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TMI Blog1977 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer. These resins were to be manufactured as per the buyer s standard and they were to be supplied at prices which were to be agreed upon between the seller and the buyer from time to time. The buyer was, under the contract, given a right to test a sample of each batch of these goods and it was only on approval by the buyer that the goods were to be released for sale to the buyer. The agreement obtains at present. A similar agreement took place between the buyer and the seller on June 1, 1975 in respect of Epoxy Resins; and the terms of this agreement are similar to the terms of the earlier agreement. It appears that in relation to the products to be manufactured under these two agreements said to be sold to the buyer use of certain trade-marks was to be made which trade-marks were the property of the foreign company i.e. Ciba of Basle. Therefore, on December 7, 1971 a tripartite agreement came to be made between the buyer, the seller and the foreign company in respect of the four trade-marks viz. Aerolite, Melocol, Melolam and Dresicart. The foreign company which was the owner of these trade-marks as well as the seller recognised the buyer as the registered or licensed user ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity to the seller to be heard, the Central Government set aside, the orders in appeal passed by the Collector and restored the orders of price approval passed by the Assistant Collector. As refund of certain amounts arising out of the Collector s order was already sanctioned to the seller, the seller was directed to repay that amount to the department. It is this order at Annexure `P dated July 30, 1975 passed by the Central Government which is challenged in the present petition. 4. The Central Government held the buyer to be the manufacturer of the goods in question, and therefore, restored the orders passed by the Assistant Collector. The short question which arises for determination in this petition is : who is the manufacturer of these goods covered by the aforesaid agreements, and whether the Central Government has committed an error of law in holding that the buyer and not the seller was the manufacturer ? 5. It appears from the impugned order, more particularly from paragraphs 11, 12 and 13 thereof that for the purpose of arriving at its decision, the Central Government relied upon the following considerations: (1) Even if the buyers do not supply any raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : * * * * The definition of manufacture for the purpose of examining the aforesaid question can be divided into two parts. The first part would read manufacture includes any process incidental or ancillary to the completion of a manufactured product; .. . . . and the word manufacturer shall be construed accordingly; shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engage in their production or manufacture on his own account . 7. At the hearing of this petition, it was conceded on behalf of the respondents that it relied upon the second part of the definition of manufacturer and more particularly the latter portion thereof which contemplates a person who engages in the production of the excisable goods on his own account. The contention on behalf of the Respondents was that on the basis of the aforesaid features on which the department relied, the buyer would be a person who engaged itself in the production of the goods covered by different contracts on its own account; and that the seller in dispute that the first bipartite agreement between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks and not by the seller. The seller agrees not to sell or otherwise deal in, directly or indirectly, goods bearing the said trade marks or any other marks similar thereto save and except for the explicit purpose of fulfilling seller s obligations under the agreement dated the 24th March, 1971 and not otherwise. 9. Clause 3 confers on the buyer a right to revoke the authority given to the seller under Clause 1 for the purpose of affixing the said trade marks without assigning any reason. We have already reproduced the factors taken into consideration by the Central Government for arriving at its conclusion different from that arrived at by the Appellate Collector and on that basis for reversing the orders of the Appellate Collector and those of the Assistant Collector. The first consideration or the reason was that the goods are manufactured on behalf of the buyer only and this reasoning was sought to be fortified by the term of the consequential agreement as to the affixing of trade marks. The reason further stated that once the trade mark of the buyer was affixed, the goods are sold in the market as those of the buyer. In our opinion, in arriving at the conclusion that the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reproduced : In the very nature of things, in the manufacture of chemicals from time to time for diverse reasons the goods are not in accordance with the said quality. Such instances have occurred on several occasions in the past. Whenever such instances have occurred, we are left with four alternatives viz., (i) to reprocess the goods to bring them up to the requisite quality, if possible, (ii) if that is not possible to sell the goods to the buyers for a different purpose, if they are compatible with the specifications of a different product and provided that the buyer has a need for that product, (iii) sell the said goods to other as sub-standard goods at a lower prices, (iv) destroy them. On several occasions in the past, we have been compelled to adopt each of the aforesaid alternatives ...... The fact that the buyers had a right to reject goods and the fact that the buyers have exercised this right conclusively proves beyond the shadow of a doubt that we and the buyers are totally different entities and that it cannot possibly be suggested that we are merely a manufacturing extension of the activities of the said buyers. This statement of fact has not been controv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the buyer and not on his own account. This would only show that the seller did the work of affixing the trade mark on the goods not on his own account but an agent for and on behalf of the buyer. 11. The seller could not use the said trade mark in view of the said clause for any other purpose or on account of any one else other than the buyer. It is not understood how this clause had anything to do with the question whether the buyer was the manufacturer of the goods in question. In the facts of this case we find that this factor which entered consideration of the Central Government for arriving at its ultimate conclusion was not a relevant factor at all. It was urged on behalf of the department that the term in this clause that the said trade mark shall be used or deemed to have been used exclusively by the buyer and not by the seller, will show that the goods in question were manufactured by the buyer. The attempt was to show that as a result of affixing of the trade mark, a distinct product known to the market by the name of the trade mark comes into existence as a manufactured product. For that purpose following observation made by the Division Bench of this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods intended for sale. Those observations do not advance the case of the department in any way, because these observations also clearly show that the manufacturer would include not only a person who employs hired labour in the production or manufacture of goods, but also any who engages in the production or manufacture of goods on his own account if the goods are intended for sale. Some assistance was also sought to be derived on behalf of the department from certain observations made by the Supreme Court in S.B. Sagar Mills v. Union of India AIR 1968 Supreme Court, 922 at page 928 in Paragraph 14. These observations read as under : 14. The Act charges duty on manufacture of goods. The word manufacture implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods as the Act does not define goods, the legislature must be taken to have used that word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this definition speaks of a mark which has to be used in relation to the goods and the purpose of the trade mark is merely to indicate connection in the course of trade between the goods and the person having a right to use the trade mark. In fact, Section 9 of the said Act which prescribes requisites for registration of the trade mark, says that the trade mark shall not be registered in part A of the register unless it contains or consists of at least one of the following particulars, namely : (a)* * * * * (b)* * * * * (c)* * * * * (d) One or more words having no direct reference to the character or quality of the goods and not being, according to its ordinary signification, a geographical name or a surname or a personal name or any common abbreviation thereof or the name of a sect, caste or tribe in India : In this section also the words having no direct reference to the character or quality of the goods show that trade mark and manufactured goods are two distinct entities and one can exist without the other. In fact, it appears to us to be an impossible proposition to sustain that in this case the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements were made at arms length and in the usual course of business. 15. In the present case, it is not in dispute that the agreement in question were made at arms length and in the usual course of business. In the aforesaid decision, following an earlier decision of the Supreme Court in Union of India v. Delhi Cloth and General Mills, 1977 E.L.T. (J 177) it is laid down in Paragraph 21: The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely selling profit. It is not in dispute in the instant case that this test will have to be applied in the conclusion arrived at by us that the seller was the manufacturer. 16. It is obvious that as a result of striking down of the order at Annexure P ( in all the 15 matters, the orders passed in 15 appeals by the Appellate Collector will be restored; and as a result thereof, the petitioner would be entitled to the refund of excess amount of excise duty paid by it in accordance with the orders of the Assistant Collector. It is directed that the excess amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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