Commissioner of C. Ex. and Cus. vs Mahyco Seeds Ltd.

B.B. Vagyani, J.—Heard.

The judgment, dated 23-8-2002 passed by the CEGAT in appeal filed by the respondent allowing the appeal, is the subject-matter of challenge of this Reference Application filed by the applicant.

The relevant facts for the purpose of disposal of this Reference Application are as under:

The respondent is engaged in manufacture of hybrid seeds. According to the applicant, the respondent is also engaged in manufacturing of cotton cloth bags. The hybrid seed is the non-excisable product whereas the cotton cloth bags are excisable product under Chapter Heading No. 6305.20 of the Central Excise Tariff Act, 1985. According to the department, the respondent uses to purchase cotton cloth and undertakes printing of cotton cloth. This cotton cloth is cut to the specified size of bags. The printed and cut cloth is then supplied for the purpose of stitching, as per the specifications supplied by the respondent. According to the department, the entire process is monitored and supervised by the respondent. The payment of the work is also made by the respondent through the main contractor. The stitched bags are collected and used by the respondent for the purpose of distribution of hybrid seeds. According to the Department, the respondent, therefore, is a manufacturer as defined under the Central Excise Act, 1944.

The respondent did not pay the duty. Hence, show cause notice was served on the respondent. The Department claimed the duty to the tune of Rs. 95,07,680/- for a period from April, 1996 to September, 2000. The show cause notice was replied by the respondent and denied the demand.

After hearing, the Commissioner, Central Excise, by judgment O-I-O No. 25/CEX/2001, confirmed the judgment and also levied the penalty u/s 11AB of Central Excise Act with interest.

Feeling aggrieved by the said order, respondent filed appeal before CEGAT. The appeal was registered as No. E/3856/2001. By Order, dated 23-8-2002, the CEGAT allowed the appeal of the respondent and quashed the judgment of the Commissioner.

The learned Standing Counsel Shri Godhamgaonkar for the petitioner submits that the entire approach of the CEGAT is erroneous and contrary to the well settled legal position. He further submits that the Reference is necessary in order to decide the concept of Manufacturer.

On the other hand, learned counsel Shri Shinde for the respondent strongly supported the impugned order.

The Commissioner, Central Excise and Customs, Aurangabad mainly relied upon the case of Bajrang Gopilal Gajabi Vs. M.N. Balkundri and Others, . In the said case, yarn was supplied to the powerlooms by one Tejpal for and on behalf of Gajabi. The cloth was manufactured from such yarn by the powerloom owners for and on behalf of Gajabi and the powerloom owners received only labour charges. Under the peculiar facts of that case, it was held that Gajabi was the manufacturer.

However, the CEGAT, relying upon the decision of Ujagar Prints Vs. Union of India (UOI), , allowed the appeal and set aside the order of Commissioner. On perusal of the impugned order, it is clearly seen that the raw material in the form of cut cloth, which is got printed, is given to other persons to stitch the bags. The supplier of raw material did not visit the premises where stitching work was done. The respondent had also no control over the process of stitching the bags. In the absence of control of the respondent, CEGAT observed that the respondent cannot be the manufacturer of cotton bags. The CEGAT has also observed that there was complete lack of appreciation of the facts and circumstances of the case by the Commissioner.

The Judgment of the Supreme Court in the case of Ujagar Prints (referred supra) is the judgment by Bench consisting of five Judges. The judgment in the case of Bajrang Gajabi (referred supra) is of Division Bench. Therefore, the CEGAT preferred to rely on the case of Ujagar Prints (cited supra) and allowed the appeal filed by the respondent. Under the circumstance, we do not think that this is a fit case for Reference. The impugned order passed by the CEGAT does not suffer from any illegality.

In the result, Reference Application stands rejected.