1987 (7) TMI 100 - HC - Central Excise

Issues Involved:
1. Classification and assessment of excise duty under Item No. 33-A(2).
2. Eligibility for exemption under Notification No. 208/77.
3. Determination of the manufacturer for excise duty purposes.
4. Jurisdiction and propriety of the Assistant Collector's order.
5. Availability and exhaustion of alternative remedies.

Detailed Analysis:

1. Classification and Assessment of Excise Duty under Item No. 33-A(2):
The petitioners argued that the transistor radios they manufacture fall under Item No. 33-A(2) of the First Schedule to the Central Excise Act, making them eligible for classification and assessment of excise duty under this item. They contended that their products were sold at a price below Rs. 165 per set and that their capital investment was under Rs. 10 lakhs, thus qualifying for exemption under Notification No. 208/77.

2. Eligibility for Exemption under Notification No. 208/77:
The petitioners claimed the benefit of exemption from excise duty under Notification No. 208/77, which exempts radios of value not exceeding Rs. 165 per set from excise duty, provided the capital investment in plant and machinery does not exceed Rs. 10 lakhs. The petitioners maintained that their products met these criteria, and therefore, they were entitled to the exemption.

3. Determination of the Manufacturer for Excise Duty Purposes:
The core issue was whether the petitioners were the independent manufacturers of the radios or if they were manufacturing on behalf of the third respondent, M/s. Peico Electronics and Electricals Ltd. The Assistant Collector held that the petitioners were manufacturing on behalf of the third respondent, thus disqualifying them from the exemption. The petitioners argued that they were independent manufacturers, owning the plant, machinery, and raw materials, and selling the finished products to the third respondent on a principal-to-principal basis.

4. Jurisdiction and Propriety of the Assistant Collector's Order:
The petitioners challenged the order of the Assistant Collector as being based on incorrect reasons and contrary to established principles. They cited the Supreme Court cases of Union of India v. Cibatui Limited and Jt. Secretary to Govt. of India v. Food Specialities Ltd. to argue that the mere fact that the buyer provides specifications and some components does not make the buyer the manufacturer. The petitioners asserted that they retained ownership and control over the manufacturing process and the finished goods until sold to the third respondent.

5. Availability and Exhaustion of Alternative Remedies:
The respondents contended that the petitioners should have exhausted alternative remedies, such as filing an appeal, before approaching the High Court. They cited the Supreme Court cases of Titaghur Paper Mills Co. Ltd. v. State of Orissa and Assistant Collector of C.E. v. Dunlop India Ltd., which discourage bypassing statutory procedures. However, the court noted that this contention should have been raised at the time of admitting the petition and that it would be unfair to dismiss the petition on this ground after several years of litigation.

Conclusion:
The court concluded that the petitioners were independent manufacturers and not agents of the third respondent. The Assistant Collector's order was found to be based on incorrect reasoning and was thus invalid. The petitioners were entitled to the exemption under Notification No. 208/77. The rule was made absolute in terms of prayers (a) and (b), and the bank guarantees furnished by the petitioners were ordered to be discharged and canceled. There was no order as to costs.

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