2013 (9) TMI 312 - AT - Central Excise

Duty Liability - Stitched Garments From Fabric - Job Work - Whether the appellants were liable to pay excise duty in respect of garments stitched by them from fabric bought or brought by the customers - Held that - Tailor-made garments stitched to the measurement of one individual was also goods which can be brought and sold in the market and thus were excisable - The argument with reference to the budget speech was a very weak argument because reference to such material extraneous to the enacted law can be made only in situations where there was some doubt regarding scope of words and expressions used in the concerned enactment - it was seen the budget proposal itself got changed as normally happened during the consideration stage of the budget as evidenced by rescinding of Notification No. 12/2001-C.E. - So we do not find any reason to deviate from the earlier decision dated 2-5-2008 of the Tribunal in the matter of dutiability of the garments stitched from fabrics bought or brought by customers. Ready-made garments were also stitched according to certain measurements for different sizes and if such garments can fit many customers there was no reason why a garment made for one individual cannot fit another person - the argument that such garments cannot be sold in the market was not acceptable - For deciding marketability, what is to be considered was not whether it was actually brought to the market and sold but whether it can be brought to the market and sold This rule does not state that for textile items job-worker was not the manufacturer - It only says that the duty was to be paid by the person supplying the material as if he was the manufacturer - the appellant had no obligation to pay excise duty on garments stitched out of fabrics bought or brought by the customers - Further if duty liability was determined as if the customer was the manufacturer he should be eligible for exemption for SSI units also. As per Rule 7AA of the Central Excise Rules, 1944 and its successor rules, the responsibility to pay duty on textile articles got manufactured on job-work basis was put on the person who gets goods manufactured on job-work basis - He had to discharge such liability as if he was the manufacturer - This rule does not say anywhere that the person supplying the raw material would be the manufacturer - The rule only says that such person had to discharge the liability and that in the normal course was done by the manufacturer. The matter as to who was the manufacturer when raw material was supplied by a person and manufacturing activity was done by another first arose in the context of deciding eligibility for exemption notification issued under Section 5A of the Act mentioning criteria with reference to the manufacturer. Lifting of Corporate Veil - Clubbing of Entities - Another issue made out by Revenue was that these firms did not have any separate existence and were floated just to avail the benefit of small scale exemption, in respect of garments shown to have been manufactured by these two firms Held that - The quantum of duty involved on account of the issue of clubbing was not coming out very clearly in the order because such demand was jumbled with a few other issues and hence it needed to be re-determined - The claim for exemption under Notification 12/2001-C.E. for the period 1-3-2001 to 30-4-2001 also needed to be examined and the consequence of such claim on the duty demanded needed to be determined - appellant had substantially paid the duty on this count and had at the investigation stage expressed their willingness to settle this matter if that was the only issue involve. K. P. POUCHES (P) LTD. Versus UNION OF INDIA 2008 (1) TMI 296 - HIGH COURT OF DELHI - the respondents should be given an opportunity for settling the matter by payment of the dues as envisaged in Section 11AC of the Act - the role played by each of the persons may be specifically stated and penalty determined considering the lower duty liability that would arise as per this order and the co-operation extended by the appellants by making advance payment and interest made by the main company during investigation stage order set aside - Decided in favour of Assessee.

Summary

Issues Involved:
1. Excisability of garments made from material brought or bought by customers.
2. Liability for excise duty on such garments.
3. Clubbing of clearances of allegedly dummy units with the main appellant.

Issue-wise Detailed Analysis:

1. Excisability of Garments Made from Material Brought or Bought by Customers:
The appellants argued that garments stitched from fabric bought or brought by customers were not marketable and thus not excisable. They relied on the legislative intent and various judicial precedents, including Hindustan Shipyard v. State of A.P., to argue that tailoring activity amounts to rendering service, not manufacture. However, the Tribunal found that garments made to individual measurements could still be marketable and thus excisable, referencing the Supreme Court's decision in Regional Director Employees State Insurance Corporation v. Ram Chander, which held that stitching amounts to manufacture. The Tribunal upheld its earlier decision that such garments are excisable.

2. Liability for Excise Duty on Such Garments:
The appellants contended that under Rule 7AA of the Central Excise Rules, 1944, and its successor rules, the liability to pay excise duty on garments manufactured on job work basis lies with the person supplying the raw materials, not the job worker. The Tribunal agreed, stating that the rule does not contradict judicial decisions like Kerala State Electricity Board v. CCE, which determined the job worker as the manufacturer. The Tribunal concluded that the appellants had no obligation to pay excise duty on garments stitched from fabrics bought or brought by customers, thus setting aside the duty demanded on this count.

3. Clubbing of Clearances of Allegedly Dummy Units with the Main Appellant:
The Tribunal examined whether the units M/s. Ethnocity and M/s. East West Attire were dummy units and found substantial evidence indicating they were controlled by the same management and shared resources with the main appellant, Diwan Sons. The Tribunal upheld the clubbing of clearances, stating that the appellants had not disputed the factual evidence and had even paid a substantial amount of duty during the investigation. The Tribunal also addressed the legal argument that no notice was issued to the dummy units, finding it unmeritorious as the proprietors were fully aware and had responded to the show cause notices.

Conclusion:
The Tribunal upheld the demand for excise duty based on the clubbing of clearances of the dummy units but set aside the demand related to garments stitched from customer-supplied fabrics. The Tribunal remanded the case for re-quantification of duty and re-determination of penalties, considering the advance payments made by the appellants and the need to provide an opportunity for settlement under Section 11AC of the Act.