9911796707
TMI Blog2005 (4) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... North Eastern Tobacco Co. Ltd. (hereinafter referred to as N.E.T.) from their factory situated at Mizoram, had been ordered to be confiscated. As the same were not available for confiscation having been sold, the Commissioner had ordered the sale proceeds to be appropriated. Further, penalties have been imposed upon the various persons. 2.A very short point is involved in the matter. The dispute, whether the cigarettes in question carrying the brand name of M/s. GTC and manufactured in the factory of M/s. NET are to be held to be manufactured either by M/s. NET, or by M/s. GTC who entered into an agreement with M/s. NET for use of its brand name and for setting up of its factory. The main appellant company contended that the factory at Mizoram was set up by M/s. NET, though with the help of M/s. GTC. The findings of the Commissioner were that M/s. GTC were the real owner of the same. Thus the total duty was required to be paid by M/s. GTC. 2.1As per facts on record, M/s. NET was initially a Proprietary Concern. On 1-10-87, M/s. NET was re-constituted as a Partnership Firm of two Mizo Partner. Another company, M/s. Noth East Star Pvt. Ltd. also made a financial investment in M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the raw materials and also to provide technical staff to help in establishing the factory and in providing training to M/s. NET personnel. The consideration for all these services was a royalty, which M/s. NET was required to pay to M/s. GTC at the rate of Rs. 3/- per 1000 cigarettes. 2.4M/s. NET entered into another agreement with M/s. GISL, a subsidiary of M/s. GTC which provided that M/s. GISL will purchase the entire production of the cigarettes manufactured by M/s. NET. Subsequently, on the insistence of M/s. North Star, it was agreed that M/s. North Star would purchase 25% of the stock and the remaining 75% would be purchased by M/s. GISL. M/s. North Star also took an intercorporate loan of Rs. 10.00 lakh (Rupees ten lakh) from M/s. GISL, a part of which was disbursed and used to set up the infrastructure of M/s. NET by Shri Sukhani, M/s. NET has its own factory premises and other infrastructure for establishing the factory. It also obtained the necessary registration from the Department of Industries, Mizoram. With all arrangements in place, M/s. NET started manufacturing cigarettes. It is to be noted that the whole manufacturing activity lasted for fifteen days and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gradually begin to take interest, require technical knowhow and also develop incontinently produce necessary raw material, in the insant case, tobacco leaves, etc. before it could really develop and have is own manufacturing unit. The fact, therefore, that the GTC had provided all necessary technical collaboration for only a little over a month or so, in the facts and circumstances of the case, were not the only factors to be taken into consideration to come to the conclusion that NET was a front company of the Petitioner. We think that unless at least the aforesaid persons were examined, that matter could not have been properly understood and adjudicated, (emphasis supplied). We, therefore, think that the statement of the said persons were necessary for making proper objective assessment, from their statements that whether NET was a mere front company or that they had bona fide set up the manufacturing unit in collaboration with the GTC as was the petitioner s case. We have, therefore, no doubt that the statements of the said three witnesses who had set up the NET were necessary. 2.7On an appeal against the above order, the Hon ble Supreme Court sustained the order of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the owner of the brand name given permission to the manufacturer for the use of his brand name, he is entitled to certain safeguards such as the goods produced must be of certain quality and specifications commensurate to the brand name, that the manufacturer shall not sell the goods marked with such brand name to any other buyers and that the manufacturer shall maintain utmost secrecy about the technical assistance provided by the brand name. These safeguards do not make the brand name owner as the manufacturer. In this connection, M/s. GTC relies upon the decision of the Hon ble Supreme Court in the case of Pawan Biscuit Company Pvt. Ltd. reported in 2000 (120) E.L.T. 24 (S.C.) read with the Tribunal s Order in this case reported in 1991 (53) E.L.T. 595 (T). 3.2The second most important aspect is that the agreement dated 1-10-87 repeatedly refers to M/s. NET as the manufacturer and M/s. NET has entered into the agreement with M/s. GTC as a manufacturer and not as a dummy. It is also clear from the agreement that M/s. GTC is not giving technical assistance or use of the brand name gratis. Clause 17 of the agreement clearly provides that manufacturers shall pay the royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment dated 1-10-1987 do not reflect the correct state of affairs and that the real position is otherwise. The burden of proving that the agreement dated 1-10-1987 does not reflect the real state of affairs was clearly on the Department which it has not discharged. On the other hand, the show cause notice and the order themselves rely upon both the aforesaid agreements to support their findings. It may be pointed out at this stage that GTC has a large number of franchise units all over the country and none of them are being regarded by the Central Excise Authorities as dummy or other than a principal in spite of the fact that they have more or less similar agreements with GTC. 3.6There is no evidence to show that GTC had taken the initiative or conceived the idea of setting up a cigarette manufacturing unit in Mizoram. The entire initiative was taken by Mr. Sukhani and Sailo who had obtained the certificate from the Government of Mizoram regarding non-applicability of Central Excise law in Mizoram. GTC on being approached, simply provided the assistance required for setting up the unit. But, it did not put itself in the position of the owner of the unit or ever regarded the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not make NET dummy unit. The learned Commissioner has lost sight of the fact that in most of the cases of manufacture on job-work, the job-worker who is regarded as manufacturer makes much less profit than his buyer. But for that reason, the job worker does not lose his status as a manufacturer and is not considered a dummy. 3.10Although GTC provided various kinds of assistance to NET, it did not and could exercise any managerial or fiscal control over NET. 3.11The Commissioner erred in holding that NET manufactured cigarettes on behalf of or on account of GTC, NET was an independent legal entity. GTC was merely providing collaboration facilities. The mere involvement of GTC as a collaborator from the initial stages is not sufficient to conclude that NET was a dummy of GTC. Sukhani was not working on the instructions of GTC but was a Director of North Star which had its own independent interests. 3.12The Commissioner has imposed a penalty on GTC under Rule 209A of the Central Excise Rules. That rule does not refer to a manufacturer. The rule which is applicable to a manufacturer is Rule 209, 210 and 226, yet in the Order, penalty has been imposed under Rule 209A which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt decision, no penalty ought to be levied. The Tribunal also in a number of decisions has taken the view that no penalty is warranted where the issue involves interpretation of law. Further, no penalty can be levied on the finding that GTC and its functionaries did not independently verify the applicability of the Central Excise Act to the State of Mizoram. The appellants, therefore, pray that the Order of the Commissioner be set aside both in regard to demand of duty from M/s. GTC and levy of penalties on M/s. GTC and various individuals. 4.Heard Shri R.N. Das, learned Senior Advocate along with Smt. Urmila Dutta (Sen), learned Advocate for the Revenue. Shri Das has read out extensively from the Annexure to the Show Cause Notice. He has submitted a Written Brief, which is taken on record. His main contentions are as follows: - 4.1On 1-10-1987, M/s. NET was formed as a partnership firm with two local Mizo people, having no financial resources and no experiences on manufacturing and sale of cigarette. 4.2On 1-10-1987, M/s. NET, which was not in existence prior to this date, granted a General Power of Attorney in favour of Sri Ajoy Sukhani of M.G. Marg, Gangtak, Sikkim and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T by way of supplying plant and machinery and by engaging skilled and unskilled man power and also supplying the raw materials, technical knowhow, and brand name for the product and was the actual manufacturer of cigarette. It is also significant to note that the labels of the GTC brand cigarette manufactured at M/s. NET s factory, which were seized by the Department, contained the printed code number of M/s. GTC, Chennai factory. 4.12.Thus by applying the doctrine of lifting the veil as enunciated in the Hon ble Apex Court s judgments reported in 1986 (3) SCC 230 and 1998 (99) E.L.T. 202, it becomes clear that if the veil is removed. It will be seen that M/s. GTC was at the helm of affairs in setting up and running the unit at Vairenggate, from which it can be concluded that M/s. GTC was the actual manufacturer of cigarette at Vairenggate and M/s. NET was only a dummy. 5.We have heard both sides. We find that there was no dispute that cigarettes were manufactured and cleared without payment of duty and the same are liable to be confiscated. Since no duty has been paid, the demand of duty has to be confirmed. The question arises - against whom? The Revenue s case is based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ana appearing on behalf of the 8. department submitted that the show cause notice alleges that the goods are manufactured by the appellants on behalf of the BIL. It is also alleged that the goods are manufactured according to the specification and quality of Britania and that the goods are only delivered to BIL who sells the goods in wholesale. It is also alleged that BIL are not buyers and they are getting the goods manufactured as per their own conditions and specification out of their own raw material with the help of labour and the machinery of the appellants. The appellants were requested to produce documents relating to overhead administrative charges and margin of profit. It is alleged that since the goods are manufactured by Pawan Biscuits on behalf of the BIL and since goods are not sold by Pawan Biscuits to BIL the assessable value should be the wholesale price of Britania. In reply to the show cause notice Mr. Asthana submitted, that the appellants did not furnish any documents as required. However, they invited attention to their so-called conversion agreement and claimed determination of the value on the basis of Supreme Court s decision in the case of Ujagar Prints. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Supply of equipments by the buyers for manufacture of goods such as cutters etc.; (v) Vesting of profit in the buyer immediately on manufacture; (vi) Number of restrictions and specifications subject to which the goods were manufactured; and (vii) Obligation to BIL (Britannia Industries Ltd.) all accounts, records and other documents maintained by Pawan Biscuits. 5.1.However, on appeal, the Hon ble Apex Court in the above case, has held that biscuits manufactured by the appellant company, M/s. Pawan Biscuits, were raw materials supplied by M/s. Britannia Industries Ltd. and after the biscuits were made, they were given back to or were delivered under the instructions of Britannia. In this connection, Hon ble Supreme Court in the case of Pawan Biscuits Co. (Pvt.) Ltd. v. Collector of Central Excise, Patna reported in 2000 (120) E.L.T. 24 (S.C.), has held as follows:- The present case is similar to 16. Ujagar Prints case. In Ujagar Prints case, it was the grey cloth which was given to the processor whereas in the present case it was the raw material for the manufacture of biscuits given to the appellant. After the biscuits are made, they are given back to or are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of the collaboration agreement, by itself, are not sufficient to hold M/s. GTC as a manufacturer. The Hon ble Supreme Court in the case of Mahendra and Mahendra reported in 1995 (76) E.L.T. 481 (S.C.) and in the case of Mirah Exports reported in 1998 (98) E.L.T. 3 (S.C.), has held that ordinarily the Court should proceed on the basis that the apparent tenor of the agreement reflects the real state of affairs and has to examine whether the Revenue has succeeded in showing that the apparent is not the real. 5.3We find that in the present case, the Department has not brought any evidence to show that terms of the agreement dated 1-10-87 do not reflect the correct state of affairs and the real position is otherwise. The burden of proving that the agreement dated 1-10-1987 does not reflect the real state of affairs, was clearly on the Department, which has not been discharged by them. On the other hand, the show cause notice by way of relying upon the aforesaid agreement does not support the findings made in the Order passed by the Commissioner in the instant case. 5.4We also find that in the case of Mirah Exports Pvt. Ltd. v. Collector of Customs reported in 1998 (98) E.L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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