1979 (12) TMI 63 - HC - Central Excise

Court directs withdrawal of notices against petitioner for failure to obtain license under Central Excises and Salt Act

The court allowed the writ petition, directing the respondents to withdraw the notices and desist from taking any action against the petitioner for ... Definition of 'manufacturer' - manufacturer liability for licence under Rule 174 - ownership and control in determining manufacture - trade mark use does not constitute manufacture - dummy company and separate legal entityDefinition of 'manufacturer' - manufacturer liability for licence under Rule 174 - ownership and control in determining manufacture - Petitioner is not a 'manufacturer' within the meaning of Section 2(f) of the Central Excises and Salt Act in respect of lamps manufactured by M/s Hind Lamps Limited and therefore is not required to obtain a manufacturing licence under Rule 174 in respect of those goods. - HELD THAT: - The amended definition of 'manufacturer' under Section 2(f) includes persons who employ hired labour to produce excisable goods and persons who 'engage in their production or manufacture on his own account.' The court held that to fall within the latter category a person must get goods manufactured by others under his direction and control; mere placing of orders or procurement according to requirements does not suffice. Where the buyer neither hires labour nor exercises control or supervision over the manufacturing process, and does not have financial involvement in production, he remains a purchaser and not a manufacturer. Accepting the revenue's position would lead to treating both the factory-owner and the buyer as manufacturers of the same commodity, which the court rejected. The petitioner therefore cannot be deemed a manufacturer of the lamps produced by Hind Lamps Limited. [Paras 7, 8, 9, 10, 14]Petitioner is not a manufacturer for the lamps produced by Hind Lamps Limited and is not liable to obtain a licence under Rule 174 in respect of those goods.Trade mark use does not constitute manufacture - ownership and control in determining manufacture - Use of the petitioner's trade name or brand on goods manufactured by another company does not render the petitioner a manufacturer under Section 2(f). - HELD THAT: - A trade mark is a device indicating origin, ownership or connection in the course of trade and its use does not, as a matter of law, establish that the user manufactured the goods. Goods manufactured for a buyer and bearing the buyer's trade name remain distinct from manufacture by the buyer; trademarks and manufacture are separate concepts and should not be conflated. Thus branding by the petitioner on goods made by Hind Lamps Limited does not convert the petitioner into their manufacturer. [Paras 11, 12]The fact that the bulbs and tubes bore the petitioner's trade name does not make the petitioner a manufacturer under Section 2(f).Dummy company and separate legal entity - ownership and control in determining manufacture - Presence of one common director in both companies does not establish that the manufacturing company is a dummy or that the petitioner controlled Hind Lamps Limited for the purpose of treating the petitioner as a manufacturer. - HELD THAT: - A director common to two companies does not, by that circumstance alone, make one company a camouflage for the other. The court relied on earlier findings that Hind Lamps Limited was a distinct legal entity carrying on business on its own account. The revenue's contention that common directorship implied control sufficient to treat Hind Lamps Limited as a dummy company was rejected as irrelevant for the purpose of constituting the petitioner a manufacturer. [Paras 15]The existence of a common director does not justify treating Hind Lamps Limited as a dummy company or the petitioner as its manufacturer.Final Conclusion: Writ petition allowed; the notices dated December 10, 1975 and June 7, 1976 are directed to be withdrawn and the respondents are restrained from taking action against the petitioner for failing to obtain a manufacturing licence under the Central Excises and Salt Act. Issues Involved:1. Whether the petitioner is a 'manufacturer' under Section 2(f) of the Central Excises and Salt Act, 1944.2. Whether the petitioner is required to obtain a Central Excise Licence under Rule 174 of the Central Excise Rules, 1944.3. The relevance of the trade mark and brand names in determining the status of the petitioner as a manufacturer.4. The impact of shared directorship between the petitioner and the supplier company on the determination of control and manufacturer status.Detailed Analysis:Issue 1: Whether the petitioner is a 'manufacturer' under Section 2(f) of the Central Excises and Salt Act, 1944The petitioner argued that it is not a manufacturer of the lamps purchased from the company, as it neither engaged the company as a contractor nor acted as its agent. The Central Excise Authorities contended that the petitioner controlled and managed the manufacturing process, and since the lamps bore the petitioner's trade name, the petitioner should be considered a manufacturer.The court examined the definition of 'manufacturer' under Section 2(f) of the Act, which includes any process incidental or ancillary to the completion of a manufactured product and any person who engages in their production or manufacture on his own account. The court concluded that a person who simply places orders with a company for goods manufactured according to his specifications does not fall within the definition of 'manufacturer.' The owner of the factory alone is engaged in the manufacturing activity 'on his own' within the meaning of Section 2(f).Issue 2: Whether the petitioner is required to obtain a Central Excise Licence under Rule 174 of the Central Excise Rules, 1944The petitioner received notices from the Superintendent of Central Excise, requiring it to obtain a licence under Rule 174 for the lamps purchased from the company. The court noted that Rule 174 mandates every manufacturer to obtain a licence. However, since the petitioner was not considered a manufacturer under Section 2(f), it was not required to obtain a licence under Rule 174.Issue 3: The relevance of the trade mark and brand names in determining the status of the petitioner as a manufacturerThe Central Excise Authorities argued that since the lamps bore the petitioner's trade name, the petitioner should be considered a manufacturer. The court rejected this argument, stating that a trade mark is merely a sign or device indicating the origin or ownership of the article. The use of a trade mark does not necessarily imply that the articles are manufactured by its user. The court emphasized that trade marks and the manufacture of goods are distinct concepts and should not be intermixed.Issue 4: The impact of shared directorship between the petitioner and the supplier company on the determination of control and manufacturer statusThe Central Excise Authorities suggested that since one of the directors of the supplier company was also a director of the petitioner company, the supplier company should be deemed a dummy company controlled by the petitioner. The court dismissed this argument, stating that shared directorship does not indicate that one company is a dummy for the other. The court referred to a previous decision where it was held that the supplier company was a separate legal entity carrying on business on its own account.Conclusion:The court allowed the writ petition, directing the respondents to withdraw the notices dated December 10, 1975, and June 7, 1976, and to desist from taking any action against the petitioner for failing to obtain a licence under the Central Excises and Salt Act. The court held that the petitioner was not a manufacturer under Section 2(f) of the Act and was not required to obtain a licence under Rule 174 of the Central Excise Rules, 1944.