By TIOL News Service

MUMBAI, MAR 15, 2015: THE appellant is engaged in the activity of interior decoration at the premises of their clients as per their requirements.

Based on an intelligence that the appellant has ‘manufactured' various items of furniture for M/s. Unit Trust of India, Belapur, Navi Mumbai, without obtaining CE registration and without payment of excise duty and without following any CE procedure, a case was booked and after issue of SCN an order came to be passed by the CCE, Mumbai-VI confirming the demand and imposing penalties and interest. The period involved is June 1995 to October 1995.

The appeal(s) were initially rejected by the Tribunal on the ground of non-prosecution but the Bombay High Court remanded the matter for decision on merits.

The appeal was heard some time back.

The appellant submited that the carpentry work awarded to the appellants by Unit Trust of India (UTI) was sub-contracted to independent contractors to carry out the work as per specification given by the architect appointed by UTI; that they dealt with these sub-contractors on principal to principal basis; that if their activity is termed as manufacture of furniture, then the sub-contractor is liable to pay duty on the furniture manufactured by the sub-contractor. [Agreements between the appellants and sub-contractors, invoices raised by the sub-contractor and TDS certificates of the sub-contractors produced]Case laws cited in the matter of merits, limitation, penalty, interest are AFL Pvt. Ltd.; Basant Industries - 2002-TIOL-167-SC-CX, Louis Shoppe - 2002-TIOL-126-SC-CX, Craft Interior Ltd. - 2006-TIOL-142-SC-CX, HMM Ltd. 2002-TIOL-450-SC-CT, M.P. Tapes - 2002-TIOL-451-CESTAT-BANG, Lal Mining Engineering - 2007-TIOL-157-SC-CX. Amrit Foods - 2005-TIOL-164-SC-CX.

The AR inter alia submitted that the appellant, during the course of investigation, did not mention about the existence of any sub-contractor and did not produce the contracts/agreements and proof of payment to the sub-contractor; Only a sample TDS certificate was produced and in the certificate also it was shown as labour contractor; As the power, place and raw material were supplied by the appellant themselves, therefore, the appellant was the manufacturer and the sub-contractor was only a labour contractor. The AR also doubted the existence of the contracts on the ground that all the contracts produced were exactly the same & only the names and addresses are filled by ink pen. In the matter of limitation, the AR submitted that Shri Kularia has admitted that the furniture items manufactured by them are chargeable to central excise duty and paid Rs.15 lakhs during the course of investigation itself; if they had any doubt, they should have approached the department for clarification which they have failed to do so.

The Bench noted that the following issues are required to be dealt:

(a) Whether the appellants are manufacturers or not;

(b) Whether the extended period of limitation can be invoked in the facts and circumstances of the case, and

The Member (J) observed -

++ The facts of this case are similar to the case of AFL Pvt. Ltd.. The only difference is that in that case power was not supplied by the contractor to the sub-contractor, but in this case power has been supplied by the client himself to the contractor. Therefore, the same was transferred to the sub-contractor, but as per the agreement entered into between the appellant and the sub-contractor, they are doing their activity on principal to principal basis and the sub-contractor was responsible for any defect and if work is not as per the specification given to them. The appellant was not having control over the labour of the sub-contractor. In these circumstances, the sub-contractor is the manufacturer .Therefore, the demand of duty is not sustainable.

++ We find that in the show cause notice there is no allegation against the appellant that the appellant has not paid the duty by way of willful misstatement or suppression of facts or having mala fide intention not to pay central excise duty in contravention of the provisions of the Central Excise Act/Rules. In these circumstances, again we hold that, as held by HMM Ltd. (supra) , the extended period is not invokable, hence the demands raised in the show cause notice are barred by limitation.

++ We find that the demand pertains to the period June 1995 to October 1995. At that time the provisions of Section 11AB and 11AC were not in force, therefore interest and penalty are not leviable as held by the Hon'ble Supreme Court in the case of Lal Mining Engineering Works (supra) .

In fine, the demand confirmed was held to be not sustainable. Consequently, interest and penalty on the appellant and penalty on the co-appellant was also held to be not sustainable. The appeals were allowed with consequential relief.

The above were the views of the Member (Judicial).

However, the Member (Technical) recorded a separate order by noting that his views on the first issue are at variance with that of Member (Judicial)

The Member (T) inter alia observed -

++ It is to be seen that during the investigation, statement of Shri N.D. Kularia was recorded and during this statement, he never mentioned about the existence of any sub-contractor and accepted that they are the manufacturer. However, after the issuance of show cause notice, appellant claimed sub-contractor. However, no details or copies of such agreement were produced. For the first time, they produced copies of agreements before this Tribunal. I have gone through the said agreements. All the six agreements are identically worded. Only the name of the sub-contractor is to be filled later on. The basic thing in an agreement of this type would be the scope of work or what the sub-contractor is expected to do. There is no such thing in the contract. The contract does not say which floor or what work is required to be done. I have also gone through the sample copies of the invoices produced by the appellant. It is seen from the sample copies that the subject itself talks of bill for carpentry labour charges.It is also seen from the details given in all such bills that lot of things cannot be considered at all as manufacturing, for example, charges for fixing door closers, fixing door handles, fixing wooden door knob, fixing wire manager, fixing locks etc. A perusal of these invoices leaves no doubt that the sub-contractors were nothing but hired labourers who were expected to do certain jobs as per the direction of the appellant. …Under the circumstances, I am of the view that the sub-contractors were nothing but hired labourers and the appellant was the manufacturer of the goods.

++ The facts of the case of AFL Pvt. Ltd. (supra) are not at all applicable in the present case.

++ In the present case, labour contractors were nothing but persons who have done the carpentry job.

++ In my view, in the facts and circumstances of the case, particularly when the agreements were not produced during the investigation and the agreements produced before the Tribunal do not even speak anything about the scope of the work and the invoices produced very clearly indicate that the invoices are from labour contractor and are for carpentry labour charges, the appellant only can be considered as manufacturer. This will also be keeping in line with the practice for such industry.

Nonetheless, the Member (T) observed that as far as the other issues are concerned, he is in agreement with Member (J).

In fine, the appeals were allowed on limitation.

(See 2015-TIOL-479-CESTAT-MUM)