2014 (12) TMI 316 - AT - Central Excise

Job work - exemption Notification No. 214/86-CX, dated 25-3-1986 - supplier have not given an undertaking to the Assistant Commissioner of Central Excise having jurisdiction over the factory of the job worker as required in terms of the said notification - Held that - Out of the five processes carried out by the Appellants, four processes are outside the purview of manufacture. In other words, none of these four processes amount to manufacture and therefore the question of charging duty on the goods which only suffered these processes does not arise. This fact is so obvious that quoting any judgment on this aspect will be totally redundant and unnecessary. Regarding the process of machining of pinions, while such machining may result in the manufacture depending on the manner and extent thereof, neither the show cause notice nor the adjudication order provides any basis to infer that it actually amounted to manufacture. Even if this process is presumed to be amounting to manufacture, the demand in respect of such goods would only be to the extent of ₹ 13,12,559/- as against ₹ 74,68,635/- confirmed by the impugned order-in-original. Benefit of the said exemption cannot be denied merely because the supplier of the raw material had not submitted an undertaking as per the said Notification particularly when there has been proper accountal of the goods. As may be seen from the show cause notice as well as from the order-in-original, there is no allegation of any deficiency in the accountal of the goods and the supplier in this case is a Public Sector Undertaking/Government company - Decided in favour of assessee.

Summary

Issues:
- Benefit of exemption Notification No. 214/86-CX in absence of supplier's undertaking
- Whether job work activities amount to manufacture
- Liability of job worker for supplier's contravention

Analysis:

Issue 1: Benefit of exemption Notification No. 214/86-CX in absence of supplier's undertaking
The case involved a Stay Application and Excise Appeal filed by the Appellants against a demand confirmed by the Order-in-Original. The demand was based on the Appellants not having an undertaking from the raw material supplier, a Government factory, as required by Notification No. 214/86-CX. The Appellants argued that denial of the exemption due to the supplier's failure to provide the undertaking was not justified, citing various judicial pronouncements. The Tribunal agreed, stating that the benefit of the exemption cannot be denied solely due to the absence of the supplier's undertaking when proper accounting of goods has been maintained, especially when the supplier is a Government entity. The demand was found unsustainable, and the appeal was allowed.

Issue 2: Whether job work activities amount to manufacture
The Appellants were engaged in job work activities for a Government factory, involving various processes such as case hardening, tempering, and machining. The adjudicating authority confirmed the demand, alleging that some processes may amount to manufacture. However, the Tribunal noted that four out of the five processes did not amount to manufacture. Even for the process of machining of pinions, which could potentially be considered manufacturing, there was no evidence provided to establish it as such. The demand was found excessive, and if any manufacturing was deemed to have occurred, the duty liability would only apply to specific goods, not the entire demand amount.

Issue 3: Liability of job worker for supplier's contravention
The Tribunal acknowledged that the job worker had properly accounted for the goods and that the supplier's failure to provide the required undertaking should not render the job worker ineligible for exemption. Citing past judgments, the Tribunal emphasized that as long as the goods were accounted for and there was substantial compliance, the job worker should not be penalized for the supplier's omission. The consistent legal position established in previous cases supported the decision to drop the demand and allow the appeal, rendering the stay application moot.