Industrial Linings, Bombay and another vs Union of India and others

The petitioners are engaged in the business of rubber-lining/re-rubber-lining of tanks, vessels, rollers, etc, at their factory at Bombay. They claimed exemption under Notification No. 176/77, dated 18th of June, 1977, but the same was rejected by the Assistant Collector of Central Excise, Bombay, Division ''L'', on the ground that the value of the goods, including the value of the tanks, vessels, etc. supplied by the customers for rubber-lining had exceeded the limit of Rs. 30,00,000/-

Aggrieved by the said order, the petitioners preferred an appeal to the Collector of Central Excise (Appeals) who, by his order dated 29th of August, 1981 partly allowed the appeal. While disposing of the appeal, the Appellate Collector distinguished three categories among the activities of the petitioners. the first category was naked tanks and vessels received from the petitioners'' manufacturers for the purpose of rubber-linings. The second and third categories were naked tanks and vessels or old tanks and vessels received from user-consumers or customers for rubber-lining. As far as the first category of activity was concerned the Collector (Appeals) held that the said activity amounted to manufacture and for the purpose of valuation under the notification referred to above not only the value of job charges but also the value of tanks and vessels were to be considered.

The petitioners did not challenge this order passed by the Collector (Appeals). Subsequently, the petitioners received a notice dated 19th of February, 1982 from the Government of India in the Ministry of Finance, asking the petitioners to show cause as to why the order-in-appeal of the Collector (Appeals) should not be revised insofar as that related to the latter two categories, namely rubber-lining of the tanks and vessels received from the customers or the old tanks and vessels for rubber-lining. It is after this that the petitioners have approached this Court under Article 226 of the Constitution of India.

Mr. Parikh, the learned Advocate appearing for the petitioners, has contended that the review notice is not sustainable in law because it is now well-settled in law that rubber-lining of the vessels received from user-consumers or customers or rubber-lining of the old tanks and vessels received for rubber-lining or re-rubber-lining does not amount to manufacture at all. He relied upon the decision of the Supreme Court in Lathia Industrial Supplies Co. Pvt. Ltd. v. Collector of Central Excise Baroda : 1987(29)ELT751(SC) , wherein the Supreme Court has held that re-rubberising and relining of old and used rollers would not amount to manufacture whether that was done before or after 14th of March, 1986. The reliance placed by Mr. Parikh on that judgment is, therefore, fully justified. The category of naked tanks and vessels received from user-consumers/customers for rubber-lining is not in any way different from the old tanks and vessels received for rubber-lining or re-rubber-lining. Therefore, the ratio in Lathia Industrial Supplies Co. Pvt. Ltd.''s case will straightaway apply. The hearing of the review notice will, therefore, be an exercise in futility and in any case, as the law stands today, that notice cannot be sustained.

The next question is whether the rubber-lining of the naked tanks/vessels received from the manufacturers themselves amounts to manufacture. It has been held by the Collector (Appeals) that it does amount to manufacture. This view was not challenged by the petitioners by a further appeal which was available to them. I refuse to interfere with the view taken by the Collector (Appeals) in a petition under article 226 of the Constitution of India, especially when the petitioners had an alternative remedy. That apart, the view which is prevalent as far as this Court is concerned is that the job works done on the articles given by customers would amount to manufacture. This is the underlying view of a Division Bench of this Court in Narendra Engineering Works v. Union of India 1981 E.L.T. 859 on which reliance was placed by Mr. Parikh in support of another argument.

Mr. Parikh then assailed the view taken by the Collector of Central Excise (Appeals) in the later part of paragraph 7 of the order, wherein the Collector (Appeals) has held that for the purpose of valuation under Notification No. 176/77 not only the value of job charges but also the value of tanks and vessels has to be considered. It is in this connection that Mr. Parikh justifiably referred to the judgment of the Division Bench of this Court in Narendra Engineering Works v. Union of India (supra). That judgment lays down that while computing the value of clearance of a job worker, it is only the cost which is incurred by him in relation to the manufacture of excisable goods can be taken into account and, therefore, the value of raw material supplied by the customers to the job worker would not be taken into account while computing the real value of goods manufactured on job work basis because manufacturing cost, as referred to by the Supreme Court in A. K. Roy v. Voltas Ltd. 1977 E.L.T. 177, means the cost incurred by the manufacturer that is the job worker.

Normally, this point should have been agitated by the petitioners by preferring an appeal against the order of the Collector (Appeals). Since, however, this judgment was given on 6th of November, 1981 after the order of the Collector of Central Excise (Appeals) was passed and since this is the settled law as far as this Court is concerned, there is no impediment in correcting this part of the order of the Collector (Appeals). It will have to be, therefore, held that for the purpose of the levy of excise duty and for the purpose of valuation under the Notification referred to above, only the value of the job work done will have to be considered, as pointed out in the case of Narendra Engineering Works.

In the result, the petition is partly allowed. The review notice dated 19th of February, 1982 issued by the Government of India in the Ministry of Finance (Ex. ''E'' to the petition) is set aside. Order No. 1211/BII-96/81, dated 29th of August, 1982 of the Collector of Central Excise (Appeals) is upheld, except that his direction that for the purpose of valuation under Notification No. 176/77 the value of the job charges and also the value of the tanks and vessels should be considered, is set aside. Rule is also made absolute in terms of prayer clause (d) of the petition. The petitioners are entitled to the refund of excise duty paid during the pendency of this petition under protest on the basis of the order of the Collector of Central Excise (Appeals). They are entitled to the refund on a calculation which will have to be made in the light of this judgment. The petitioners shall submit their calculation and the respondents shall refund the amount within eight weeks thereafter. If the amount is not refunded within eight weeks as mentioned above, the petitioners will be entitled to interest on the same at the rate of 15 per cent per annum till the date of refund.