Tata Engineering and Locomotive Company Ltd. and Another vs Union of India(UOI) and Others

Satyeshwar Roy, J.—Petitioner No. 1, Tata Engineering and Locomotive Company Limited (TELCO), a Company, is a licencee under the Central: Excises and Salt Act, 1944 (the Act). TELCO manufactures motor vehicles'' (chassis) falling under tariff item No. 34-1(3) of the first schedule to the Act and after paying appropriate excise duty clears/removes the same under gate passes from its factory. It files proper monthly returns showing, inter alia, all quantity of excisable goods falling under that item and the competent officer makes assessment.

The duty paid chassis are sent to independent body builders lor body building and the body builders build bodies on the chassis according to the customers'' requirements and specifications. TELCO recovers the price of the bodies so built by independent body builders and the motor vehicles are delivered to the customers directly from the places outside factory premises of the Company.

At no stage earlier any objection was raised by the Excise Department alleging short payment of excise duty. However, by demand-cum notice to show cause dated 15-1-1985 as contained in Annexure 13, respondent No. 3 called upon TELCO to show cause why it should not be directed to pay duty on the goods produced as a result of manufacture of body on the chassis which is different from a chassis. TELCO filed its show cause and, inter alia, contended that the body built on the duty-paid chassis is manufactured by independent body builders and not by it and there was no question of TELCO engaging body building activities on the chassis. It asserted that there had been no question of any suppression of fact on the part of the Company as admittedly bodies were built on duty paid chassis by independent body builders.

Respondent No. 2 by order dated 27-12-1986 held that TELCO was liable to pay excise duty on the value of the motor vehicles, i.e. the chassis and the body built thereon and not on the chassis alone. Copy of the order was sent to TELCO by a forwarding letter dated 31-12-1986 as contained in Annexure 20.

TELCO has challenged the validity of the notice to show cause as contained in Annexure 13 and the order of assessment as contained in Annexure 20.

The only question which requires to be considered in this case is : whether TELCO is liable to pay duty on the value of the chassis or on the value of the chassis plus the body built on it. For the purpose of answering this question, it is necessary to decide whether TELCO can be said to be manufacturer of the body.

It is the admitted case that TELCO removes from its factory premises duty-paid chassis. According to TELCO chassis thereafter is sent to different body builders for manufacturing body according to the specifications of different customers of the Company. In terms of the agreement between TELCO and the body builder, the latter is required to manufacture body according to the specifications given by TELCO, which in its turn receive it from its customers, and the body builder is required to manufacture the body according to the specifictions. TELCO from time to time inspects the quality of the body built and it has a right to reject it, if not manufactured in accordance with the specifications suggested by the customers of TELCO. The price of the body is recovered by the body builders from TELCO who in its turn recovers it from its customers. TELCO submits two bills to its customers, one for the price of the chassis and the other for the price of the body. It is admitted by TELCO that it recovers from its customers as a price of the body something more than it pays to the body builders. These facts were asserted by TELCO in its show cause and urged before respondent No. 2 during the course of hearing.

According to the respondents, the independent body builders manufacture body for and on behalf of TELCO and the latter, therefore, was liable to pay duty on the value of the vehicle, i.e. chassis and the body.

Respondent No. 2 after perusing the show cause filed by TELCO and after hearing it, recorded in its order (Annexure 20) the following :

"Thus it appears that without having any facility for fabrication of body on chassis M/s. TELCO regularly entered into contracts with their customers for supply of Motor Vehicles with bodies as they have regular arrangement of getting bodies fabricated on their chassis by independent body builders as per their terms and conditions and having full control over quality of material as they reserved the right to reject the material at any stage of fabrication. It is correct that such fabrication was done outside their premises for which they neither supplied machinery nor manpower but they certainly controlled the fabrication by supervision (supervising) the fabrication process so that it may be rejected even at the intermediate stage if it is not according to their customer''s specification."

It will thus appear that respondent No. 2 recorded the following finding of fact :

TELCO get the bodies manufactured on the chassis by independent body builders, the body builders are required to manufacture body according to the specifications given by TELCO, TELCO has full", control over the quality of materials and supervise fabrication, it has a right to reject the material at any stage of fabrication if it is not according to the specification of the customer, i.e. the customer of TELCO, such fabrication is done outside TELCO''s premises and for such fabrication TELCO neither supply machinery nor manpower. It will thus be noticed that the finding recorded by respondent No. 2 is that the only control TELCO exercises over the body builders is that it has right to supervise and control the fabrication process to satisfy itself about the quality of material used and to guarantee that it is manufactured according to the specifications of TELCO''s customers. On the facts so recorded by respondent No. 2, it must be held that the body builder manufactures the body on its own account and not for or on behalf of TELCO and it follows that TELCO cannot be held to be a manufacturer of the body built by the body builders. It is sufficient to refer to the latest Supreme Court decision in Union of India (UOI) and Others Vs. Cibatul Limited, .

In view of the findings recorded by respondent No. 2, the submissions made on behalf of the respondents that TELCO is a manufacturer of body within the meaning of the Act must be repelled.

On the facts of this case, it is not necessary to notice all the cases cited at the Bar. The cases of Baidyanath Ayurved Bhawan (P) Ltd. v. Excise Commissioner of Uttar Pradesh AIR 1975 S.C. 378, Union of India (UOI) and Others Vs. Bombay Tyre International Ltd. and Others, , and McDowell and Co. Ltd. Vs. Commercial Tax Officer, , relied on behalf of the respondents have no relevance to the facts of the present case. It is also necessary to notice the case of Jamnadas Chhotalal Desai and Others Vs. C.L. Nangia and Others, , relied on behalf of the respondents wherein a Bench of Gujarat High Court held that persons engaged in production or manufacture through independent contractor is also a manufacturer within the meaning of the Act. There may be cases where "independent contractor" is a cloak, then the person who gets the excisable goods manufactured may be held to be the "manufacturer". But to lay down as a general proposition of law that in all cases where a person gets excisable goods manufactured by an independent contractor, the former shall be the "manufacturer", with respect, cannot be accepted as correct. Other cases of different High Courts including this Court were cited at the Bar in support of the proposition that TELCO cannot be held to be the manufacturer of body on the chassis; but in view of Cibatul''s case (supra), I do not think it necessary to refer the same.

In the result, this writ petition is allowed and Annexures 13 and 20 to this writ petition are quashed. The respondents shall pay a cost of Rs. 1,000/-(Rupees one thousand) to TELCO.