Case Note & Summary
The dispute arose under the Central Excises and Salt Act, 1944 concerning the eligibility of the respondent assessee for exemption from central excise duty on certain clearances during the financial year 1981-82. The respondent was a manufacturer of goods falling under erstwhile Tariff Item 14F and also manufactured goods under Tariff Item 68 in its own factory, availing exemption under Notification No. 105/80-CE. Additionally, the respondent got agarbatti, amlapodi and dhup manufactured by household ladies outside the factory premises on job-work basis without the aid of power. In the previous year 1980-81, the total clearances of Tariff Item 14F goods were Rs.14,88,268, factory-produced Tariff Item 68 goods were Rs.3,21,605, and outside-manufactured goods were Rs.26,754. For 1981-82, the respondent filed a classification list claiming exemption for the first clearance of Rs.7.5 lakhs under Notification No. 80/80-CE dated 19.6.80. The Superintendent of Central Excise issued a show cause notice on 29.5.81 proposing to disallow the exemption because the total clearances of all excisable goods in the previous year exceeded Rs.20 lakhs when outside goods were included. The Assistant Collector dropped the notice on 5.3.82, holding that outside goods were not to be included. The Collector of Central Excise, Baroda reviewed that order under Section 35A and set it aside, holding that total clearances exceeded Rs.20 lakhs and the respondent was not entitled to exemption. The respondent appealed to CEGAT, which set aside the Collector's order and restored the Assistant Collector's order. The revenue appealed to the Supreme Court. The core legal issue was whether the respondent could be treated as manufacturer of goods produced by household ladies outside the factory, and whether such outside clearances could be clubbed with factory clearances for computing the exemption limit. The revenue argued that because the respondent paid wages to the household ladies, the goods must be treated as manufactured in the respondent's factory. The respondent contended that wages were paid per piece, no power was used, there was no supervision, and the goods were sold from the household premises without ever entering the factory; therefore the household ladies were the real manufacturers. The Supreme Court relied on Empire Industries Ltd. v. Union of India, which held that the taxable event for central excise is manufacture and that sale or ownership of the end product is irrelevant. It also noted that Ujjagar Prints affirmed that view. On the admitted facts, the Court found that the household ladies manufactured the goods, and the liability to excise duty attached to their manufacture, not to the respondent. Consequently, the outside clearances could not be clubbed with the respondent's factory clearances to deny the exemption. The Supreme Court dismissed the appeal and affirmed the CEGAT order, with no order as to costs.
Headnote
A) Central Excise - Manufacture - Taxable Event - Central Excises and Salt Act, 1944, Section 35A and Tariff Items 14F and 68 - The case involved whether goods manufactured by household ladies on job-work basis outside the assessee's factory could be attributed to the assessee as manufacturer. The admitted facts were that raw materials were supplied by the assessee, wages paid per piece, no power was used, no supervision, and goods were sold from household premises without entering the factory. The Court held that the household ladies were the real manufacturers, as manufacture is the taxable event and sale or ownership of the end product is irrelevant. (Paras 3-4) B) Central Excise - Exemption - Clubbing of Clearances for Exemption Limit - Central Excises and Salt Act, 1944, Notification No. 80/80-CE dated 19.6.80 - The revenue sought to club clearances of goods manufactured outside the factory with the assessee's own clearances to deny exemption on first clearance of Rs.7.5 lakhs under Notification No. 80/80-CE. The Court held that since the outside goods were manufactured by different manufacturers (household ladies), their clearances could not be clubbed with the assessee's factory clearances for computing the exemption limit. The appeal was dismissed and the CEGAT order restoring the Assistant Collector's order was upheld. (Paras 1-4)
Issue of Consideration
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.
Final Decision
The Supreme Court dismissed the appeal and affirmed the CEGAT order, holding that the household ladies were the manufacturers of the outside goods and their clearances could not be clubbed with the respondents' factory clearances. No costs.
Law Points
- Taxable event for central excise is manufacture of excisable goods
- sale or ownership of end product irrelevant for taxable event
- when household ladies manufacture goods on job-work basis without power
- without supervision
- and goods sold from their premises
- they are the real manufacturers
- such clearances cannot be clubbed with principal's factory clearances for computing exemption limit under Notification No. 80/80-CE
