M/S. BASANT INDUSTRIES, AGRAversusCOLLECTOR OF CENTRAL EXCISE

A                     MIS. BASANT INDUSTRIES, AGRA
                                  v.
                     COLLECTOR OF CENTRAL EXCISE

                              DECEMBER 9, 1994

B                  [R. M. SAHAI ANDS. B. MAJMUDAR, JJ.]

         Central Excises and Salt Act, 1944- Central Excise Tariff- Item No.
    JOA-Notification No. 85172 dated 17.3.1972- Oil driven pumps-.Supply
    of components by assessee-Pumps manufactured by third parties-Whether
    the manufacture was on behalf of assessee-Held: No-Assessee entitled to
c   claim exemption under the Notification.

         The appellant entered into agreements with different units who
    were duly licensed under the Central Excises and Salt Act, 1944 for
    manufacturing pumps and power driven pumps. In October, 1977 the
D   appellant was served with a show-cause notice by the Central Excise
    Department that it got the power driven pumps manufactued with
    brand name 'Atul Shakti' from the different manufacturing units who
    in fact were manufacturing these pumps on behalf of the apellant. The
    appellant replied that it had given raw materials to independent units
    who were not under the control or direction of the appellant; the
E   independent units had manufactured according to specification given
    by the appellant, and therefore, the work carried on by the
    independent units could not be deemed to be on behalf of the appellant
    and it could not be denied the benefits of exemption under Notification
    No. 85172.
F
         On appeal, the Tribunal found that the appellant sent components
    in the shape 'of casting which by a little machining and grinding became
    pumps, and therefore, even though the manufacturing units were
    independent, yet it did not make any difference in law as the pumps
    having been manufactured on behalf of the appellant it was not entitled
G   to exemption. The Tribunal further found that some of the independent
    units charged a sum of Rs. 10 per pump, which was so ridiculously low
    that no independent unit would manufacture a pump at such a low
    change. The present appeal is filed against the Tribunal's order.

        Allowing the appeal, this Court
H
                                    446
                BASANT INDS. v. C.C.E., U.P. [R. M. SAHA!, J.]          447

     HELD: 1. The oil driven pumps sold by the appellant having not A
 been manufactured by it, it was entitled to claim exemption under
 Notification No.85/72 dated 17th March 1972. [449 GJ

      2. The Tribunal found it as fact that the appellant had no control
 either over the manufacturing process or manufacturing parties. Once
 the Tribunal recorded this finding it misdirected itself in entering into B
 the question whether the pump manufactured by third parties was
 mere assembling of raw material or component supplied by the
 appellant or it was manufacture. Even assuming that what was
 supplied was component, that by itself was not sufficient to fasten
 liability on the appellant. The component unless processed did not
 result in production of pump. And that having been done by C
 independent units for payment, the finding that it was manufactured on
 behalf of the appellants without any material cannot be upheld. In fact,
 no such finding has been recorded by the Tribunal nor any material
 could be pointed out which could establish that it was the appellant
 who manufactured the pumps or the independent units from whom it
 got the pumps manufactured were doing so on behalf of the appellant. D
 The Tribunal in extending the meaning of the expression
 'manufacturing' on behalf of the appellant, by introducing the concept
 of supply of components went beyond the ambit of the Notification.
                                                              [449 D to FJ

     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 910of1987.
                                                                              E
     From" the· Judgment and Order dated 27.2.86 of the Customs Central
 Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in A.
 No.ED (SB) 579/80-BI) O.No.116/86-BI.)

    V. Laxmi Kumaran and Kamal Budhiraja for Khaitan and Co. for the
 Appellant.                                                          F
      A. K. Ganguli, V.J. Francis and V. K. Verma for Ms. Sushrna Suri for
 the Respondent.

     The Judgment of the Court was delivered by
                                                                              G
                                .
       R.M. SAHAI. J. Whether oil driven pumps sold by the appellant were
. exempt under Notification No. 85/72 dated 17.3.1972 or they were
  assessable to duty under item 30A of the Central Excise Tariff is the short
  question that arises for consideration in this appeal directed against order
  passed by the Custom, Excise and Gold (Control) Appellate Tribunal, New
  ~                                                                            H
    448                  SUPREME COURT REPORTS              [1994) SUPP. 6 S.C.R

A         The appellant, a partnership firm registered under the Indian
    Partnership Act, was engaged in the manufacture of combustion and diesel
    engines bearing brand name 'Atul Shakti' for which it was duly licensed
    under the Central Excises and Salt Act, 1944 ('Act' for short). It also
    carried on trading in pumps. It entered into agreements with different units
    who were duly licensed under the Act for manufacturing pumps and power
B   driven pumps. In October, 1977 the appellant was served with a show-cause
    notice by the Central Excise Department that they got the power driven
    pumps manufactured with brand name 'Atul Shakti' from the different
    manufacturing units who in fact were manufacturing these pumps on behalf
    of the appellant. In reply it was stated that the appellant had given raw
    materials to independent units who were not under control or direction of
c   the appellent. According to the appellant, on the raw material supplied by it
    the independent units had manufactured according to specification given by
    the appellant. Therefore, the work carried on by the independent units could
    not be deemed to be on behalf of the appellant and the appellant could not
    be denied the benefit of exemption under Notification No. 85/72. The
    Tribunal did not agree even though it held that the appellant had no control
D   over manufacturing process and the manufacturing parties but what
    persuaded the Tribunal to take the view against the appellant was that it
    found that the appellant sent components in the shape of casting which by a
    little machilling and grinding became pumps. Therefore, even though the
    manufacturing units were independent, yet it did not make any difference in
    law as the pumps having been manufactured on behalf of the appellant it
E   was not entitled to exemption. The Tribunal further held that if the claim of
    the app~llant that it had only supplied the raw material was found to be
    correct, probably there would have been no difficulty in accepting its claim
    but from the material it transpired that the appellant had supplied
    components of pumps and this was done in order to get over the legal
    difficulty and claim exemption under the excise notification. The Tribunal
F
    further found that some of the independent units charged a sum of Rs. IO
    per pump. It was demonstrative of the fact that the amount was so
    ridiculously low that no independent unit manufactures a pump for such a
    low cost.

         The exemption under Notification No.85/72 dated 17th March, 1972
G
    was available for power driven pumps if the value did not exceed Rs. one
    lakh. This restriction was extended even if the pumps were got
    manufactured by others. In other words if value of the pumps sold by the
    appellant did not exceed Rupees One Lakh whether manufactured by the
    appellant or.on its behalf by others then only it was entitled to exemption.
H   The appellant had cleared goods which exceeded Rupees One Lakh in the
                BASANT INDS. v. C.C.E., U.P. [R. M. SAHAI, J.]            449

years in dispute. Therefore, it was not entitled to exemption unless the value   A
of pumps manufactured by different parties under the agreement was
excluded from its clearance. The appellant did not dispute that it supplied
castings, pump tape, shafts, impeller etc. to the manufacturer. The question,
therefore, that arose was whether the pumps brought out of all this resulted
in manufacture. This word was explained by the Constitution Bench in Mis
Ujagar Prints and Ors. v. Union of India and Ors., [1989] 3 SCC 488. It          B
was held that the test to determine leviability under the Act is whether a
new commercial commodity has emerged. Since the goods which were
manufactured by different units on raw material supplied by the appellant
was a new commercial commodity it cannot be said that it did not amount
to manufacture. And that was not the dispute in the show cause notice
which called .upon the appellant to explain as to why the duty may not be        C
levied on it as it was manufactured on its behalf. The ambit of controversy
thus was not so much whether pumps were manufactured by different
pa.rties but whether it was manufacture on appellant's behalf. The Tribunal
in this regard found it as fact that the appellant had no control either over
the manufacturing process or manufacturing parties. Once the Tribunal
recorded this finding it misdirected itself in entering into the question        D
whether the pumps manufactured by third parties was mere assembling on
raw material or component supplied by the appellant or it was manufacture.
Even assuming that what was supplied was component, but that by itself
was not sufficient to fasten Iiablity on the appellant. The component unless
processed did not result in production of pump. And that having been done        E
by independent units for payment the finding that it was manufactured on
behalf of the appellants without any material cannot be upheld. In fact, no
such finding has been recorded by the Tribunal nor any material could be
pointed out which could establish that it was the appellant who
manufactured the pumps or the independent units from whom it got the
pumps manufactured were doing so on behalf of the appellant. The                 F
Tribunal in extending the meaning of the expression "manufacturing' on
behalf of the appellant by introducing the concept of supply of components
went beyond the ambit of the Notification.

    In the result, this appeal succeeds and is allowed. The order passed by
the Tribunal is set aside. The question of law raised by the appellant is G
decided by saying that the oil driven pumps sold by the appellant having
not been manufactured by it, it was entitled to claim exemption under
Notification No. 85/72 dated 17th March, 1972.

G.N                                                          Appeal allowed