Case: Shree Agency Vs. S.K. Bhattacharjee

2. The appellant, Messrs Shree Agency, is a firm registered under the Indian Partnership Act and carries on business as dealers in textile goods, cotton yarn and other allied products at Sangli and Ichalkaranji in the State of Maharashtra. The firm consists of four partners. It does not own any power-loom factory. On May 11, 1957 a demand was made upon the appellant firm by the Superintendent of Central Excise, Jaysingpur (Rural) for a sum of Rs.2,32,614.12 nP. as excise duty payable on the cotton fabrics stated to have been manufactured on behalf of the appellant from in the factories situated at Ichalkaranji, mentioned in the annexure to the notice of demand, at normal rates in respect of the production for the period from July 1, 1956 to April 30, 1957. The appellant represented to the Assistant Collector, Central Excise, Kolhapur against this demand notice. But the same was confirmed by him on September 30, 1957. An appeal was then taken by the appellant to the Collector of Central Excise, Bombay. But the same was not entertained on account of non-compliance with the condition precedent of deposing the duty demanded. Prayer for waiver of this condition precedent was declined by the Collector. The appellant thereupon approached the Central Board of Revenue, which, as a special case, agreed to convert the demand on the basis of compounded levy if the appellant undertook to honour the same. The appellant gave written undertaking as desired and a revised demand for Rs.52,290 was then served upon the appellant by the Deputy Superintendent. Central Excise, Ichalkaranji. This demand was also objected to and the matter went up to the Assistant Collector, Central Excise, Kolhapur, who on December 19, 1959 gave to the appellant some relief. This order was made after hearing the appellant. Pursuant to this order the Deputy Superintendent, Central Excise, made a demand on the appellant for a sum of Rs.43,020 on January 13, 1960. Against the order of the Assistant Collector an appeal was preferred under S.35 of the Central Excises and Salt Act, 1944 (Act No.1 of 1944) (hereinafter called the Act) to the Collector of Central Excise, Poona. But since the appellant had not honoured the demand which was a condition precedent to the hearing of the appeal under the then S.189 of the Sea Customs Act, 1878 as applicable to Central Excise, the Collector rejected the appeal without going into the merits. The appellant thereupon filed a writ petition in the Bombay High Court under Art. 226 of the Constitution but the same was dismissed on July 12, 1961 both on the ground of inordinate delay in approaching the High Court and on the merits. The appellant thereafter filed a revision petition with the Government of India requesting that the appeal preferred against the order of the Assistant Collector be heard by the Collector of Central Excise, Poona on the merits, at the same time offering to pay a part of the demand. After certain correspondence between the appellant and the Government, the latter directed the appellant to deposit a sum of Rs.10,000 and to furnish a security bond for the balance of the duty. On compliance by the appellant with this condition, the Government directed the appeal to be considered on merits after hearing the appellant. The Collector, after hearing the parties at length, accepted the case of the department according to which the appellant used to get its cloth manufactured by 16 weavers and made up its accounts in such a manner that those weavers ultimately did not get anything more than 2 1/2 to 2 3/4 annas per yard of the cloth woven by them. The appellants contention that it used to sell yarn to the weavers and buy cloth from them was not accepted and it was found by the Collector that the so-called proprietor-weavers had no interest in the production of the cloth and did not even maintain proper accounts of consumption of raw material and production of cloth. In the opinion of the Collector, there was no actual sale of cloth at all by the weavers to the appellant. On this finding the Collector by his order dated July 20, 1964, declined to interfere with the order of the Assistant Collector3. On further revision the Central Government made the following order on April 15, 1966, affirming the order of the Collector:"The Government of India have carefully considered all the points made in the revision application as well as at the time of the personal hearing given to them at Bombay on April 4, 66. They are convinced that the applicants acted as master weaver during the material time and therefore, their duty liability under the C.E. Rules was correctly determined. They, however, observe that the duty paid by M/s. Kalleshwar Mill at compounded rate was not adjusted while determining the applicants duty liability. The Government of India, therefore, direct that the demand for duty made in this case shall be reduced to the extent of the duty paid by Messrs Kalleshwar Mill at compounded rate. Subject to this modification of the order in appeal, the revision application is rejected". It is this order which is challenged before us in the present appeal.

Court's reasoning:
Later, in his order the Assistant Collector observed:"From the above facts, I am convinced that the plea of a commission agent is not at all genuine. I have no doubt that actually Messrs Shree Agency continued to engage themselves in production of the cotton fabrics on their own account, but in order to evade the excise levy, the bills were prepared in the individual names of the factories, and the payments were shown to have been made against the hundies issued by the Mills to Messrs Shree Agency. In all the cases I have also noticed that even the hundies have been written by the people of Messrs Shree AgencyIn support of their contention that the entire production of the different Mills was not received by Messrs Shree Agency, they have shown in the statement attached with their application the quantity of yarn issued and the cloth received by them from July 1956 to December 1956. Since in these accounts Messrs Shree Agency has not taken into consideration the cloth received by them after December 1956 on the plea that the cloth was sold by the factory owners direct in Bombay, the quantity of cloth shown in the enclosures to their application will definitely be less than the quantity that would be calculated from the yarn supplied. Surely the yarn supplied towards the later part of December 1956 was manufactured in January 1957. As I have already shown above, the transaction in respect of the period from January to April 1957 has remained the same as it was during the year 1956"9. This conclusion was never disturbed by the higher authorities. In order to check up if these conclusions are based on material on the record we went into the statements of K. Abdulkhan of Hanuman Weaving Mills on which reliance was placed by the Assistant Collector. That statement in our view, fully supports the conclusion of the Assistant Collector and indeed it is impossible to read that statement to make out a case of K. Abdulkhan being an independent manufacturer who used to buy yarn from the appellant and sell cloth to them and also to transact through the appellant as commission agent purchases of yarn from others and sale of cloth to others10. Now, it may be recalled that an appeal against this order was not entertained because of omission to deposit duty and finally pursuant to the order of the Central Board of Revenue a revised demand of Rs.52,290 was served on the appellant. This demand was objected to and the Assistant Collector dealt with the matter at great length after hearing the appellant and also considering the fresh evidence adduced in support of the objections15. The Assistant Collector, after coming to this conclusion agreed that one out of the 16 units of factories manufacturing cloth on behalf of the appellant was a licensed one. On this point and on the point of unit of number of yards as production on one loom per shift, the appellants grievance was upheld and the Superintendent was directed to revise the demand. The revised demand as already noticed, was for Rupees 43,020. Against the order of the Assistant Collector, as already noticed earlier, an appeal was presented to the Collector which was finally directed by the Central Government to be heard, though in the meantime the appellant had also unsuccessfully approached the High Court by means of a writ petition. The Collector affirmed the order on appeal and on revision the Central Government made the impugned order upholding the order of the Collector. On the conclusions of the Assistant Collector and of the Collector it is crystal clear that the appellant used to supply yarn to the various weavers described to be factory owners for weaving cloth and an attempt was made to give to this simple business deal a complicated shape so as to make it look like two independent and unconnected transactions of sale of yarn by the appellant to the weavers and purchase of cloth from them. The conclusions of the Assistant Collector and of the Collector which are identical are amply supported by evidence on the record and have not been shown to be vitiated by any legal error nor has any grave injustice been shown to have resulted thereby to the appellant. On these conclusions there can be no doubt that the appellant is a manufacturer within the contemplation of the Act and the exemption under Item (10) of the notification dated March 1, 1956 or under Item (7) of the notification dated January 5, 1957 is not available to the appellant. On this view it is not possible for this Court to interfere with the impugned order. The departmental authorities having been invested with jurisdiction to decide this question their conclusions are not open to review by this Court by way of re-evaluation of the material on the record