2017 (3) TMI 1143 - AT - Central Excise

Govt. of India undertaking - job-work - The case of the department is that as per the Rule 12B in CER, 2002 w.e.f 1-4-2003 the appellant being raw material supplier is required to pay duty on the goods manufactured on job work basis by independent job worker on behalf of the appellant - Held that - as regard the goods falling under Chapter 62 there was statutory provisions u/r 4 of CER, 2001 that in case of job work principle raw material supplier is required to pay the duty. This provision was effected from 1-3-2001, Accordingly demand pertains to the period October, 2002 to March, 2003 on the goods of chapter 62 is correct and recoverable - as regard the penalty, the appellant being government of India undertaking and issue involved being interpretation of the law in respect of special provisions only in respect of textile articles, we do not find any malafide on the part of the appellant, we therefore set aside penalty imposed u/s 11AC corresponding to the demand of ₹ 67,616/- As regard the demand in respect of goods of Chapter 63 for the period October, 1999 to March, 2003, the lower authority was of the view that appellant had control over the job worker, hence the demand is recoverable from the appellant - is demand justified? - Held that - arrangement of job work is always the same as when the job worker carry out the job work the principle supplier of raw material is always concern about brand name, quality of the goods and timely supply but this facts are not sufficient to show that the appellant is controlling the job worker. Therefore reason for demanding the duty from the appellant given by the lower authorities is absolutely incorrect and without authority of law. - demand set aside. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Interpretation of Rule 12B in Central Excise Rules, 2002 for duty payment on goods manufactured on job work basis. Control and liability of duty on the government undertaking for goods manufactured under their brand name. Penalty imposition under Section 11AC for duty evasion.

Analysis:
The judgment involves a government undertaking engaged in manufacturing readymade garments and textile articles through job work basis. The issue revolves around the interpretation of Rule 12B in Central Excise Rules, 2002 for duty payment by the raw material supplier for goods manufactured on job work basis. The department demanded duty from the appellant for readymade garments falling under Chapter 62 and other textile articles under Chapter 63. The lower authorities contended that since the job worker manufactured the products under the appellant's brand name and control, the duty liability falls on the appellant.

The appellant argued that as per Rule 4 of Central Excise Rules, 2001, duty payment by the raw material supplier is required only for readymade garments falling under Chapter 62. They emphasized that the duty liability for goods falling under Chapter 63 was fastened from 1-4-2003, per the amended Rule 12B of Central Excise Rules, 2002. The appellant denied any malafide intention for duty evasion, especially as a government undertaking. They highlighted that the issue pertains to the interpretation of law regarding manufacturing of textile articles, without any suppression of facts to warrant penalty under Section 11AC.

The Revenue reiterated the lower authorities' findings, emphasizing the appellant's control over the job worker and the manufacturing of goods under the appellant's brand name. However, after considering both sides' submissions and perusing the records, the Tribunal found that duty payment by the appellant for goods falling under Chapter 62 was correct for the period specified. Yet, regarding the penalty, given the absence of malafide intent and the issue's complexity in interpreting special provisions for textile articles, the penalty under Section 11AC corresponding to the demand for Chapter 62 goods was set aside.

Regarding the demand for goods falling under Chapter 63, the Tribunal disagreed with the lower authorities' reasoning that the duty should be demanded from the appellant due to control over the job worker. The Tribunal clarified that the duty liability for Chapter 63 goods was fastened from 1-4-2003, and the mere concern over brand name and quality does not establish control over the job worker. Consequently, the demand for duty, penalty, and interest on Chapter 63 goods was dropped, and the appeal was partly allowed in favor of the appellant.