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TMI Blog1996 (3) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxable turnover at Rs. 16,136.88 which was subsequently rectified substituting the total turnover relating to bottles used for filling liquors by Rs. 2,14,977.45 in place of Rs. 2,41,977.45 as originally assessed. On May 3, 1986, the Commercial Tax Officer (Intelligence) inspected the business premises of the respondent. Thereafter, on processing of the documents seized thereto, reopened the proceedings under section 12A of the KST Act and made an order on August 19, 1989. He also revised the assessments made both under the KST and CST Acts. The revised total turnover as redetermined was at Rs. 26,50,28,634.69. For purpose of CST Act, an order was made on August 19, 1989 under section 9(2) of the CST Act read with section 12A(1A) of the KST Act levying penalty in a sum of Rs. 40,00,000. The matter was carried in appeal. The appeal was allowed in part while the penalties were set aside. The matter was carried in further appeal to the Tribunal. The Tribunal allowed the appeal of the respondent as stated earlier. Hence, this petition which is filed on behalf of the State. 3.. It is urged on behalf of the petitioner that the true nature of the transaction between M/s. India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Karnataka Excise Act. There are certain definition clauses in the agreement. Spirit is defined as potable alcohol spirit manufactured and distilled out of molasses and in accordance with the specifications and tolerances specified in appendix A to the agreement. Distillery is defined to be the distillery run by the IBDL at Hallikhad in Bidar District and also includes the potable liquor manufactured and/or other distillery at any other place as may be mutually agreed upon by the parties from time to time. IMFL products would mean products manufactured by IBDL under the agreement for supply to Shaw Wallace and Company, that is, respondent herein, consisting of the spirit as defined earlier and blended and bottled in accordance with the provisions of the agreement. Clause (2) provides, IBDL will manufacture spirit at its distillery in such quantity as may be required by the parties subject to a minimum of 3,50,000 bulk litres in a calendar year for the purpose of utilising such spirit for the IMFL products to be marketed by Shaw Wallace under the trade name of Shaw Wallace or such other trade name or names as Shaw Wallace may determine. It is also agreed to between the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the distillery. Blending will be done after the quality of the spirit is accepted by Shaw Wallace. Once the blending is completed, India Brewery Distillery will not be liable to Shaw Wallace for the quality of the spirit which shall be deemed to have been accepted by Shaw Wallace. Clause (9) provides that IBDL will reduce the spirit to the required strength for which purpose demineralised water is used which conforms to the specifications and tolerances mentioned in appendix B which thereafter will be stored either in an anodized aluminium tank or in a stainless steel tank. Clause (10) is also very important from the point of view of finding the nature of the transactions between the parties. Therefore, we set out clause (10). India Brewery Distillery shall for and on behalf of Shaw Wallace manufacture IMFL products from the spirit supplied hereunder to Shaw Wallace by India Brewery and obtain at its cost such licences as may be necessary for the manufacture, blending, bottling, sale and delivery of IMFL products to Shaw Wallace and this will include cost of obtaining export/transport permits to despatch to various destinations from the distillery. All excise formalitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complying with the excise formalities which shall be the responsibility of IBDL which will include the registration of the labels, for manufacture, blending, bottling and supplying of IMFL products to the respondent. Clause (25) provides for the price at which the respondent would purchase IMFL products from IBDL which is Rs. 27 per case for products produced with rectified spirit and Rs. 31 per case for products wholly produced with extra neutral alcohol. The price is also inclusive of sales tax, excise duty, export fee, octroi, insurance, excise escort charges and other tax or duty as may be applicable or that may become applicable from time to time. It also provides therein, except as provided elsewhere, losses until the IMFL product leaves the distillery will be on account of IBDL. There are the usual indemnity clauses provided, delivery schedule and provisions relating to packing under clauses (26), (27) and (28). Clause (29) provides for reprocessing and is of importance in the interpretation of the agreement. Therefore, we reproduce the said clause: Re-processing: If any IMFL product is declared unsaleable in any State of India owing to its being understrength then I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale in IMFL with reference to the concept of supply of principal material . The value of essence supplied by the respondent is insignificant in value and such an action aimed at guarding their secrecy relating to various brands cannot be deemed to be a manufacturing activity of IMFL and to presume purchase of spirit. Under the excise enactment, IBDL was authorised only to sell IMFL and not spirit and what is manufactured and sold by IBDL to the respondent was not spirit but IMFL. Reference was made to the decision of the Supreme Court in Joint Secretary to the Government of India v. Food Specialities Ltd. AIR 1986 SC 685 that the value of the goods sold by the manufacturer to the trade mark owner constitutes the value for the purpose of excise duty. Reference was also made to the decision in the case of Union of India v. Cibatul Limited AIR 1986 SC 281 which action arose under the Central Excises and Salt Act, wherein it was held that though the goods were manufactured to the programme drawn by the buyer and the seller and the buyer was obliged to purchase the goods if it conformed to buyer s standard, the seller will have to be treated to have manufactured the goods on his own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of IMFL to the standard set by the respondent and therefore, there is no camouflage in the nature of the transaction indicated in the agreement. Therefore, it is contended that there is no substance in the contention advanced on behalf of the State. 8.. From the terms of the agreement, it is clear IBDL will manufacture spirit for the purpose of utilising the same for IMFL to be marketed by the respondent under its trade mark. One part of the agreement relates to manufacture of spirit in the distillery of IBDL. There is necessary infrastructure and facilities to manufacture spirit. On the manufacture of spirit, respondent through its technical representative, gets it checked and tested regarding the quality of spirit and in the event any defects are found, the same would be rejected which IBDL undertakes to take back the spirit and supply spirit of quality acceptable to the technical representative. Once such quality of spirit as approved by the technical representative is manufactured, the respondent s representative would do the blending by utilising the essence provided by the respondent. Blending will be done after quality of spirit is accepted by the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles or sedimentation or if it is not of the required strength and it is only in cases of sedimentation or for other reasons they have to take back the stock and examine the causes of such sedimentation and apportion the cost for taking back the same and reprocess the same. When these are the terms under which the goods are manufactured, it becomes clear the quality prescribed is only towards the work done by IBDL for and on behalf of the respondent. Manufacturer has absolutely no control over such goods. Therefore, the principle laid down in Cibatul s case AIR 1986 SC 281 cannot be applied to the facts of this case. The next decision relied upon by the learned counsel for the respondent is Central India Machinery Manufacturing Company Ltd. s case [1977] 40 STC 246 (SC). In that case, the raw materials consisted of three categories in the manufacture of wagons. While the first category was admittedly the property of the railways, the third category thereto was at all times, the material of the company. The controversy was only in relation to raw material such as steel, against which advances were made. There were certain special conditions provided in the agreement thereto and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract. 11.. It is urged on behalf of the respondent, the respondent wanted proper quality of IMFL maintained and at the same time maintain secrecy so far as the essence supplied by it and therefore, the terms in the clauses were used in the manner referred to by us. Even assuming that to be correct, it would not necessarily follow that there has been sale of IMFL by IBDL to the respondent. The mere fact that the respondent need not hold licence for the manufacture of IMFL would not carry the matter far. The respondent themselves need not hold any licence, anybody who acts on their behalf holding such licence would be sufficient for them. Therefore, the argument advanced on behalf of the respondent that they did not hold licence and therefore, did not manufacture IMFL will be of no significance to the respondent. Therefore, these revision petitions are allowed. The order made by the Tribunal is set aside. However, we cannot make any order except what has been done by the first appellate authority in these cases inasmuch as against the order made by the first appellate authority, no appeal had been preferred by the Revenue to the Tribunal. As a consequence, the order made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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