1985 (9) TMI 89 - SC - Central Excise

Whether the goods are manufactured by the seller or are manufactured by the seller on behalf of the buyer? Held that - It seems to us clear from the record that the trade-marks of the buyer are to be affixed on those goods only which are found to conform to the specifications or standard stipulated by the buyer. All goods not approved by the buyer cannot bear those trade marks and are disposed of the sellers without the advantage of those trade-marks. The trade-marks are affixed only after the goods have been approved by the buyer for sale by the seller to the buyer. The seller owns the plant and machinery, the raw material, the labour and manufactures the goods and under the agreements,affixes the trade marks on the goods. The goods are manufactured by the seller on its own account and the seller sells the goods with the trademarks affixes on them to the buyer. We hold that the High Court is right in concluding that the wholesale price of the goods manufactured by the seller, is the wholesale price at which it sells those goods to the buyer, and it is not the wholesale price at which the buyer sells those goods to others. Appeal dismissed.

Summary

Issues:
Challenge of levy of excise duty based on ownership and manufacturing agreements.

Analysis:
The case involved appeals against the Gujarat High Court's judgment on excise duty levy. The respondent, a company, had agreements with a foreign company for manufacturing specific products. The central issue was whether the goods were manufactured by the seller or on behalf of the buyer. The Central Government contended that the buyer should be considered the manufacturer for excise duty purposes, based on the agreements and trade-mark affixation. However, the High Court disagreed, holding that the seller manufactured the goods on its own account.

The Central Excises and Salt Act, 1944, levies duty on goods manufactured in India. The dispute centered on the definition of "manufacturer" under the Act, which includes a person who engages in production on their own account. The appellant argued that the buyer was engaged in production, while the seller merely manufactured the goods. The agreements and records indicated that the buyer had significant control over product quality and approval, suggesting the seller's independent manufacturing.

The agreements required the seller to affix the buyer's trademarks on approved goods, implying ownership by the buyer. However, the record showed that only approved goods bore the trademarks, and rejected goods were sold without them. The seller owned the manufacturing resources and sold goods with affixed trademarks to the buyer, supporting the conclusion that the seller manufactured the goods independently.

Citing various legal precedents, the court rejected the appellant's arguments and upheld the High Court's decision that the wholesale price for excise duty should be based on the price at which the seller sold the goods to the buyer. Consequently, the appeals were dismissed, affirming the High Court's judgment on excise duty levy.

This case underscores the importance of analyzing manufacturing agreements and ownership structures to determine liability for excise duty. The court's interpretation of the Act's definition of "manufacturer" and the practical aspects of production and sale played a crucial role in resolving the dispute. The decision provides clarity on excise duty liability in similar contractual arrangements, emphasizing the party responsible for manufacturing as the key factor in determining duty assessment.