COLLECTOR OF CENTRAL EXCISE, BARODAversusMIS. M.M. KHAMBHATWALA

A              COLLECTOR OF CENTRAL EXCISE, BARODA
                                         v.
                         MIS. M.M. KHAMBHATWALA

                                   MAY 9, 1996

B
          [SUJATA V. MANOHAR AND K. VENKATASWAMI, JJ.]


         Central Excises & Salt Act 1944---Tariff 14 F-Notification No 80180-
    CE dated 19.6.1980-Exemption Agarbattis manufacture of-outside factory
    premises-Without aid ofpowe1-Heid, cannot be considered as manufacture
C   and hence cannot be clubbed with goods manufactured in factory premises.

          The Respondents were manufacturing goods falling under erstwhile
    Tariff Item 14F and Tariff Item 68 in their own factory and were availing
    exemption from duty and licensing control under Notification No. 105/80-
D   CE dt. 19/6/80. Apart from these the respondents were getting Agarbattis,
    amla podi, dhup etc. manufactured by house-hold ladies \\ithout the aid
    of pon'er, outside the factory premises. There was no supen'ision over the
  manufacture and the incense sticks were put in packets and sold from the
  premises of house·hold ladies. The sale proceeds were taken by respon-
  dents and these ladies were paid wages on the basis of number of pieces
E manufactured. The respondents claimed exem1,tion under Notification No.
  80/80-CE dt. 19/6/80 for the year 1981-82. The superintendent, Central
  Excise issued a Show Cause Notice on 29/5/89 calling upon the respondents
  why the exemption should not be disallowed since the value of total
  clearance of goods falling under 14 F and those manufactured outside on
F their behalf in 1980-81 exceeded Rs. 20 lakhs. The Assistant Collector, alter
  considering the explanation given by the Respondent withdrew the Show
  Cause Notice, holding that the value of agarbatti, amla podi and dhup etc.
  manufactured in other premises \Vere not to be included. On review, the
  Collector of Central Excise set aside the order of the Assistant Collector
  and held that goods manufactured outside factory premises have to be
G included and consequently the Respondents were nut entitled to any ex-
  emption under Item 14 F during 1981-82.

          On appeal to the Tribunal, it was held that the decision reached by
    the Collector while reviewing the order of Assistant Collector was not
H   correct and therefore the order of Assistant Collector was restored.
                                        608
             COLLECTOR OFC.E. v. M.M.KHAMBHATWALA                       609

      On Appeal to this Court, the revenue contended that sir..ce 'wages'      A
were paid. to the house hold ladies for manufacturing agarbatti;amlapodi
and dhup etc. the goods though manufactured outside the factory premises
must be taken as manufactured in the factory of the respondents.

      The Respondent-Assessee contended that though wages were paid, it
was on the basis of number of pieces manufactured, that they did not use       B
any power, that there was no supervision over the manufacture of those
goods and that the goods so manufactured were sold from the premises of
the house hold ladies and they did not go to the factory premises, that not
withstanding the fact the raw materials for manufacture were supplied by
the respondents the house hold ladies were the manufactures, and finally       C
the error committed by the Collector of Central Excise :was that he
proceeded on the assumption that. the house hold ladies were hired
'laboures' \\'hich assumption was contrary to the facts of the case.

        Dismissing the appeal, this Court
                                                                               D
      HELD : 1. The Respondents cannot be considered as manufactures
of agarbatti, amlapodi and dhup etc. manufactured in the premises of
house-hold ladies without the aid of power. The house-ladies are the
manufacturers of the goods in question and the liabilitf to excise duty will
be attracted on their manufacture of the goods and therefore it cannot be
clubbed "ith the goods manufactured in the factory premises of the
                                                                               E
respondents to deny the exemption claimed. [612-E; 613-A-B]

     Empire Jndusliies Ltd. & Ors. v. Union of India & Others, (1985) 20
ELT 179, relied on.

      2. The assumption of Collector of Central Excise that the Respon-
                                                                               F
dents got the goods in question manufactured by hired labourers cannot
be sustained. [612-H; 613-A]

        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4032 of
1987.                                                                          G
     From the Judgment am! Order dated 27.7.87 of the Central Excise
Customs and Gold (Control) Appellate Tribunal, New Delhj in Appeal No.
2643/83-C Order No. 652/87-C.

        P. Parmcshwaran, for the Appellant.                                    H
    610                   SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.

A         Ms. M. Karanjawala for the Respondents.

          The Judgment of the Court was delivered by

           K. VENKATASWAMI, J. This appeal is preferred against the order
    of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi
B   (hereinafter referred lo as 'the CEGAT)' date 27.7.87.

          The short point that arises for our consideration in this appeal is
    whether the appellant was right in treating the respondei:its as manufac-
    turers of agarbatti, amlapodi and dhup etc. even though they were
C   manufactured in various premises of the household ladies outside the
    factory of the respondents.

          Briefly the facts are as follows :

          During the year 1980-81 the respondent were manufacturers of goods
D 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. In addition
    they were also manufacturing goods falling under Tariff Item 68 in their
    own factory and were availing of the exemption from duty and licencing
    control under Notification No. 105/80-CE dated 19.6.80. The value of such
E   goods during the relevant year manufactured amounted to Rs. 3,21,605.00.
    Apart from the above two items, respondents were getting agarbatti, am-
    lapodi 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
F   relevant year amounted to Rs. 26,754.00.

         In the 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
  da!cd 19.6.80 for the year 1981-82. As the value of total clearances of goods   '
G 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.
H 80/80-CE in respect of Tariff Item 14F goods should not be disallowed.
   COLLECTOR OF C.E. v. M.M. KHAMBHA1WALA [K. VENKATASWAMI, J.] 611


After considering the explanation, the Assistant Collector of Central Ex- A
cise, 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 behaif of the respondents in premises other than their
factory premises were not to be included in the value of total clearances.
                                                                           B

      That 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 C
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 Tariff Item 68 including those
manufactured from outside the factory exceeded Rs. 20 lakhs and conse-
quently 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 D
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 assessec and after verifying the records came to the
conclusion that the decision reached by the Collector while reviewing the E
order of the Assistant Collector was not correct and, therefore, set aside
the Collector's order and restored the order of the Assistant Collector.

      Aggrieved by that the present appeal has been filed by the revenue.

       The learned counsel appearing for the appellant placing heavy F
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 G
manufacture. Therefore, counsel on both sides paid much attention to this
aspect to substantiate their respective contentions.

      The learned counsel appearing for the respondents, however, sub-
mitted that though respondents paid 'wages' to the house-hold ladies, it
was on the basis of number of pieces manufactured, that no power was H
    612                   SUPREME COURT REPORTS [19%] SUPP. 2 S.C.R.

A 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 manufactures. 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
B   manufactures in this case are undoubtedly the house-hold ladies, not-
    withstanding the fact that raw materials for manufacture of those goods
    were 5upplied 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. He also
C   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 un-
    disputed facts available in this case. In support of his submission, he placed
    reliance on two judgments of this Court in Ujjagar Prints Etc. v. Union of
D   India & Others, (1988) 38 ELT 535 and Empire indusllfrs Ltd. and Others
    v. Union of India and Others, (1985) 20 ELT 179.

          We 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
E   sot out immediately the respondents cannot be considered as manufac-
    turers of agarbatli, amlapodi and dhup etc. manufactured in the premises
    of house-hold ladies as described above without the aid of power. The
    undisputed facts arc that the respondents supplied raw materials for rolling
    incense. sticks etc. to outside manufacturers and paid wag~s to them on the
F basis of number of pieces manufactured. Such manufacture was without
    the aid of pov.:er. 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
G house-hold ladies were the real manufactures then the decision of the
  Tribunal cannot be faulted. CEGAT after considering the materials before
  it concluded that the respondents arc 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
H assumption of the Collector that the respondents got the goods in questions
       COLLECTOROFC.E. v. M.M.KHAMBHATWALA [K.VENKATASWAMl,J.] 613

    manufactured by 'hired labourers' can be sustained. On the other hand we A

-   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.
                                                                                    B
             In Empire Industries (supra) this Court held :

             "The taxable event for Central Excise is the manufacture of ex-
             cisable goods and the moment there is a transformation into a new
             commodity commercially known as a distinct and separate com-
             modity having its own character, use and name, whether be it the       c
                                                           1
             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."
                                                                                    D
          In Ujjagar P1ints (supra) the Constitution Bench had held that the
    view taken in Empire lndustlies (supra) case is an eminently plausible view
    and does not suffer from any fallacy.

          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    E
    there is any case for interference with the order of the CEGAT. We answer
    the point against the appellant.

           The appeal fails and is dismissed accordingly. No costs.

    V.M.                                                       Appeals dismissed.