2014 (12) TMI 947 - AT - Central Excise

Duty liability to be discharged by the Job worker or Principle supplier (the appellant) - manufacture of steel racks and trolleys - Imposition of penalty under Rule 173Q - Held that - Work order dated 8-10-1993 placed by the appellant to M/s. Bonafide Industrial Works besides quoting rate of the job work on per kg. basis, also mentions the conditions, one of which is that all the workers employed by the job worker for this contract would be covered under ESI and PF Scheme as per Labour Laws in force. Thus, in respect of the workers, employed by the job worker, it is the job worker who is responsible for providing the benefits under ESI and PF Scheme to the workers employed by him. It is also not disputed that M/s. Bonafide Industrial Works were doing similar job work for other clients. There is no evidence on record to indicate that M/s. Bonafide Industrial Works is a dummy unit floated by the appellant or is an agent of the appellant. When the transactions between the appellant and the job worker M/s. Bonafide Industrial Works are on principal to principal basis in the sense that both are independent entities and the job worker cannot be said to be a hired labour, working under the control of the Appellant, it is the job worker who has to be treated as manufacturer and not the appellant and, therefore, there would not be any duty liability on the appellant. Just because the raw materials and drawings and designs of the racks and trolleys to be fabricated were supplied by them, the appellant would not become the manufacturer. - Decided in favour of assessee.

Summary

Issues:
Manufacture of steel racks and trolleys, liability to pay duty, principal to principal basis, duty demand, imposition of penalty, job work basis, independent entity, manufacturer, job worker, raw materials supplied, Tribunal judgments, Final Order, hired labour, drawings and designs, ESI and PF Scheme, principal to principal basis, duty liability, sustainable order.

Manufacture of steel racks and trolleys:
The case involved the manufacturing of steel racks and trolleys by the appellant through a job worker. The Department alleged that the appellant was liable to pay duty on the manufactured racks and trolleys, leading to a show cause notice for duty recovery and penalty imposition.

Principal to principal basis and job work basis:
The appellant argued that the transaction with the job worker was on a principal to principal basis, making the job worker the manufacturer, not the appellant. They cited Tribunal judgments to support their claim that the job worker should be considered the manufacturer when fabricating goods on job work basis.

Independent entity and duty liability:
The appellant contended that the job worker was an independent entity, not a hired labor of the appellant. They emphasized that just because raw materials and designs were supplied by them, it did not make them the manufacturer. The appellant argued that duty liability should not fall on them based on the nature of the transaction.

Tribunal's analysis and decision:
After considering arguments from both sides and examining the records, the Tribunal found that the job worker was an independent entity and responsible for providing benefits to its workers. The job worker was not a dummy unit or agent of the appellant. Therefore, the Tribunal concluded that the job worker should be treated as the manufacturer, absolving the appellant of duty liability. The impugned order was set aside, and the appeal was allowed.

Conclusion:
The Tribunal's decision favored the appellant, ruling that the job worker should be considered the manufacturer of the steel racks and trolleys fabricated on job work basis. The appellant was relieved of duty liability based on the principal to principal nature of the transaction and the independence of the job worker. The Tribunal's detailed analysis of the facts and legal principles led to the setting aside of the impugned order and the allowance of the appeal.