1996 (4) TMI 319 - AT - Central Excise

Issues Involved:
1. Relationship between Indal and LME: Principal to Principal or Independent Manufacturer.
2. Liability for Excise Duty.
3. Imposition of Penalties on Indal and LME.

Detailed Analysis:

1. Relationship between Indal and LME: Principal to Principal or Independent Manufacturer

The primary issue in the appeals was to determine whether the relationship between Indal and LME was on a principal-to-principal basis or whether LME could be considered an independent manufacturer for excise purposes. The learned Counsel for the appellants argued that Indal supplied aluminum rods to LME for the manufacture of extrusions on a job work basis. The material supplied by Indal was not related to any specific order but was based on the average quantity required for manufacturing extrusions. LME charged Rs. 6 per kg for conversion and additional packing charges. The goods manufactured by LME were cleared on gate passes issued in the name of Indal and supplied directly to Indal's customers. The Counsel emphasized that LME was a separate legal entity, not controlled by Indal, and functioned independently. He referred to the memorandum of understanding (MOU) between the two parties, which described LME as the contractor and Indal as the owner. The MOU stipulated that scrap and rejections should be kept to a minimum, and there was no clause indicating that LME was an agent of Indal.

2. Liability for Excise Duty

The learned DR for the department contended that the nature of the relationship and the mode of transaction indicated that LME could not be considered an independent entity. Indal supplied raw materials to LME without any specific order, and the materials were stored at LME's premises. The goods were removed under delivery challans and gate passes issued in Indal's name, and Indal had an office within LME's premises. The DR argued that Indal was responsible for quality control, insurance, and other aspects, indicating that LME was merely performing labor work. The lower authority had taken note of various statements from employees of both Indal and LME, which supported the view that LME functioned more like a branch of Indal. The raw materials were supplied on a stock transfer basis, and LME was paid a fixed conversion charge without reference to the nature of extrusions. The finished goods were dispatched under Indal's invoices, and there was no rent paid for the godown at LME's premises. The absence of specific clauses in the MOU regarding liability for material loss or percentage of extrusions further supported the conclusion that LME was not an independent manufacturer.

3. Imposition of Penalties on Indal and LME

The Tribunal observed that LME was functioning more like a branch of Indal, performing labor work for fixed charges. The control over production and dispatch was exercised by Indal, and there was no specific order book for the raw material supplied. The MOU did not include clauses for price variation or penalties for not achieving specific production percentages. The Tribunal concluded that Indal was the manufacturer for excise purposes, and the duty demand was correctly made. However, considering the facts and circumstances, the Tribunal decided to reduce the penalties. The penalty on Indal was reduced to Rs. 1.00 lakh, and the penalty on LME was reduced to Rs. 50,000. The appeals were otherwise dismissed.

Conclusion

The Tribunal concluded that Indal was the manufacturer for excise purposes, and the duty demand was correctly made. The penalties on Indal and LME were reduced to Rs. 1.00 lakh and Rs. 50,000, respectively, but the appeals were otherwise dismissed. This judgment emphasizes the importance of the nature of the relationship and the mode of transaction in determining liability for excise duty.

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