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Judgment
The issue in this appeal relates to denial of SSI exemption under Notification No.8/2003-CE by clubbing the clearances of job worker with that of
the appellant and consequential demand of duty amounting to Rs.42,56,057/- along with penalty for the period April, 2008 to August, 2009.
In addition to manufacturing of the final products within its factory, the appellant also engages other manufacturers (industries) to do manufacturing
activity on job work basis, for which raw materials are supplied by the Appellant. The manufacturing activity in such cases is undertaken by job
workers in their own premises. Appellant neither operated under rule 4(5)(a) of the Cenvat Credit Rules, 2004 (Credit Rules), nor undertook any
responsibility of using job worked goods in further manufacture of dutiable goods and of discharging duty liability thereon, in terms of Notification No.
83/94-CE dated 11.04.1994, 84/94-CE dated 11.04.1994 or 214/86-CE dated 25.03.1986. Further, no declaration/undertaking to pay duty was filed by
the Appellant under the said Notifications.
The appellant has been availing Small Scale Industries (SSI) exemption benefit under Notification No.8/2003-CE dated 01.03.2003, during the
period of dispute. Upon perusal of Appellant’s financial statements for FY 2008-09, during the audit in November, 2010 [IAR at pg. 107-109 of
Appeal paper book], Department noticed that Appellant booked sales of Rs.1,40,90,598/- against its own manufactured goods and Rs.2,65,80,100/-
against the goods manufactured on job work basis. Department further noticed that Appellant is not registered (as a Registered manufacturer) under
Rule 9 of the Central Excise Rules, 2002 (Excise Rules) to which appellant responded that its unit is availing SSI exemption benefit.
Vide letter dated 17.03.2011, Department communicated the audt objection to the appellant. The appellant, vide letter dated 22.03.2011 responded
that since subject goods were not manufactured in appellant’s factory, but in the factory of the job workers, and such job work was on principal to
principal basis, clearance of goods manufactured by the jobworkers (directly to the buyers) cannot be clubbed with that of goods manufactured by the
appellant in its own factory.
In the above factual background, show cause notice dated 30.01.2012 (SCN) was issued to the appellant, proposing duty demand of Rs.42,56.057/-
under the proviso to Section 11 A(1) of the Central Excise Act, 1944 (Excise Act) by invoking the extended period of limitation along with interest
under Section 11AB /11 AA ibid and penalty under Section 11 AC ibid, read with Rule 25 of the Excise Rules and under Rule 27 ibid. The show
cause notice alleged that the value of clearances made by the Appellant from its own factory as well as from the factories of the jobworkers are liable
to be clubbed in terms of Para 2(v) & (vii) of Notification No.8/2003 CE, for denial of benefit of exemption under the said notification.
Appellant filed detailed reply to the show cause notice vide letter dated 04.03.2013 rebutting the allegations contained in the show cause notice. The
ld. Additional Commissioner, vide Order-in-Original dated 11.03.2013 (Order-in-Original) dropped the proceedings initiated vide the show cause notice
and held that the appellant has correctly availed the benefit of SSI exemption during the relevant period. The ld. Adjudicating Authority observed, inter
alia, that appellant has merely supplied raw materials to its job workers without operating either under the provisions of Rule 4(5)(a) of the Credit
Rules or under Notification No.214/86-CE, it is the job-workers who have actually carried out the manufacturing activities in their respective factories
and thus, they are the manufacturers under the Central Excise Law, who are liable to pay duty. Therefore, the Adjudicating Authority concluded that
Appellant cannot be considered as ‘manufacturer’ of those goods manufactured by these job workers.
Being aggrieved with the order-in-original, the Department filed an appeal before the ld. Commissioner (Appeals) in compliance with the Review
Order No.41/2013 dated 03.06.2013 passed by the ld. Commissioner, Jaipur-II. The appellant also filed cross objections on 08.12.2017, against the
Department’s appeal.
The ld. Commissioner (Appeals), vide Order-in-Appeal dated 23.8.2018 (impugned Order) has confirmed the duty demand amounting to
Rs.42,56,057/-, as proposed in the show cause notice, by invoking the extended period of limitation, along with interest and imposed penalty equal to
the demand confirmed.
Being aggrieved with the impugned order, the appellant has filed the present appeal before the Hon’ble Tribunal on the following grounds which
are independent of and without prejudice to each other.
Ld. Counsel for the appellant, at the outset, urges that the similar issue has been considered by this Tribunal in the case of sister unit of the
appellant viz. Mewar Hi-tech Engineering Ltd., whereby this Tribunal vide Final Order No.A/51162/2019-EX(DB), decided the issue in favour of the
appellant.
Ld. Counsel further urges that admittedly the goods have been manufactured by the job workers independently without any control and supervision
of the appellant. Only for mere supply of raw materials by the appellant, would not cast excise duty liability on the appellant. Further, the transactions
between the appellant and the job workers were on principal to principal basis. The entire manufacturing process in the job work’s premises were
carried out by the job worker independently, without involvement of the appellant. Further, the premises of the job workers are admittedly independent
nor it is the case of the Revenue that such job workers are dummy units of the appellant, nor is there any case of financial interdependence of the
appellant with that of its job workers.
It is further urged that ownership of the raw materials is not relevant for deciding, who is the manufacturer. For the sake of supply of
specifications of the stone crusher to be manufactured by the job workers, the appellant cannot be held to be manufacturer and held liable to pay duty.
Admittedly, the appellant has not undertaken the responsibility to discharge the duty liability on behalf of the job worker in terms of the notification
related to the job worker read with Rule 4(5)(a) read with Rule 4(6) of the Cenvat Credit Rules. Further, it is urged that clubbing of the clearances of
the appellant with the job worker is bad also on the ground of non-joinder of essential parties, as the job worker is not made co-noticee.
It is further urged that under the facts and circumstances the appellant has maintained proper books of accounts and recorded transactions therein.
No case of any fraud, suppression of facts, etc is made out and hence, extended period of limitation is not invokable. Admittedly, show cause notice
has been issued pursuant to the audit and the issue is wholly interpretational in nature. Further, the appellant was under bona fide belief that under the
facts and circumstances, the duty liability, if any, arises on the job workers, as the job workers are the real manufacturers as per the provisions of the
Central Excise Act.
The ld. Authorised Representative for the Department relied upon the impugned order.
He further urges that though the clearances of final products manufactured by the job workers, were made directly by the job workers to the
buyers of the goods, but as the commercial invoices for sale of such goods have been raised by the appellant, and the job workers have only received
their job charges, thus, the appellant is the actual manufacturer and accordingly, the Court below has rightly held that they are liable to pay duty.
Opposing the contention of the Revenue, the ld. Counsel for the appellant urges that there is no such allegation in the show cause notice that the
job workers are mere dummy units of the appellant and under such admitted facts neither the turnover of the job works can be clubbed nor any duty
demanded on the clearances made by the job workers.
Having considered the rival contentions, we find that the similar issue has been decided in favour of the appellant under the similar facts and
circumstances, vide Final Order No.A/51162/2019-EX(DB) dated 30.08.2019 in the case of M/s.Mewar Hi-Tech Engg. Ltd., wherein this Tribunal
held that the taxable event for the central excise duty is the manufacture of excisable goods, and 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. Thus, the sale or the ownership of the end product is absolutely
irrelevant for the purpose of taxable event under the scheme of the Central Excise Act, read with the Rules. Further, the job worker is not liable to
pay duty only in the circumstances under the erstwhile Rule 57(F) of Central Excise Rules, 1944, or according to the present Rule 4 (5)(a) of CCR,
2004 read with the relevant Notification No.214/86-CE dated 25.03.1986, wherein the principal manufacturer gives an undertaking to the jurisdictional
Central Excise Authority of the job worker to pay the duty. In the present case, admittedly, no such procedure was undertaken. Hence, under the
scheme of the Act, ipso facto the duty liability is on the job worker. Accordingly, we hold that the appellant is not liable to pay any central excise duty
for the goods got manufactured and cleared from the job worker’s premises.
As regards the issue of limitation, we find that admittedly, the appellant has maintained proper books of accounts’ register and vouchers of
their transactions and has also disclosed such transactions before other Tax Authorities, as the appellant was not liable to pay central excise duty being
an SSI Unit, not requiring registration under the Central Excise Provisions. Accordingly, we hold hat the demand for the extended period of limitation
is also not maintainable
Accordingly, we allow this appeal and set aside the impugned order. The appellant is entitled to consequential benefits in accordance with law.
[Order pronounced on 01.10.2020]