
manufactured by the seller on behalf of the buyer and that therefore the buyer
itself should be regarded as the manufacturer of the goods for the purpose of
levying excise duty. The High Court has differed from the view taken by the
Central Government and has held that the goods were manufactured by the seller
as its own goods, and therefore the wholesale price charged by the seller must
form the true basis for the levy of excise duty.
Excise duty is levied under s. 3 of the Central
Excises and Salt Act, 1944 on goods manufactured in India and, broadly, for the
purposes of computing the duty the value of the article is deemed under s. 4 of
the Act (as it stood before its amendment by Act XXII of 1973) to be the
wholesale cash price for which an article of the like kind and quality is sold
or is capable of being sold at the time of the removal of the article
chargeable with duty from the factory for delivery at the place of manufacture.
The words "manufacture" and "manufacturer" have been
defined by clause (f) of s. 2 of the Act, and for the purposes of 100 the
present controversy what is relevant is that part of the definition which
defined "manufacturer of goods as being any person who engages in their
production or manufacture on his own account." The appellant contends that
on the facts and circumstances of this case it must be held that the buyer is
the person engaged in the production of the goods and the seller merely
manufactures them on behalf of the buyer.
The entire question before us is whether the
goods are manufactured by the seller or are manufactured by the seller on
behalf of the buyer. The relevant provisions of the agreements and the other
material on the record show that the manufacturing programme is drawn up
jointly by the buyer and the seller and not merely by the buyer, and that the buyer
is obliged to purchase the manufactured product from the seller only if it
conforms to the buyer's standard. For this purpose the buyer is entitled to
test a sample of each batch of the manufactured product and it is only on
approval by him that the product is released for sale by the seller to the
buyer.
In other words, the buyer has the right to
reject the goods if he does not approve of them. If the manufactured goods are
not in accordance with the buyer's standard, they are either reprocessed to bring
them up to the requisite quality or if that is not possible the goods are sold
to the buyer for a different purpose if they are compatible with the
specifications of some other product and provided that the buyer has a need for
that product, or the goods are sold to others in the market as sub-standard
goods at a lower price of the goods are destroyed. It is significant to note
that the buyer is not obliged to purchase the goods manufactured by the seller
regardless of their quality, and that in the event of rejection by the buyer
the alternatives present before the seller extent to the sale of the
manufactured goods to others or even to the very destruction of the goods. It
is apparent that the seller cannot be said to manufacture the Roods on behalf of
the buyer.
The appellant relies also on the circumstance
that under the agreements the seller is required to affix the trade-marks of
the buyer on the manufactured goods and, it is said, that indicates that the
goods belong to the buyer.
It seems to us clear from the record that the
trade-marks of the buyer are to be affixed on those goods only which are found
to conform to the specifications or standard stipulated by the buyer. All goods
not approved by the buyer cannot bear those trade-marks and are disposed of by
the sellers without the advantage of those trade-marks. The trade marks are
affixed only after the goods 101 have been approved by the buyer for sale by
the seller to the buyer. The seller owns the plant and machinery, the raw
material and the labour and manufactures the goods and under the agreements
affixes the trade-marks on the goods. The goods are manufactured by the seller
on its own account and the seller sells the goods with the trade marks affixed
on them to the buyer.
The appellant has invited our attention to
certain observations in Union of India v. Delhi Cloth and General Mills [1963]
Supp. 1 S.C.R. 586 at 592 and 598., South Bihar Sugar Mills Ltd.., etc. v.
Union of India and Others, [1968] 3 S.C.R. 21 at 31., Union of India and Others
v. Free India Dry Accumulators Ltd. [1983] Excise Law Times 733 at 734., and
Union of India & Others etc. etc. v. Bombay Tyre International Ltd. etc.
etc., [1983] Excise Law Times 1896., but in none of those observations do we
find any acceptable support for the proposition that the goods are manufactured
by the seller on behalf of the buyer.
In the result, we hold that the High Court is
right in concluding that the wholesale price of the goods manufactured by the
seller is the wholesale price at which it sells those goods to the buyer, and
it is not the wholesale price at which the buyer sells those goods to others.
The appeals are dismissed with costs.
A.P.J. Appeals Dismissed.
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