UNION OF INDIA & ORS. versus CLBATUL LIMITED

Citation: [1985] SUPP. 3 S.C.R. 95 · Decided: 27-09-1985 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

95 
UNION OF INDIA & ORS. 
v. 
ClllATIJL LIMITED 
SEPTEMBER 27, 1985 
[P.Jj. liHAGWATI, CJ., R.s. PATHAK AND AMARENDRA NATH SEN, JJ • J 
Central Excises and Salt Act, 1944 -
Sub-s.(2) of s. 36 -
Manufacture of Goods -
Joint programme of seller and buyer -
Goods manufactured by seller -
Supplied 
to 
buyer 
Who is 
manufacturer - 'Wholesale' price charged by seller - Whether true 
basis for determination and levy of Excise Duty. 
The respondent - Cibatul Ltd. (the "seller") entered into 
two agreements with Ciba Geigy of India Ltd. (the "buyer") for 
manufacturing Resins by the seller. The joint manufacturing 
progr811111e indicated that the Resins were to be manufactured in 
accordance with the restrictions and specifications constituting 
the buyer's standard and supplied at prices to be agreed upon 
from time to time. The buyer was entitled to test a sample of 
each batch of the goods and after its approval the goods were to 
be released for sale 
to 
the 
buyer. The products would besr 
certain trade-marks being the property of the foreign company -
Ciba Geigy of Basle. Tripartite agreements were also executed 
between the buyer, the seller and the foreign company, recognis-
ing the buyer as the registered or licensed user of the trade-
marks, authorising the seller to affix the trade-marks on the 
products manufactured "as an agent for and on behalf of the buyer 
and not of his own account" and the right of the buyer being 
reserved to revoke the authority given to the seller to affix the 
trade-marks. 
The respondent filed declaration for the purposes of the 
levy of excise under the Central Excises and Salt Act, 1944 
showing the wholesale prices of different classes of goods sold 
by it during the period May, 1972 to May, 1975. The declaration 
included· 
the 
wholesale 
prices 
of 
the 
different 
Resins 
manufactured under the two aforesaid agreements. The Assistant 
Collector of Customs revised those prices upwards on the basis 
that the whclesale price should be the price for which the buyer 
sold the product in the market. According to the Assistant 
Collector the buyer was the manufacturer of goods and not the 
seller. 
A 
B 
c 
D 
E 
F 
G 
H 
96 
SUPREME COURT REPORTS 
[1985] SUPP.3 s.c.R. 
A 
'lbe Collector of Central Exc:iae allowed the appeals of the 
respondent and ac:cepted the plea that the wholesale price 
disclosed by the seller was the proper basis for determining the 
ezcile duty. 
B 
The Appellate orders were, however, revised by the Central 
Government under sub-8.(2) of a.36 of the Act and the orders made 
by the Alsiatant Collector were restored• According to the 
Central Government the buyer is the person engaged in the 
production of the goods and the seller merely manufactures them 
on behalf of the buyer and that under the agreements the seller 
ia required to affix the trade-,narks of the buyer on the 
c 
manufactured goods and that indicstea that the goods belong to 
the buyer. 
- The orders of the Central Govt. were challenged under 
Article 226. The High Court held that the goods were manufactured 
by the seller as its own goods, and therefore, the wholesale 
prlce charged by the seller must form the true basis for the levy 
D of excise duty. 
Dismissing the appeals of the Union of India, 
llELD: l. The High Co11rt was right in concluding that the 
wholesale price of the goods manufactured by the seller is the 
E wholesale price at which it sells those goods to the buyer,. and 
it is not the wholesale price at which the buyer sells those 
goods to others. [101 D-E] 
2. The relevant provisions of the agreements and the other 
material on the record show that the manufacturing programne is 
F 
drawn up jointly by the buyer and the seller and not merely by 
the buyer, and that the buyer is obliged to purchase the manu-
factured product from the seller only if it conforms to the 
buyer's standard. For this purpose the buyer is entitled to test 
a sample of each batch of the manufactured product and it is only 
on approval by him that the product is released for sale by the 
G seller to the buyer. It is apparent that the seller Cannot be 
said to manufacture the goods on behalf of the buyer. (100 B-C; 
F) 
3, It ia clear from the record that the trade-,narks of the 
buyer are to be affixed on those goods only which are found to 
H conform to the specifications or sta::dard stipulated by the 
· buyer. All goods not approved by the buyer cannot bear those 
trade-,narks and are disposed of

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