M/s Prem Stores Vs Employees State Insurance Corporation and Anr.

1 - Employees State Insurance Corporation Regional Office, Through Amarnath Prasad, Deputy Director Insurance, 1, Panchdeep Bhwan, Nand Nagar, Indore M.P. At Present E.S.I. Corporation 107, Ramnagara Road, Kota Raipur, Chhattisgarh, Chhattisgarh

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2 - The Manager Through Local Office Employees State Corporation, M.I.G.D27, Sector-1 Devendra Nagar, Raipur, Chhattisgarh, District : Raipur, Chhattisgarh

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... Respondents

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(Cause title taken from Case Information System)

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[

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For Appellant : Mr. Harshal Chouhan, Advocate. For Respondent(s) : Mr. Pranav Saxena, Advocate.

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Hon’ble Mr. Justice Naresh Kumar Chandravanshi

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Order on Board

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05/02/2025

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1. This appeal has been preferred by the appellant under Section 82(2) of the Employees State Insurance Act, 1948 (henceforth “ESI Act, 1948’) challenging the order dated 09.02.2015 passed by Employees Insurance Court

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– Labour Court No. 1, Raipur (C.G.) in Case No. 129/E.S.I. Act/2002 whereby

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Employees Insurance Court has held that the premises of the shop of the appellant comes under the definition of “factory” as per E.S.I. Act, 1948, as it carries out ‘manufacturing process’.

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2. Facts of the case, in nutshell, is that the Appellant is a registered partnership Firm running a small readymade garment’s shop at Raipur, which was registered under M.P. Shops and Establishment Act, 1958. On 12.03.2001, establishment of the appellant was inspected by the Insurance Inspector, E.S.I., Raipur and on the basis of inspection carried out by the Inspector and considering the work of alteration of cloth and ironing done by the Appellant in the premises of shop as “manufacturing process” as per the definition of E.S.I. Act, 1948, respondent No. 1 vide its order No. 402, dated 27.04.2021 held that the shop of the appellant comes under the coverage of provisions contained in E.S.I. Act, 1948, as the premises of the appellant comes under the definition of factory as per Section 2(12)(a) & 2(12)(b) of the E.S.I. Act, 1948.

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3. Aforesaid order was challenged by the appellant before learned Court of Employees Insurance Court, Labour Court No. 1, Raipur, who dismissed the application filed by the appellant herein. Hence, this appeal.

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4. This appeal is admitted for hearing on the following substantial questions of law :-

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“(i) Whether the activity of selling of readymade garments and its alteration can be considered as “Manufacturing” under the definition of E.S.I. Act 1948 ?

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(ii) Whether the premises of the shop of the appellant comes under the definition of “factory” as per E.S.I. Act 1948 ?

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5. Learned counsel for the appellant would submit that alteration of the ready-made garments will not come under the definition of “Manufacturing” as per the ESI Act, 1948 and if the manufacturing of garments was not happening

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in the premises of the shop of the appellant, then the premises of the appellant’s shop will not fall under the definition of “Factory” as defined under Section 2( k) of the Factories Act, 1948. In this regard, he placed reliance upon the judgment of the Supreme Court in the matter of Kores India Ltd., Chennai vs. Commissioner of Central Excise, Chennai1 and Hotel New Nalanda vs. Regional Director, Employees’ State Insurance Corporation 2 in support of his submission.

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6. In reply, learned counsel appearing for respondents would submit that the appellant used to sell ready-made garments in its shop by altering and ironing the same. It is submitted that 17 employees were working in the shop of appellant, as such, the appellant’s Firm very well come under the definition of “Factory” under the Factories Act, 1948. He submits that ‘manufacture of any article’ and ‘manufacturing process’ is totally different, therefore, case law cited by the appellant is not helpful to him.

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7. I have heard learned counsel appearing for the parties and perused the material available on record.

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8. In the case of Kores India Ltd., Chennai (supra), their Lordships of the Supreme Court have held as under :-

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“12. 'Manufacture' is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that in manufacture something is brought into existence, which is different from that, which originally existed in the sense that the thing produced is by itself a commercially different commodity whereas in the case of processing it is not necessary to produce a commercially different article. (See Mis. Saraswati

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1 (2005) 1 SCC 385

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2 (2009) 14 SCC 558

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Sugar Mills and Others v. Haryana State Board and Others , [1992] 1 SCC 418).

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The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between 'processing and manufacture', results in an oversimplification of both and tends to blur their interdependence. (See Ujagar Prints v. Union of India , [1989] 3 SCC 488 ).

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To put differently, the test to determine whether a particular activity amounts to 'manufacture' or not is: Does new and different goods emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes 'manufacture' takes place and liability to duty is attracted. Etymologically the word 'manufacture' properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India , [1985] 3 sec 314.

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9. In the matter of Hotel New Nalanda (supra) , their Lordships of the Supreme Court have held as under :-

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“18. For holding an establishment to be a 'factory' within the meaning of section 2(12) of the Act it must first be ' established that some work or process is carried on in any part of the establishment that amount to 'manufacturing process' as defined under section 2(k) of the Factories Act, 1948. In case the number of persons employed in the establishment is less than twenty but more than ten then it must further be established that the manufacturing process in the establishment is being carried on with the aid of power.

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Further, the use of power in the manufacturing process should be direct and proximate. The expression 'manufacturing process being carried on with the aid-of power' in section 2(12) of the Act does not mean a very indirect application of power such as use of electric bulbs for providing light in the workarea.

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Unless the links are established, that is to say, it is shown that some process or work is carried on in the establishment which qualifies as 'manufacturing process' within the meaning of section 2(k) of the Factories Act and the manufacturing process is carried on with the aid of power, the mere presence of a refrigerator and a grinder there, even though connected to the main power line may not necessarily lead to the inference that the establishment is a factory as defined under section 2(12) of the Act.

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10. During course of arguments, learned counsel appearing for the appellant stated that the appellant did not dispute that 17 employees were working in the ready-made garments shop of appellant. Perusal of oral & documentary evidence available on record adduced by the respondents, particularly, survey report (Ex.D-1c), which has been proved by S.K. Vernwal (NAW-1), Social Security Officer show that alteration and ironing of ready-made garments were being carried out at the premises of the appellant. Nothing has been elicited by

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the appellant in his cross-examination to discard his deposition as well as inspection report (Ex.D-1c).

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11. From perusal of evidence adduced by the parties specifically shows that appellant’s firm used to sell ready-made garments and in this process, he also used to alter the garments and, thereafter, ironing it by using electricity. his activity of the appellant brings it within the definition of Section 2(k)(i) of the Factories Act, 1948 and using electricity for ironing the altered finished garments, as provided in Section 2(12)(a) of the E.S.I. Act, 1948 [as the provision was before 2010], also brings the appellant’s firm within the purview of the definition of “factory”.

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12. In the ready-made garments, there is no need of ironing them. But, in the instant case, appellant used to iron the ready-made garments after its alteration, therefore, case of Hotel New Nalanda (supra) cited by the appellant is not helpful to him in the instant case, rather in aforesaid case, Hon’ble Supreme Court has held that, “use of power in the manufacturing process should be direct and proximate. The expression “manufacturing process being carried on with the aid of power” in Section 2(12) of the E.S.I. Act, 1948 does not mean a very indirect application of power such as use of electric bulbs for providing light in the work area. But, in the instant case, it is evident that appellant used to electric power for ironing the altered ready-made clothes, therefore, such use of electricity is found to be direct and proximate to the ‘manufacturing process’.

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13. ‘ Manufacture’ and ‘manufacturing process’ is different nature of activity. ‘Manufacturing process’ has been defined in Section 2 (k) of the Factories Act, 1948, which includes, altering, repairing & finishing, etc., therefore, judgment of Kores India Limited, Chennai (supra) relied by the appellant, is also not helpful in the instant case, as in the present case, appellant was ironing the readymade clothes after altering the same for the purpose of making it marketable.

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14. In view of above, I do not find any illegality or infirmity in the impugned order dated 09.02.2015 passed by State Employees Insurance Court- Labour Court No. 1, Raipur (C.G.), hence, the same deserves to be upheld. As such, both the substantial questions of law are answered accordingly in favour of respondents and against the appellant.

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15. As a consequence, the misc. appeal, being devoid of merit, is liable to be and is hereby dismissed.

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Sd/-

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(Naresh Kumar Chandravanshi) Judge

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Amit

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AMIT Digitally signedby AMIT KUMAR KUMAR DUBEYDate: DUBEY 2025.02.1411:54:39 +0530

M/s Prem Stores v. Employees State Insurance Corporation and Anr.

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M/s Prem Stores v. Employees State Insurance Corporation and Anr.

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