2015 (1) TMI 1037 - AT - Central Excise

Manufacture of mineral water with the brand name of the appellants by the Job Worker - Who is liable to pay duty - Held that - Observations of the learned Commissioner that the appellant has to be considered as a principal manufacturer just because the job-workers are not free to market the goods manufactured by them. We are also unable to agree with the conclusion that because they are not free to market the goods they are not independent entities. In this case what is being manufactured is packaged mineral water and it is nobody s case that mineral water is manufactured out of raw-material supplied by the appellant. The major input for manufacture of drinking water is not supplied by the appellant. Further even if the job-workers are manufacturing the goods legally only for the purpose of valuation the question as to whether a person is a job-worker or not comes into consideration. In such a case only for valuation purpose the prices at which the goods are cleared by the principal manufacturer are taken into account. We are not aware of any precedent decision nor was any decision placed before us to support the view that if bottles are supplied or raw-materials are supplied and if the job-worker is not free to market the goods manufactured by him the principal manufacturer or the supplier of raw-material has to be considered as the manufacturer. To decide as to who is the manufacturer the question that has to be answered is who converted the raw-material/input into a new product with a distinct name character and use. In this case undoubtedly it is the job-worker. - appellant has made out a case for complete waiver. Accordingly the requirement of pre-deposit of balance dues is waived and stay against recovery is granted for a period of 180 days from the date of this order - Stay granted.

Summary

Issues:
Manufacturer status determination based on supply of materials, Duty liability on branded goods manufactured by job-workers, Principal to principal basis of transaction, Ownership of goods for taxability determination, Liability transfer to job-workers, Valuation for clearance by principal manufacturer, Job-worker as manufacturer.

Analysis:
The judgment revolves around the issue of determining the manufacturer status based on the supply of materials by the appellant, leading to duty liability on branded goods manufactured by job-workers. The appellant, a mineral water manufacturer, supplied materials to job-workers in rural areas. The authorities initiated proceedings deeming the appellant as the manufacturer, resulting in duty demand confirmation and penalty imposition. The appellant argued that the transaction with job-workers was on a principal to principal basis, and ownership of goods or raw materials does not determine taxability. The appellant contended that duty demand was unjustified.

The judgment highlights the importance of ownership and independence in the manufacturing process. The Tribunal rejected the notion that the appellant should be considered the principal manufacturer solely because job-workers were not free to market the goods. It emphasized that the critical factor in determining the manufacturer is who converts raw materials into a new product with distinct characteristics. In this case, the job-workers were identified as the manufacturers of the packaged mineral water, as they transformed the raw materials into the final product.

The Tribunal analyzed the legal framework and precedent decisions to ascertain the manufacturer in such scenarios. It concluded that the appellant did not meet the criteria to be considered the manufacturer, as the job-workers were the entities converting raw materials into the final product. The judgment emphasized that the supply of bottles or raw materials does not automatically confer manufacturer status, especially when the job-workers are responsible for the manufacturing process. The Tribunal granted a waiver of balance dues and imposed a stay on recovery for 180 days, acknowledging the appellant's case for relief.

In summary, the judgment clarifies the manufacturer status based on material supply, duty liability on goods manufactured by job-workers, and the criteria for determining the manufacturer in such arrangements. It underscores the significance of the manufacturing process and ownership in taxability assessments, ultimately ruling in favor of the appellant and granting relief from duty demands.