1987 (7) TMI 262 - AT - Central Excise

Issues Involved:
1. Interpretation of the term "factory" under Notification No. 80/80-C.E.
2. Determination of the "manufacturer" for goods produced by cottage industries.
3. Eligibility for exemption under Notification No. 80/80-C.E. based on aggregate value of clearances.

Detailed Analysis:

1. Interpretation of the term "factory" under Notification No. 80/80-C.E.:

The central issue was the interpretation of the term "factory" as used in Notification No. 80/80-C.E., dated 19-6-1980. The appellants contended that the term should be defined as per Section 2(m) of the Factories Act, 1948, which excludes premises where manufacturing is done by household ladies without the aid of power. However, the Collector of Central Excise argued that the term "factory" should be interpreted as per Section 2(e) of the Central Excises and Salt Act, 1944. The Tribunal concluded that since Notification 80/80-C.E. was issued under Rule 8(1) of the Central Excise Rules, 1944, the term "factory" should be governed by the definition in Section 2(e) of the Central Excises and Salt Act, 1944, in the absence of any specific provision in the Notification referring to the Factories Act, 1948.

2. Determination of the "manufacturer" for goods produced by cottage industries:

The appellants argued that they were not the manufacturers of the goods (Agarbatti, amlapodi, and dhup) produced by household ladies without the aid of power, as they merely supplied raw materials and paid wages based on the number of pieces manufactured. They contended that these cottage industries operated independently and the goods did not come to their factory premises. The Tribunal examined various precedents, including cases where it was held that mere supply of raw materials does not make the supplier the "manufacturer" if the dealings were on a principal-to-principal basis and the unit was not a dummy. The Tribunal agreed with the appellants, concluding that they were not the manufacturers of the goods produced by the cottage industries.

3. Eligibility for exemption under Notification No. 80/80-C.E. based on aggregate value of clearances:

The exemption under Notification No. 80/80-C.E. depended on whether the aggregate value of clearances of all excisable goods by or on behalf of the manufacturer from one or more factories exceeded Rs. 20 lakhs during the preceding financial year. The Collector had included the value of goods produced by the cottage industries in the total clearance value, thereby exceeding the Rs. 20 lakhs limit and disqualifying the appellants from the exemption. However, the Tribunal, having determined that the appellants were not the manufacturers of those goods, excluded the value of the goods produced by the cottage industries from the aggregate clearance value. Consequently, the total value of clearances from the appellants' factory during 1980-81 amounted to Rs. 18,09,873.00, which is below the Rs. 20 lakhs threshold, making the appellants eligible for the exemption.

Conclusion:

The Tribunal held that the order-in-original by the Assistant Collector of Central Excise was correct, legal, and proper. The appellants were entitled to the exemption from duty under Notification No. 80/80-C.E. for the financial year 1981-82. The impugned order-in-review by the Collector of Central Excise was set aside, and the appeal filed by the appellants was allowed.

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