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TMI Blog2001 (4) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... s a Director of EIPL and also the partner of EBFW. M/s. EIPL and M/s. EBFW apart from manufacturing furnitures, undertook contracts of interior decoration also. The customers would come to these units. They would explain their requirements. These two units would assess their requirements and give quotations. The materials required would be communicated to M/s. EE who would supply the requested materials like wood, flanges, paints, fabrics etc. Part of the work would be done in the factories, and part of the work was done on the site by labour contractors using the material supplied by M/s. EE. At the site, furniture, partitions, panels, false ceilings etc. would be manufactured and erected. Labour bills would be raised by the units on the customers. 3.The jurisdictional Excise officers searched on 29-7-1997 these 3 premises and seized certain records. Statements of the persons in charge of the three units, their contractors and some of the buyers were recorded. Some furniture was also seized. On the conclusion of investigation. Show Cause Notice dated 3-4-1998 was issued. It was alleged that both EIPL and EBFW manufactured goods in the same Gultakadi premises. They had, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e suppression etc. was made for invoking the extended period in terms of proviso to the Section 11A(1) of the Central Excise Act, 1944. 6.The duty evaded was quantified at Rs. 1,04,96,115.68. Allegation as to penalty were made. The furniture seized as also the land, building etc. were alleged to be liable to confiscation. 7.The Noticees filed their replies. They denied the allegation as to commonality and unity of the 3 units. It was argued that they were not the manufacturers but that the carpenters and contractors who manufactured the goods at the site of the customers were the manufacturers. On this ground it was denied that any liability could accrue to the Appellants' units. As regards the manufacture done by M/s. EIPL and M/s. EPFW, it was claimed the respective clearances were within the permissible limits of duty-free clearances under the Notifications. It was further claimed that in computing the value of clearances the goods affixed to the earth should not be taken into account. A claim was also made that the furniture was handicraft and was, therefore, not taxable. It was claimed that individual units dealt with their contractors as also among themselves on the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In establishing the identity of the manufacturer, during those early years the emphasis was placed on the ownership of the goods. Thus in a landmark judgment of the Supreme Court in the case of Shree Agencies v. S.K. Bhattacharjee (1977-1) E.L.T. - J (168), the Supreme Court was examining the entitlement of the Appellant to a notification which exempted the products of a number of powerlooms grouped together. The yarn was given to the powerloom operators for weaving into cloth. On record it was shown that the yarn was purchased by the powerloom owners but in reality the ownership continued to vest with the master weaver. Although only the job charges were paid to the weavers, the Supreme Court held that interest in the yarn remained with the master-weaver throughout and also observed that the billing and transport charges were paid by him. In this situation the master weaver was held to be the real manufacturer although the physical manufacture was done by other persons. The same line of reasoning was followed by Supreme Court in their judgment in the case of Bajrang Gopilal Gajabi reported in [1986 (25) E.L.T. 609]. 13.But with the increase in scale and also the increase in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinguishing features between "Hired labour" and "Independent job worker" is necessarily dependent upon the nature of relationship between the person who entrusts the job and the person who executes the job. If it is in the nature of agency then the first person would become the manufacturer. If it is in the nature of Principal to Principal then the executor becomes the manufacturer. 17.During the evolution of this law, a number of disputes over valuation developed. The existence of two manufacturers - one in law and one in fact created hundreds of disputes. The dispute was finally laid to rest by the Supreme Court by their judgment in the case of M/s. Ujagar Prints Ltd. and Others (supra). 18.The first issue for decision in this case is the identity of the manufacturer of the furniture. Where the furniture is manufactured by a manufacturer in his own premises, then there would be little dispute as to his identity as the manufacturer. The difficulty arises where a person takes orders for the manufacture of furniture. He thereafter gives a contract for manufacture of the furniture to another person. In that circumstance, the claim made by the first person is that not he, but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21-8-1994 is also on record. In yet another undated memorandum even the name of the unit giving order to Shri Hussain Shaikh for work to be done for Mr. Braganza is not appearing thereupon. It is emphasised that these extracts and illustrations are from the material relied upon and emphasised by the Appellants. The material makes it very clear that payments were made by the Appellants to certain workers for certain action undertaken by them at the customer's site for the furniture being manufactured there. Thus, one person was entrusted with cushioning and another was entrusted with polishing. These persons were not working in concert but individually performing single operations which operations did not result in manufacture of furniture. Therefore, they were clearly hired labour performing single acts in the long chain of manufacture. 21.Affidavits have been placed on record by the so called contractors. We have seen the affidavits. The deponents are carpenters. The affidavits are identically worded. A typical affidavit is reproduced below : TRANSLATION OF AFFIDAVIT BY MAHADEV MUNGARE, CARPENTER I Mr. Mahadey Mungare aged 52 residing at Vitthalwadi, Pune 51 business Carpent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was visited. At their recommendation, Shri Jawalgi went to Ekbote Interiors to select raw material which was supplied to him. As per his statement he appointed a team of carpenters to make the furniture as per Mr. Ekbote's recommendations. He, however, qualified the statement by saying that it was the responsibility of Shri Ekbote to constantly monitor the supply of raw materials and constantly monitor the actual making of the furniture at site. The payment shown by him are Rs. 1,40,000/- to Ekbote Interiors for "Consultation, polishing, painting etc.", Rs. 2,60,000/- to Ekbote Enterprises for "Raw materials" and Rs. 30,000/- to one Jagtap Gawde as "Labour charges". He further avers that he did not know the workers personally but had made the payment to them "After getting the information from Shri Mohan Ekbote". When he was shown documents made out as if it was he had asked M/s. Ekbote Interiors to paint, polish etc. he showed total ignorance. 25.The pattern of payments made the amounts received by the "designers" as compared to those received by the "Contractors" and the existence of constant supervision on the two workers by M/s. Ekbote Interiors would show that the workers w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site of the customers. 29.Considerable space was devoted in the proceedings to the type of invoice. Type 'A' invoices were issued where the Appellant manufacturers had manufactured the furniture entirely in their own units. Invoices of other types were issued where the work was done at the site of the customers. The total payment made by the customer was split into heads such as consulting, material, labour etc. and separate billing was accordingly made. The Appellants before the Commissioner and before us also claimed that invoices of type 'A' would alone would qualify for computation of the value of the furniture made by the Appellants. However, in view of our findings above to the effect that M/s. EPIL and EPFW were the manufacturers, segregation and different nomenclatures of the invoices does not have any meaning. 30.Where the furniture was made at the customer's premises, the material was supplied by M/s. E.E. it is claimed that in not all cases the supply was made by E.E. but in certain cases the customers had purchased the raw material from outside. It is not denied that the material sold by M/s. E.E. was specifically for the purpose of manufacture of furniture. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the furniture was purchased from EIPL although the orders were split into purchase or raw materials, labour etc. However, the fully furnished furniture was received by them. Similar depositions were made by other industrial buyers. 35.The allegations of unity of two or more manufacturing units are frequently made. There is a very substantial case law laying down the parameters on which the clubbing is to be established. 36.The leading Judgment is that of the Tribunal in the case of J.N. Marshall Pvt. Ltd. v. C.C. Pune, 1997 (19) RLT Pg. 71. In para 11, the Tribunal observed as under : "What we understand from the above decisions is that regard must be had to all the circumstances established in a given case but emphasis must be on common control of production and sales or on management control and special financial relationship existing between the units or profit sharing or financial flow back. If the combination of circumstances create a pattern indicative of the clearances from the plurality of units being made by "a manufacturer" clubbing is warranted." 37.This judgment has been followed in a number of cases thereafter including that of Metapack and others - 2040 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut at a later date took the plea that the difference was on account of Trading activity necessitated by resale of goods. The later justification does not answer the discrepancy at all. The discrepancy is due to the fact that in bifurcating the sales etc. figures, due care was not taken. 45.The show cause notice in paragraphs 6.5.2 discloses the minutes of the meeting held in 15-11-1996. These minutes were among the seized documents. These minutes gave specific instructions as to the manner of taking orders. It divided the work between the show room and the factory. It instructed the manner in which the buyer was to be billed. The last clause said : "In respect of all orders to be received henceforth material bill will be issued from EB and labour charges will be issued from showroom". They were very clear, very terse and were expected to be obeyed without default. The instructions did not specify any particular unit but applied to all units. When Eknath Ekbote was specifically asked about the universal application he said that they were for educating all concerned about the business transactions. These instructions reveal the common control exercised by Mr. Govind Ekbole ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial Proforma Invoice/Regular bill issued from Showroom of Enterprises will go to factory along with labour work order. (vi) Signature of Customer should be obtained on material bill and bill handed over to the customer. (vii) While giving delivery of the Order "Polishing Authority" will be along with the challan (Delivery Challan). The running labour charger bill pertaining to goods being delivered will remain along with the order (labour charge order). The meaning of the advise is obvious in that it suggests the manner in which the facade was to be created to hide the fact that all units were infact one and to project the separate existence of the units. 50.Thus, an elaborate scheme was drawn up by the Appellant to escape the duty net as has been observed by us above. In the impugned order the Commissioner has discussed how the pattern shown on paper by the present Appellant was insufficient to mask the reality. It has come in the evidence that after the goods were manufactured at the customer's place, they were brought to the units of the two Appellant manufacturers for finishing, polishing etc. The Commissioner relied upon the statement of some customers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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