1993 (9) TMI 228 - AT - Central Excise

Contractors, Not M.S.E.B., Deemed Manufacturers - Liability Set Aside. Revenue Appeal Dismissed, M.S.E.B. Appeal Allowed.

COLLR. OF C. EX., NAGPUR Versus MAHARASHTRA STATE ELECTRICITY BOARD

The Tribunal determined that the contractors, not M.S.E.B., were the actual manufacturers of the PSC poles. M.S.E.B. was found not liable for duty, and ... Manufacture Issues Involved:1. Determination of the manufacturer liable for duty on pre-stressed concrete (PSC) poles.2. Financial involvement and control of the Maharashtra State Electricity Board (M.S.E.B.) over the manufacturing units.3. Applicability of the primary and secondary manufacturer concept under Rule 56C.4. Allegations of dummy units and principal-to-principal transactions.Issue-Wise Detailed Analysis:1. Determination of the Manufacturer Liable for Duty on PSC Poles:The main issue in both appeals was to determine whether M.S.E.B. or the contractors were the manufacturers of the PSC poles. The Assistant Collector and Additional Collector of Central Excise had held M.S.E.B. liable, asserting that M.S.E.B. was the manufacturer. However, the lower appellate authority and the Tribunal found that the contractors, such as M/s. Waman Poles Pvt. Ltd., were the actual manufacturers. The Tribunal noted that the contractors procured their own materials (except cement), used their own machinery, and hired their own staff, thus functioning independently.2. Financial Involvement and Control of M.S.E.B.:The Tribunal examined the terms of the work contracts between M.S.E.B. and the contractors. It was noted that:- M.S.E.B. had no financial involvement in the contractors' operations.- The factory premises and equipment belonged to the contractors.- The employees of the units were not under the control of M.S.E.B.- M.S.E.B. only supplied cement at a fixed rate and sometimes steel wire.- Supervision by M.S.E.B. was limited to ensuring quality, not operational control.These points indicated that the contractors operated independently and were not merely extensions of M.S.E.B.3. Applicability of the Primary and Secondary Manufacturer Concept under Rule 56C:The concept of primary and secondary manufacturers was introduced in 1981. The Department's stance was that M.S.E.B. was the primary manufacturer, and the contractors were secondary manufacturers. However, this was not accepted by M.S.E.B. The Tribunal found that the contractors were independent entities and not secondary manufacturers under the control of M.S.E.B. The show cause notices issued to both M.S.E.B. and the contractors proposed levying duty and penalties, but the Tribunal concluded that the contractors were the actual manufacturers.4. Allegations of Dummy Units and Principal-to-Principal Transactions:The Tribunal observed that there were no allegations or evidence that M/s. Waman Poles Pvt. Ltd. or other contractors were dummy units created to evade duty. The transactions between M.S.E.B. and the contractors were on a principal-to-principal basis. The Tribunal distinguished this case from others where the manufacturing took place within the premises of the contracting entity, and most materials were supplied by the contracting entity. In this case, the contractors operated independently, and the relationship was not one of hired labor but of independent contractors.Conclusion:The Tribunal held that M.S.E.B. was not the manufacturer of the PSC poles. The demands of duty and penalties on M.S.E.B. were set aside. The appeal by the Revenue was dismissed, and the appeal by M.S.E.B. was allowed with consequential relief. The Tribunal's decision emphasized the independence of the contractors and the lack of control by M.S.E.B. over their manufacturing processes.