COLLECTOR OF CENTRAL EXCISE, BARODA versus MIS. M.M. KHAMBHATWALA

Citation: [1996] SUPP. 2 S.C.R. 608 · Decided: 09-05-1996 · Supreme Court of India · Bench: SUJATA V. MANOHAR · Disposal: Dismissed
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Judgment (excerpt)

A 
B 
COLLECTOR OF CENTRAL EXCISE, BARODA 
v. 
MIS. M.M. KHAMBHATWALA 
MAY 9, 1996 
[SUJATA V. MANOHAR AND K. VENKATASWAMI, JJ.] 
Central Excises & Salt Act 1944---Tariff 14 F-Notification No 80180-
CE dated 19.6.1980-Exemption Agarbattis manufacture of-outside factory 
premises-Without aid of powe1-Heid, cannot be considered as manufacture 
C and hence cannot be clubbed with goods manufactured in factory premises. 
The Respondents were manufacturing goods falling under erstwhile 
Tariff Item 14F and Tariff Item 68 in their own factory and were availing 
exemption from duty and licensing control under Notification No. 105/80-
D CE dt. 19/6/80. Apart from these the respondents were getting Agarbattis, 
amla podi, dhup etc. manufactured by house-hold ladies \\ithout the aid 
of pon'er, outside the factory premises. There was no supen'ision over the 
manufacture and the incense sticks were put in packets and sold from the 
premises of house·hold ladies. The sale proceeds were taken by respon-
E 
dents and these ladies were paid wages on the basis of number of pieces 
manufactured. The respondents claimed exem1,tion under Notification No. 
80/80-CE dt. 19/6/80 for the year 1981-82. The superintendent, Central 
Excise issued a Show Cause Notice on 29/5/89 calling upon the respondents 
why the exemption should not be disallowed since the value of total 
clearance of goods falling under 14 F and those manufactured outside on 
F their behalf in 1980-81 exceeded Rs. 20 lakhs. The Assistant Collector, alter 
considering the explanation given by the Respondent withdrew the Show 
Cause Notice, holding that the value of agarbatti, amla podi and dhup etc. 
manufactured in other premises \Vere not to be included. On review, the 
Collector of Central Excise set aside the order of the Assistant Collector 
and held that goods manufactured outside factory premises have to be 
G included and consequently the Respondents were nut entitled to any ex-
emption under Item 14 F during 1981-82. 
On appeal to the Tribunal, it was held that the decision reached by 
the Collector while reviewing the order of Assistant Collector was not 
H correct and therefore the order of Assistant Collector was restored. 
608 
COLLECTOR OFC.E. v. M.M.KHAMBHATWALA 
609 
On Appeal to this Court, the revenue contended that sir..ce 'wages' A 
were paid. to the house hold ladies for manufacturing agarbatti;amlapodi 
and dhup etc. the goods though manufactured outside the factory premises 
must be taken as manufactured in the factory of the respondents. 
The Respondent-Assessee contended that though wages were paid, it 
was on the basis of number of pieces manufactured, that they did not use 
any power, that there was no supervision over the manufacture of those 
goods and that the goods so manufactured were sold from the premises of 
the house hold ladies and they did not go to the factory premises, that not 
withstanding the fact the raw materials for manufacture were supplied by 
B 
the respondents the house hold ladies were the manufactures, and finally 
C 
the error committed by the Collector of Central Excise :was that he 
proceeded on the assumption that. the house hold ladies were hired 
'laboures' \\'hich assumption was contrary to the facts of the case. 
Dismissing the appeal, this Court 
HELD : 1. The Respondents cannot be considered as manufactures 
of agarbatti, amlapodi and dhup etc. manufactured in the premises of 
house-hold ladies without the aid of power. The house-ladies are the 
manufacturers of the goods in question and the liabilitf to excise duty will 
be attracted on their manufacture of the goods and therefore it cannot be 
clubbed "ith the goods manufactured in the factory premises of the 
respondents to deny the exemption claimed. [612-E; 613-A-B] 
Empire Jndusliies Ltd. & Ors. v. Union of India & Others, (1985) 20 
ELT 179, relied on. 
2. The assumption of Collector of Central Excise that the Respon-
dents got the goods in question manufactured by hired labourers cannot 
be sustained. [612-H; 613-A] 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4032 of 
1987. 
From the Judgment am! Order dated 27.7.87 of the Central Excise 
Customs and Gold (Control) Appellate Tribunal, New Delhj in Appeal No. 
2643/83-C Order No. 652/87-C. 
P. Parmcshwaran, for the Appellant. 
D 
E 
F 
G 
H 
610 
SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R. 
A 
Ms. M. Karanjawala for the Respondents. 
The Judgment of the Court was delivered by 
K. VENKATASWAMI, J. This a
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