1996 (5) TMI 84 - SC - Central Excise

Court clarifies excise duty liability for goods made outside factory premises

COLLECTOR OF CENTRAL EXCISE, BARODA Versus MM KHAMBHATWALA

The Supreme Court held that the respondents could not be considered manufacturers of goods made by household ladies outside their factory premises. The ... 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? Held that:- CEGAT 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 the facts narrated above, we do not think that the assumption of the Collector that the respondents got the goods in question manufactured by `hired labourers' can be sustained. On the other hand we find, on the facts, the 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. On the 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. We answer the point against the appellant. Issues:Whether the respondents can be considered as manufacturers of goods manufactured by household ladies outside their factory premises for the purpose of excise duty exemption.Detailed Analysis:The case involves an appeal against the Customs, Excise and Gold (Control) Appellate Tribunal's order regarding the classification of goods manufactured by the respondents. The main issue is whether the respondents should be treated as manufacturers of agarbatti, amlapodi, and dhup, even though these goods were manufactured by household ladies outside the factory premises. The respondents were already manufacturing goods under different tariff items in their own factory and were availing exemptions. The dispute arose when goods manufactured outside the factory exceeded a certain value, triggering a Show Cause Notice from the Superintendent of Central Excise.The Assistant Collector initially withdrew the Show Cause Notice, but the Collector of Central Excise later set it aside, leading to an appeal by the respondents to the CEGAT. The CEGAT reversed the Collector's decision, stating that the respondents were not entitled to the exemption. The revenue then appealed to the Supreme Court.The counsel for the appellant argued that since the respondents paid wages to the household ladies for manufacturing goods, they should be considered the manufacturers. On the other hand, the respondents' counsel contended that the household ladies were the actual manufacturers as they worked without supervision, used no power, and sold the goods from their premises.The Supreme Court analyzed the facts and concluded that the respondents cannot be considered as manufacturers of the goods manufactured by household ladies outside their factory premises. The Court emphasized that the household ladies were the real manufacturers, and excise duty liability should be attracted to their manufacture, not to the respondents' factory-manufactured goods. The Court cited previous judgments to support this conclusion.Referring to the principles laid down in previous cases, the Court held that the liability to excise duty is attracted when there is a transformation into a new commodity, regardless of the ownership or sale of the end product. Based on these principles and the specific facts of the case, the Court upheld the CEGAT's decision and dismissed the appeal, ruling against the appellant.In conclusion, the Supreme Court found that the respondents could not be considered as manufacturers of the goods manufactured by household ladies outside their factory premises. The Court upheld the CEGAT's decision, emphasizing that excise duty liability should be on the actual manufacturers and not on the respondents claiming exemption for their factory-manufactured goods.