1990 (8) TMI 172 - HC - Central Excise

Summary

Issues Involved:

1. Interpretation of exemption notifications under Central Excise Rules.
2. Determination of whether the petitioners are manufacturers under the Central Excise Act.
3. Legality of seizure and show cause notice issued by Central Excise Authority.

Issue-wise Detailed Analysis:

1. Interpretation of Exemption Notifications:

The petitioners argued that their activities are covered by the exemption notification issued by the Central Government. They contended that the HDPE woven sacks they stitch and print are not manufactured on circular looms, and hence, should be exempt from excise duty as per Notification No. 223/86-C.E., dated 3-4-1986, and its subsequent amendments. The respondents, however, interpreted the notifications to mean that HDPE woven sacks made from fabrics produced on circular looms are not exempt from excise duty, even if the final stitching and printing are done by the petitioners. The court noted that the interpretation of tax notifications must be based strictly on their language, without adding or subtracting any words, as established in various judgments cited by the petitioners, including Basf India Ltd. v. Collector of Central Excise and P.M. Abdul Latif and Others v. Assistant Collector of Central Excise.

2. Determination of Whether the Petitioners are Manufacturers:

The court examined whether the petitioners could be considered manufacturers under Section 2(f) of the Central Excises and Salt Act, 1944. The definition of "manufacture" includes any process incidental or ancillary to the completion of a manufactured product, and a "manufacturer" includes a person who employs hired labor in the production or manufacture of excisable goods. The court found that the petitioners only performed job work (stitching and printing) on behalf of their principals and did not engage in the production or manufacture of goods on their own account. Therefore, they could not be considered manufacturers. The court referenced the Supreme Court's decision in M/s. Shree Agency v. S.K. Bhattacharjee and Others, which held that an entity that does not own a factory but gets goods manufactured through others is not the manufacturer if the actual manufacturers have no interest in the production.

3. Legality of Seizure and Show Cause Notice:

The petitioners argued that the seizure of goods and the show cause notice issued by the Central Excise Authority were illegal and without jurisdiction. The respondents contended that the petitioners violated Central Excise Rules by not obtaining a Central Excise Licence, not maintaining statutory records, and not paying excise duty. The court concluded that since the petitioners are not manufacturers, they cannot be held liable for breaches of the Central Excise Rules. The court held that the confiscation of goods should relate only to the actual manufacturer and directed the revenue authorities to determine the actual manufacturer for any further action. Consequently, the show cause notice issued against the petitioners was quashed.

Conclusion:

The petition was partly allowed. The court held that the petitioners are not manufacturers and thus not liable for any penalty or violation of Central Excise Rules. The show cause notice issued against the petitioners was quashed, and the court directed the revenue authorities to determine the actual manufacturer for any further action regarding the seized goods.