excise on branded garments

This query is : Resolved

ca vijayshankar roy (Querist)
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22 March 2011 1.We are a small retail organisation marketing handicrafts and handlooms garments. We are getting the garments manufactured by small tailors in their homes and units as job work and selling the finished pieces with our brand and labelling with MRP.

2.Some garments like shirts and kurta pyajama are also manufactured by these small tailor units using their own fabrics, however putting our logo and lable.

Please advise the applicability of the new excise provisions of 10% on our organisation on both the above concerns. It is a private limited co having its retail showroom in Gurgaon.

pl do give your expert advice
thanks

vijay shankar

CA Pradeep Sharma

CA Pradeep Sharma (Expert)
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24 March 2011 M.M Khambhatwal Vs Collector of Central Excise 27/7/1987

ORDER

D.C. Mandal, Member (T)

1. The facts of the case are that the appellants M/s. Khambhatwala are the manufacturers of goods falling under Item 14F of the Central Excise Tariff under a Central Excise licence obtained for the purpose. The total clearance of the said goods during the year 1980-81 amounted to Rs. 14,88,268.00. In addition, they were also manufacturing goods falling under Tariff Item 68 in their factory and were availing of the exemption from duty and licensing control under Notification No. 105/80-C.E., dated 19-6-1980 by virtue of the plant and machinery being less than Rs. 10 lakhs and value of clearance in respect of the goods falling under Item 68 being less than 80% of the exemption limit. Value of the goods falling under Tariff Item 68 cleared in 1980-81 amounted to Rs. 3,21,605.00. Besides, they were getting Agar-batti, amlapodi and dhup etc. falling under T.I. 68 manufactured on their behalf without the aid of power in the premises, other than their factory premises, and the total of such goods manufactured from outside during the year 1980-81 was to the extent of Rs. 26,25,754.00. In the classification list No. 1/81, dated 22-6-1981 effective from 13-4-1981 filed under T.I. 14F the appellants claimed exemption for the first clearance of Rs. 7.5 lakhs under Notification No. 80/80-C.E., dated 19-6-1980 for the year 1981-82. As value of total clearance of goods falling under Item 14F and those manufactured from outside the factory on their behalf without the aid of power during 1980-81 exceeded Rs. 20 lakhs, the Superintendent of Central Excise issued a show cause notice on 29-5-1981asking them to explain why the exemption claimed by them under Notification No. 80/80-C.E. in respect of T.I. 14F goods should not be disallowed. The Assistant Collector of Central Excise, Ahmedabad, Div. V, vide his order No. MP/5/82, dated 5-3-1982, withdrew the above show cause notice on the ground that the clearance of all excisable goods did not exceed Rs. 20 lakhs in 1980-81 as the value of the agarbatti etc. manufactured on their behalf in premises other than their factory premises were not to be included in the value of total clearance. The order of the Assistant Collector was reviewed by the Collector of Central Excise, Baroda under Section 35-A(2) of the Central Excises and Salt Act and a notice dated 5-8-1982 proposing to set aside the Assistant Collector's order on the ground that the same was not correct, legal and proper as the Assistant Collector did not correctly interpret Sub-clause (ii) of Clause (2) of Notification No. 80/80-C.E., dated 19-6-1980 with regard to factories. After considering the reply to show cause notice, the Collector set aside the order of the Assistant Collector holding that the word "factory" used in para 2(ii) of the Notification 80/80-C.E. should be construed as a "factory" as defined in Section 2(e) of the Central Excises and Salt Act and that the appellants were the manufacturers in respect of the agarbattis etc. manufactured in the premises of house-hold ladies on behalf of the appellants and without the aid of power and the value of the Said goods falling under T.I. 68 should be added to the value of the goods cleared under T.I. 14F during 1980-81 for the purpose of total clearance value of Rs. 20 lakhs under Notification No. 80/80-C.E., dated 19-6-1980. As the total value of clearances of goods falling under Item 14F and the goods falling under T.I. 68 including those manufactured from outside their factory exceeded Rs. 20 lakhs, the Collector held that the appellants were not entitled to exemption from duty in respect of first clearance of Rs. 7.5 lakhs of the goods falling under Tariff Item 14F during 1981-82. Collector, therefore, directed the appellants to pay duty on cosmetics and toilet preparations falling under T.I. 14F as demanded by the Superintendent of Central Excise in his show cause notice dated 29-5-1981. The present appeal is against the said review order of the Collector.

2. Arguing before us for the appellants Shri N.I. Mehta, learned advocate has stated that for rolling the insense sticks etc. the appellants supplied raw materials to outside manufacturers and paid wages to them on the basis of number of pieces manufactured. They were cottage type manufacturers and no power was used by them for manufacturing those goods. They did not have any supervision over the outside manufacturers. The insense packets were sold from the premises of the cottage manufacturers. Those did not come to the factory premises of the appellants. Some of the goods reached the godown or shop of the appellants, but the same did not reach their factory. Sale proceeds went to the appellants. Notification 80/80-C.E., dated 19-6-1980 centres round clearances from the factory of the manufacturer. Appellants were not the manufacturers of those goods. Even if it is held that the appellants were the manufacturers, then those premises where those insense sticks etc. manufactured were not factories under Section 2(m) of the Factories Act, 1948. Collector held them to be factories under Section 2(e) of the Central Excises and Salt Act. From 1-3-1975 to 1-3-1979 there was an explanation below T.I. 68 that duty was chargeable if the goods were manufactured in a factory within the meaning of Section 2(m) of the Factories Act, 1948. In support of his contention, the learned advocate relied upon the following decisions :-

(i) 1985 (21) ELT 299 (Tribunal)

(ii) 1984 (3) ETR 746 (Tribunal)

(ill) 1985 (21) ELT 187 (Tribunal)

(iv) 1984 (16) ELT 40 (Bombay)

(v) 1985 (22) ELT 302 (Supreme Court)

(vi) 1985 (22) ELT 324 (Supreme Court) (vii) 1986 (25) ELT 423 (Tribunal)

(via) 1987 (27) ELT 460 (Tribunal) (ix) 1986 (26) ELT 634 (Tribunal)

3. Smt. Chandar, JDR arguing for the respondent reiterated the findings of the Collector and said that the appellants did not contest the allegation that the goods were manufactured on their behalf. She has drawn our attention to paragraphs 6 and 10 of the Appeal Memo, and the appellants' reply to show cause notice. She has stated that condition as per paragraph 2(ii) of the Notification No. 80/80-CE was not satisfied and hence this exemption is not admissible to goods falling under Tariff Item 14F. She has also stated that the judgments of the Supreme Court reported in 1985 (22) ELT 302 : 1985 (22) ELT 324 are not relevant to the present case.

4. We have gone through the records placed before us and have considered the arguments put forward before us. The exemption under Notification No. 80/80-C.E., dated 19-6-1980 is subject, inter alia, to the fulfilment of the conditions laid down in paragraph 2 of the Notification, which read as follows :-

"2. Nothing contained in this notification shall apply to a manufacturer -

(i) if the aggregate value of clearances of the specified goods, if any, by him or on his behalf, for home consumption, from one or more factories, during the preceding financial year, had exceeded rupees fifteen lakhs;

(ii) who manufactures excisable goods falling under more than one item number of the said first schedule and the aggregate value of the clearances of all excisable goods by or on his behalf for home consumption, from one or more factories, during the preceding financial year, had exceeded rupees twenty lakhs."

Explanation 11 to the Notification 80/80-C.E. reads as follows :

"Explanation 11. - For the purposes of calculating the aggregate value of clearances under Clause (a) of paragraph 1 of this notification, during the financial year 1980-81 the value of clearances in respect of which a manufacturer has availed of the exemption under the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No. 71/78 - Central Excise, dated the 1st March, 1978 shall be taken into account."

5. The main arguments of the learned advocate Shri N.I. Mehta are that the premises in which Agarbatti etc. were manufactured by house-hold ladies on behalf of the appellants were not factories as defined in Section 2(m) of the Factories Act, 1948 and that the appellants were not the manufacturer in respect of those goods. Regarding the first part of the arguments, he has also contended that from 1-3-1975 to 31-3-1979 there was an explanation below Item 68 of the Central Excise Tariff and in Notification No. 85/79-C.E., dated 1-3-1979 to the effect that the expression "factory" had the meaning assigned to it in Section 2(m) of the Factories Act, 1948. In the Notification No. 80/80-C.E., dated 19-6-1980 there was no explanation regarding the word "factories" used in the said Notification although there were five "Explanations" added to that Notification. The contention of the learned advocate is that the word "factories" in the Notification No. 80/80-C.E. should mean "factories" as defined in the Factories Act, 1948 and not in Section 2(e) of the Central Excises & Salt Act, 1944. We have given our considered thought to this contention of the learned advocate, but we are unable to agree with him. This Notification 80/80-C.E. was issued under Rule 8(1) of the Central Excise Rules, 1944. The word "factories" used this Notification should therefore be governed by the definition of factories in Section 2(e) of the Central Excises and Salt Act, 1944 in the absence of any specific provision in the Notification that the definition of the word "factories" in the Factories Act, 1948 should apply for this purpose. As regards the contention that the appellants in the present case were not the manufacturer of the Agarbatti etc. manufactured in various premises of the house-hold ladies outside the factory of the appellants, the learned advocate has relied upon a number of decisions. In 1985 (21) ELT 187(T) [Collector of Central Excise, Madras v. Modoplast (P) Ltd., Coimbatore], 1985 (2.1) ELT 299(T) [Lucas Indian Service Ltd. v. Madras v. Collector of Central Excise, Madras], 1984 (16) ELT 40 (Bombay) [R.K.H. Industries and Anr. v. Union of India and Anr.] and 1986 (25) ELT 423(T) [Shakti Udyog, Jallandhar v. Collector of Central Excise, Chandigarh] it was held that mere supplying the raw materials to another for the manufacture of goods would not make the raw material supplier as "manufacturer" if dealings were on principal to principal basis and the unit was not faked or dummy. In the case of Techma Engineering Enterprise, Calcutta v. Collector of Central Excise, Calcutta reported in 1987 (27) ELT 460(T), this tribunal held that bolts and nuts were manufactured by the other independent manufacturers on behalf of the appellants, who supplied raw materials, but they were not cleared on their behalf since the clearances could not be done on behalf of another.. When the bolts and nuts after manufacture were cleared, they were not cleared on behalf of the appellants, but were simply cleared. It was held therein that clearances of independent manufacturers were not reckonable as clearances of the supplier of raw materials. The learned advocate has also relied upon two judgments of the Hon'ble Supreme Court. In the judgment reported in 1985 (22) ELT 302 (SC) [Union of India and Ors. v. Cibatul Limited] there was an agreement between the buyer/customer and the seller/ manufacturer according to which the seller was to manufacture goods according to the programme drawn up jointly and goods were to be manufactured in accordance with the restrictions and specifications constituting the buyer's standard. The goods were also to bear the brand name/ trade mark of the, buyer. It was held by the Hon'ble Supreme Court that the goods were manufactured by the seller as its own goods, and therefore wholesale price charged by the seller must form the true basis for the levy of excise duty. It was also observed by the Hon'ble Supreme Court that the words "manufacture" and "manufacturer" have been defined by Clause (f) of Section 2 of the Central Excises and Salt Act, 1944 and what is relevant is that part of the definition which defines a "manufacturer" of the goods as being "any person who engages in their production or manufacture on his own account". In the case of 3oint Secretary to Govt. of India v. Food Specialities Ltd. reported in 1985 (22) ELT 324 (SO, the goods were produced with Customer's Brand/Trade Mark. It was held by the Hon'ble Supreme Court that the value of goods under Section 4 of the Central Excises and Salt Act, 1944 should be the price at which the manufacturer sold the goods to the customer and the value of trade mark could not be added to the value for the purpose of excise duty.

6. In this case, the appellants supplied raw materials to the cottage type manufacturers and the latter manufactured Agarbatti etc. valued at Rs. 26,25,754.00 during the year 1980-81 on behalf of the appellants. The goods were cleared from those premises and were not brought to the factory premises of the appellants although the sale proceeds came to them (the appellants). According to the ratio of the decisions relied upon by the learned advocate, the appellants are not the "manufacturer" of those Agarbatti etc. manufactured by various cottage type manufacturers on job work basis. According to the condition laid down in paragraph 2(ii) of the Notification No. 80/80-C.E., dated 19-6-1980, this exemption notification is not applicable to a "manufacturer" who manufactured exdisable goods falling under more than one item number of the First Schedule to the Central Excises & Salt Act, 1944 and the aggregate value of clearances of all excisable goods by him or on his behalf for home consumption from one or more factories during the preceding financial year, had exceeded to Rs. 20 lakhs. Unless the appellants, in this case are the "manufacturer" of the excisable goods manufactured by other independent manufacturers of cottage type in their premises, the clearances of the goods made from those premises could not be added to the clearances from the appellants' factory. As the appellants are not manufacturer in respect of those goods, the value of the same could not be added to the value of other goods cleared from their factory in 1980-81. After the clearances of goods to the extent of Rs. 26,25,754.00 are excluded, the total value of the goods cleared from their factory during 1980-81 will amount to Rs. 18,09,873.00 only (i.e. value of the goods falling under Tariff Item 14F is Rs. 14,88,268.00 plus value of the goods falling under T.I. 68 is Rs. 3,21,605.00), which is less than Rs. 20 lakhs. The condition laid down in paragraph 2(ii) of the Notification 80/80-C.E. was, therefore, fulfilled by the appellants.

7. In view of the above position, we hold that the order-in-original No. MP/5/82, dated 5-3-1982 passed by Assistant Collector of Central Excise, Div. V, Ahmedabad was correct, legal and proper and there is no reason to interfere with the same. The appellants were entitled to exemption from duty in terms of Notification No. 80/80-C.E., dated 19-6-1980 in respect of the goods falling under T.I. 14F during the financial year 1981-82. We, therefore, set aside the impugned order-in-review passed by the Collector of Central Excise, Baroda and allow the appeal filed by these appellants.

So, you are not liable to pay excise duty if you are not manufacturing handicraft and handloom products, Job worker are reponsible for pay duty.

Also brand name is not consider for payment of duty according to famous case of Cibatual Limited....