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2019 (8) TMI 1363 - AT - Central ExciseSSI Exemption - clubbing of clearances - independent Job worker - clubbing of value of clearances made by appellant from its own factory as well as from the factories of the job worker - principal to principal relationship - whether the activity of the job worker amounts to mere processing or it amounts to manufacture as defined under Section 2F of the Central Excise Act, 1944? - HELD THAT - The Hon ble Apex Court in the case of UNION OF INDIA VERSUS DELHI CLOTH AND GENERAL MILLS CO. LTD. 1962 (10) TMI 1 - SUPREME COURT has held that the word manufacture used as a verb is generally understood to mean as brining into existence a new substance and does not mean merely to produce mere change in the substance however, minor in consequence the change may be. In the present case, the raw material has been supplied by the appellant but the subsequent manufacturing activity is admittedly done by the job worker in his own premises without any supervision and control of the appellant - Admittedly, the clearances were also made from the premises of job worker itself. Circular No. 56/56/94 CX dated 14.09.1994 is a precise clarification with respect to the impugned issue of entitlement to SSI exemption to the manufacturer who is supplying raw material to the another person/ the job worker for the manufacture of same final product as is manufactured by him. It is not disputed that job worker is independently clearing the goods manufactured by him. Except receiving raw material from appellant, there is nothing on record to show that job worker herein was an agent of raw material supplier or a dummy. We are of the opinion that adjudicating authority below has committed an error while denying the relationship of appellant and job worker as the one on principal to principal basis. We are, therefore, of the opinion that job worker in the present case, has independent liability towards excise duty. His clearances have wrongly been clubbed with the clearances of the appellant. In the present case, after the raw material being provided by the principal manufacturer/ the appellant herein, to the job worker there was no further control of the former upon the job worker nor did the goods manufactured by the job worker are returned to the appellant. The question of return within stipulated period of 180 days has no meaning in the given circumstances. Also the principal manufacturer/ the appellant had not tendered any undertaking to pay the duty on the activity of the job worker. It has already been observed about the settled law that the ownership of goods and providing of raw material are not the mere criteria to decide the duty liability - It has also been observed that the job worker is independently manufacturing the final product in its own premises without any help of either labour or machine from the principal manufacturer/ the appellant herein, the activity of job worker is not simply of processing but is that of manufacture. As such it is the job worker, in the present case, who was liable to pay the duty. Since there was no duty liability of the appellant with respect to the goods independently got manufactured by his job worker and got cleared by the job workers, clubbing of those clearances to the clearances of appellant so as to deny the benefit of SSI exemption to him, is an absolutely unjustified and apparently a wrong finding. Time limitation - HELD THAT - The clearances for the period w.e.f. April, 2007 to August, 2009 has been objected vide show cause notice of 25.04.2011. The show cause notice is definitely beyond the period of one year - there was no reason that the appellant to not to avail the SSI exemption. Hence, there is no act of having any intent to evade duty with the appellant nor any act of suppression. Accordingly, the Department was not entitled to invoke the extended period of limitation. Penalty - HELD THAT - There is nothing on record which entitles imposition of penalty - penalty set aside. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Clubbing of clearances for SSI exemption. 2. Determination of the relationship between the appellant and job workers. 3. Definition and scope of "manufacture" under the Central Excise Act. 4. Liability of excise duty on goods manufactured by job workers. 5. Applicability of the extended period of limitation for issuing the show cause notice. Detailed Analysis: 1. Clubbing of Clearances for SSI Exemption: The core issue was whether the clearances of the final product by job workers should be clubbed with the clearances of the appellant for denying the SSI exemption. The Tribunal concluded that the job workers were independent manufacturers acting on a principal-to-principal basis. Therefore, their clearances should not be clubbed with those of the appellant, making the denial of SSI exemption unjustified. 2. Determination of the Relationship Between the Appellant and Job Workers: The Tribunal examined whether the relationship between the appellant and the job workers was on a principal-to-principal basis. It was found that the job workers operated independently without any financial or operational control from the appellant. The Tribunal referred to the Circular No. 56/56/94-CX dated 14.09.1994 and various judicial precedents to support this conclusion, emphasizing that the job workers were not mere agents or dummies of the appellant. 3. Definition and Scope of "Manufacture" under the Central Excise Act: The Tribunal analyzed whether the activities of the job workers amounted to "manufacture" as defined under Section 2F of the Central Excise Act, 1944. It was determined that the job workers' activities did constitute manufacturing, as they transformed raw materials into new products independently. The Tribunal cited several Supreme Court judgments, including Union of India Vs. Delhi Cloth and General Mills and Empire Industries Ltd. Vs. Union of India, to affirm that the job workers were indeed manufacturers. 4. Liability of Excise Duty on Goods Manufactured by Job Workers: The Tribunal held that the job workers, being independent manufacturers, were liable to pay excise duty on the goods they manufactured. The appellant's role was limited to supplying raw materials, and there was no further control or supervision over the job workers' activities. The Tribunal noted that the job workers were not exempt from paying duty unless specific conditions under Rule 57 F(4), Rule 4(5)(a) of the Cenvat Credit Rules, or Notification No. 214/86-CE were met, which were not applicable in this case. 5. Applicability of the Extended Period of Limitation for Issuing the Show Cause Notice: The Tribunal found that the show cause notice issued on 25.04.2011 for the clearances made between April 2007 and August 2009 was beyond the permissible period of one year. It was determined that there was no intent to evade duty or any act of suppression by the appellant. Consequently, the extended period of limitation could not be invoked, rendering the show cause notice time-barred. Conclusion: The Tribunal set aside the Order-in-Original and allowed the appeal, concluding that the clearances by job workers should not be clubbed with those of the appellant, and the SSI exemption benefit was wrongly denied. The Tribunal also ruled that the show cause notice was barred by time, and there was no basis for imposing penalties on the appellant.
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