1. The petitioner is a manufacturer of paints, pigments, colours, varnishes etc. Among the several items manufactured by the petitioner, ‘Super Blucem’ used as a decorative water-proof cement, is one of the items supplied to M/s. Garware Paints Limited, Bombay, copy of which is produced as Annexure ‘E’ under which the petitioner undertook to supply the Blucem cement paint manufactured by it to M/s. Garware Paints Ltd. The said cement paint is marketed by M/s. Garware Paints under the brand name ‘Blucem’. The duration of such supply covered by the agreement was for the period 1-4-1982 to 31-3-1984. The other clauses in the said agreement relates to minimum monthly supply and the supervision by M/s. Garware Paints Limited as to quality control etc.

2. On 24.8.1983, petitioner filed the first classification list in Form I giving out the particulars of all excisable goods. Item I in the list of items referred to ‘Super Blucem’. A concessional rate of 2% levy was claimed by the petitioner under Notification No. 74/78 dated 1.3.1978 This classification list was approved by the Assistant Collector on 13.2.1984 with effect from 1.4.1983 Pursuant to the approved classification list, monthly returns were filed by the petitioner in Form RT 12 for the subsequent periods covered by the agreement and the petitioner was assessed on the basis of the approved classification list. When matters stood thus, a show cause notice dated 15.9.1984 was issued to the petitioner as per Annexure ‘F’ proposing to revoke the approval and demand short-levy of 2% duty ad valorem. This notice was issued invoking the proviso to Section 11A of the Central Excise Act, which permits initiation of action within five years from the relevant date, on the ground of fraud, wilful mis-statement and suppression of facts and the like.

3. A reply was filed to the said show cause notice as per Annexure ‘G’ and it was contended - that supply of Blucem made by the petitioner to M/s. Garware Paints Limited was on principal to principal basis covered by an independent agreement between the parties. The initiation of the proceedings to re-open the assessent was also opposed having regard to the approval which was granted by the Department after it was satisfied about the relationship between the parties and also as to the proper rate of duty that was leviable on the basis of the Notification No. 74/78 and all the relevant materials produced by the petitioner before the first respondent.

4. The Assistant Collector proceeded to make an order on 21.8.1985 as per Annexure ‘A’ confirming the duty demanded in the show cause notice for the period 1.4.1982 to 31.3.1984 in a sum of Rs. 79,435.19. The petitioner was also directed to pay the differential duty on all the clearance made from 1.4.1982 onwards adopting the selling price of M/s. Garware Paints Ltd., Bombay. This order of the Assistant Collector is challenged in this Writ Petition.

5. The findings recorded by the Assistant Collector both for invoking the proviso to Section 11A and to revoke the approval of the classification list granted to the petitioner and the demand made to pay the differential duty, are the subject-matter of this Writ Petition.

6. On the question of limitation, the first respondent held that the notice was valid in law in view of the fact that the petitioner had not disclosed in their classification list, information regarding their agreement with M/s. Garware Paints Ltd. for manufacture and supply of cement-paint under the brand name ‘Blucem’.

7. After considering the several clauses of the agreement, the Assistant Collector held that the manufacture by the petitioner of the cement paint under the brand name ‘Blucem’ was for and on behalf of M/s. Garware Paints Limited, Bombay. On the basis of this conclusion, the Assistant Collector also held that the petitioner was not entitled to the concessional rate under the notification of 74/78. The Assistant Collector therefore demanded the difference of duty from the petitioner on adopting the price of M/s. Garware Paints Ltd. as the rate for the purpose of levy of duty.

8. Two points arise for decision on the arguments advanced by Sri Chander Kumar, learned Counsel for the petitioner;

(i) Whether the show cause notice was barred by limitation?

(ii) Whether on facts, the Assistant Collector was justified in revoking the approval granted to the petitioner earlier, demanding differential duty?

9. As regards limitation, it was argued by the learned Counsel that Department's finding that there was short-levy on account of the failure of the assessee to supply full information at the time the classification list was approved, cannot be justified on facts. The learned Counsel has demonstrated that apart from filing the classification list, monthly returns were filed in Form RT12 for the remaining period covered by the agreement and the assessments were completed on the basis of the approved classification list. It is also argued for the petitioner that along with the monthly returns in Form RT 12, invoices were filed showing that the entire cenient paint manufactured by the petitioner under the brand name Blucem was supplied to M/s. Garware Paints. On the basis of these facts, it is argued by the learned Counsel that the Department could not have invoked the proviso to Section 11A that there was; suppression of facts by the petitioner resulting in the short-levy. Sri Chander Kumar has produced some invoices, gate-passes and Delivery notes in support of the factual position.

10. It is also contended by the learned Counsel that the show cause notice is liable to be quashed; since it does not contain any of the ingredients required to be satisfied under Section 11A proviso. In support of this contention, the learned Counsel has relied upon the decision of the Supreme Court in Collector of Central Excise v. Cliem-phar Drugs & Liniments, 1989 (40) ELT 276 (SC) : ((1989) 2 SCC 127 : AIR 1989 SC 832) and the decision of Bombay High Court in Universal Auto Craft Ltd. v. Union of India [1988 (31) E.L.T 912].

11. It is also the contention of the learned Counsel that the supply made by the petitioner to M/s. Garware Paints Ltd. was on principal to principal basis. He relied upon several clauses of the agreement in support of this agrument and also relied upon two decisions of Supreme Court in Union of India v. Cibatul Limited [1985 (22) E.L.T 302] and Union of India v. Play-world Electronics Private Limited [1989 (41) E.L.T 368]. It is argued that several clauses of the agreement in the present case are identical with those considered by the Supreme Court in the two decisions referred to above. Any conclusion to be drawn so far as this question is concerned should depend upon the consideration of the clauses in the agreement by the courts. It was held in Cibatul case by the Supreme Court, on consideration of provisions of the agreement and other material on record, the Department was not correct in rejecting the contention of the assessee that manufacture of the goods in that case was not on behalf of The buyer. Relying upon the ratio in Cibatul case, the Supreme Court held in Play-World Electronics case that the burden is on the Department to establish that the transactions between the assessee and the brand name owner was not on principal to principal basis. IN reiterating the test, the Supreme Court observed that any decision by the Department should be based on a correct appreciation of the relationship between the manufacturer and the brand name owner and the several clauses of the agreement and other relevant circumstances. It was therefore held in both the cases referred to above that the Department was not justified on facts in directing that the value adopted by the brand name owner should be taken as the value of the manufacturer for the purpose of demanding differential duty.

12. The order of the Assistant Collector is sought to be justified by Sri Padmarajaiah, learned Counsel for the Department contending that the notice issued under proviso to Section 11A does not contain the relevant ingredients and he relies upon the contents of the notice to show that the purport of the show cause notice was that the manufacture by the petitioner was for and on behalf of M/s. Garware Paints Ltd. and that therefore, the petitioner had erroneously availed of the concessional rate of duty for the brand name used on the goods manufactured and supplied during the relevant period. The learned Counsel also sought to support the findings recorded by the Assistant Collector relying upon the provisions of Sections 2(f) and 4(c) of the Central Excises and Salt Act, 1944, i.e, the definition of “manufacture” and the definition of “related person”. The contention of the learned Counsel is that the petitioners have engaged labour and manufactured on behalf of the brand name owner. In support of his argument, he has relied upon certain clauses in the agreement viz., minimum off-take of 30 tonnes per month and the quality control exercised by the brand name owners and the finding of the Assistant Collector recorded in page 7 of the order that the Company advanced money to the petitioner at the rate of Rs. 2.50 per kg. or Rs. 75,000/- per month towards service charges. On these facts, it is contended that the petitioner's supply cannot be considered as supply made on principal to principal basis and the differential duty demanded is justified.

13. I have considered the arguments of the learned Counsel for the petitioner and the learned Central Government Standing Counsel and also the relevant material on record. The first contention is about the validity of the show cause notice viz. whether the notice contains any of the ingredients that is required to be mentioned for the purpose of invoking the proviso to Section 11A such as fraud, collusion, wilful mis-statement or suppression of facts and the like? In the present show cause notice, apart from repeating the phrase “for and on behalf of, no allegation of any suppression or mis-statement etc. is made by the Department against the petitioner. The said show cause notice therefore does not satisfy the requirement of law viz., provision to Section 11A. There is no allegation made that the short-levy was on account of failure on the part of the petitioner to furnish all the necessary information necessary for the adjudication of the rate of the rate of duty and the classification list.

14. Coming to the second aspect viz., on merits, whether all the material information necessary for approving the classification list was before the Department, the learned Counsel is unable to produce before me the original records of the case even though time was granted to do so. Therefore, I have considered the invoices produced along with RT 12 by Sri Chander Kumar.

15. Any differential duty that is demanded by the Department in this case must follow on the basis of the conclusion about the relationship of the brand name owner viz., M/s. Garware Paints Ltd. and the petitioner-Company. I have considered carefully the several clauses of the agreement under which the petitioner undertook to supply Blucem cement manufactured by it exclusively to M/s. Garware Paints Ltd. The other clauses of the agreement also indicate that the manufacture of cement was under the strict supervision of M/s. Garware Paints Ltd. and the brand name owners had the right to reject the goods which they found below the standard stipulated, the monthly minimum off-take, time fixed for payment, quality control etc. The Assistant Collector in his adjudication order has laid particular emphasis on the words “for and on behalf of” found in the agreement entered into by the petitioner with M/s. Garware Paints Ltd. The respondent has considered the various clauses of the agreement and has come to his own conclusion resulting in the revoking of the approval. The Assistant Collector appears to have been wholly influenced by the phrase “for and on behalf of There is no finding recorded by the Assistant Collector whether the manufacture by the petitioner was as an agent cr contractor of the brand name owner. What cannot escape my notice is that the Assistant Collector had the agreement before him and has considered several clauses of the agreement for the purpose of withdrawing the approval. It is not his case that the agreement was not produced by the petitioner at the time the classification list was approved or any time thereafter. He is not sure about this position and observes that the petitioners do not seem to have produced any copy of the agreement during the period. All the same, he does consider several clauses of the agreement in particular by clause 11 of the agreement which provides for interest on over-due payments and the supervision and control exercised by the brand name owners. Some of the reasons given by the Assistant Collector are not supported by any material on record and the reasons considered by him are wholly irrelevant. The very fact that the Assistant Collector has considered the various clauses of the agreement leads to the presumption that the agreement was with the Department.

16. If the agreement was before the Assistant Collector when he approved the classification list, it cannot be said that all the necessary information was not furnished by the petitioner.

17. In view of these facts which cannot be disputed, it follows that it was not a case of erroneous availment, but a clear case of erroneous approval by the Department. It is sought to be made out in the show cause notice that the petitioner suppressed the relevant information, but the order of the Assistant Collector reveals that the agreement was available with the Department at all relevant point of time.

18. Therefore, on these facts, the Department could not have invoked the extended period of limitation under Section 11A proviso. The conclusion of the first respondent that M/s. Garware Paints Limited, Bombay are the deemed manufacturers and as a consequence, their selling price should be adopted for the purpose of levy of differential duty, cannot be sustained both on law as well as facts. Certain irrelevant facts considered by the Assistant Collector are the advancement of money made at the rate of Rs. 2.50 per kg. and the financial control, etc. None of the clauses of the agreement contain any such stipulation as to the advancement of money or as to or as to the rate fixed by the brand name owner or any other financial control exercised by the brand name owner on the petitioner.

19. Though, in my opinion the show cause notice itself is defective, inasmuch as it does not contain any of the ingredients required to be mentioned for invoking the proviso to Section 11A, I have also considered the arguments on merits. In the light of the decision laid down by the Supreme Court in the two cases referred to above, viz., Cibatul and Play-World Electronics, I am satisfied that the clauses of the agreement considered by the Supreme Court in the cases referred to above are similar to the clauses of the agreement involved in the present case. The Department has failed to make out a case that the manufacture and supply of cement paint under the brand name ‘Blucem’ was as an agent or contractor of the brand name owner. They have also failed to meet the case of the petitioner on facts that the entire manufacture and supply was on principal to principal basis. I uphold the case of the petitioner on this aspect.

20. Therefore, for the reasons stated above, Writ Petition is allowed and the order passed by the Assistant Collector as per Annexure ‘A’ is quashed. The petitioner is entitled to costs of Writ Petition which is assessed at Rs. 1,000/-.