1971 (12) TMI 43 - SC - Central Excise

Whether firm continued to employ the looms in the factories after December, 1956 when direct purchases of the manufactured cloth were suspended? Held that - From account books it was seen during the course of personal hearing that yarn was supplied on various dates between July, 1956 to April, 1957 (even after December 1956) of the total value of ₹ 54,776-2-9 to M/s. Chintamani Wvg. Mills. In addition cash advances were made on different occasions between these dates amounting to ₹ 12,875,00. The total payments made by the factory to your firm amount to ₹ 60,211-3-6. There are no accounts to indicate that the individual factory owners were charged for any expenditure on account of baling or for transport. It passes comprehension why a commercial concern engaged with profit taking motive should first advance large sum of monies to the individual factory owners, receive their entire production supply sized beams of yarn, get the cloth processed at Bombay, make sales and charge no forwarding commission, on baling expenses and no transport charges. Under these circumstances, unable to agree with contention that you ceased to employ looms from the individual factories after December, 1956. The conclusions of the Assistant Collector and of the Collector which are identical that one out of the 16 units of factories manufacturing cloth on behalf of the appellant was a licensed one are amply supported by evidence on the record and have not been shown to be vitiated by any legal error nor has any grave injustice been shown to have resulted thereby to the appellant. On these conclusions there can be no doubt that appellant is a manufacturer within the contemplation of the Act and the exemption under item (10) of the notification dated March 1, 1956 or under item (7) of the notification dated Januray 5, 1957 is not available to the appellant. Appeal dismissed.

Summary

Issues Involved:
1. Whether the appellant is considered a manufacturer under Section 2(f) of the Central Excises and Salt Act, 1944.
2. Validity of the excise duty demand under Rule 9(2) of the Central Excise Rules.
3. Applicability of exemption notifications to the appellant's case.

Detailed Analysis:

1. Whether the appellant is considered a manufacturer under Section 2(f) of the Central Excises and Salt Act, 1944:
The appellant, a firm dealing in textile goods, was demanded to pay excise duty for cotton fabrics manufactured in various factories. The core issue is whether the appellant qualifies as a manufacturer under Section 2(f) of the Act. The departmental authorities concluded that the appellant acted as a master weaver, supplying yarn to weavers and receiving woven cloth in return, thus engaging in the production of cotton fabrics. The Collector and the Assistant Collector found that the weavers had no actual interest in the production and did not maintain proper accounts, indicating that the appellant was essentially the manufacturer. The Supreme Court upheld this conclusion, stating that the appellant's transactions were structured to appear as independent sales and purchases but were essentially a single manufacturing process. The evidence supported the departmental authorities' findings, and no legal errors were identified.

2. Validity of the excise duty demand under Rule 9(2) of the Central Excise Rules:
The appellant contended that the demand under Rule 9(2) was invalid. However, this point was not raised before the Central Government or the Collector and was therefore not allowed to be introduced for the first time in this appeal under Article 136 of the Constitution. The Supreme Court did not entertain this argument due to procedural limitations.

3. Applicability of exemption notifications to the appellant's case:
The appellant argued that the cotton fabrics were manufactured by independent weavers and thus should be exempt under various notifications, including those dated March 1, 1956, and January 5, 1957, which exempted cotton fabrics produced in factories with less than five powerlooms. The Assistant Collector, however, found that the appellant continued to employ the looms even after December 1956, and the nature of transactions indicated that the appellant was the actual manufacturer. The affidavits and evidence presented by the appellant did not alter this conclusion. The Supreme Court agreed that the appellant did not qualify for the exemptions under the notifications, as the appellant was found to be the manufacturer.

Conclusion:
The Supreme Court dismissed the appeal, affirming that the appellant is considered a manufacturer under the Act and is liable for the excise duty demanded. The exemptions claimed by the appellant were not applicable, and the procedural argument regarding Rule 9(2) was not entertained. The conclusions of the departmental authorities were supported by substantial evidence and were not vitiated by any legal errors. The appeal was dismissed with costs.