2009 (6) TMI 246 - AT - Central Excise

The appellants were selling ready-made dress material for Punjabi lady suit. - The stitching, cutting the shape is done by the job worker as regards Kurta. The matching Dupatta is obtained by the job workers and matching fabric for Pyjama also obtained and cut by job workers, who puts the three pieces in one pack, puts trade name and gives/sells it to the appellant, who sells it. Therefore, the activity undertaken by the appellant is only receiving set of Punjabi dress material and selling it in the market. Even if it amounts to manufacture, the activity of manufacture is undertaken by the job workers. In absence of Rule 7AA of CER 1944, which fastened the liability of Central Excise duty on ready-made garments on the principal, the liability for payment of duty cannot be shifted from the job worker to the appellant. - There is no dispute that the appellants are not undertaking any activity in the premises. In the absence of specific provision, similar Rule 7AA of CER 1944, quoted by the Commissioner in his order in support of his decision in Rule book, the order has no basis for confirmation of demand against the appellant and accordingly has to be set aside

Summary

Issues: Classification of goods under Central Excise duty; Liability of duty on ready-made garments; Application of Rule 7AA of CER 1944; Principal liability for payment of duty.

In this case, the appellants were involved in the purchase and sale of fabric and selling ready-made dress material for Punjabi lady suits through job workers. The Commissioner classified the product under Chapter Heading 6201 of Schedule to CETA, 1985, as chargeable to Central Excise duty, demanding a substantial amount with interest and penalty. The appellants contended that the process did not amount to manufacture as they sold unstitched Punjabi lady suits, arguing that no new item emerged and the process did not meet the criteria for classification as ready-made garments. They relied on a previous decision to support their stance. Additionally, they claimed that even if the goods were liable for duty, the job workers were the actual manufacturers, and the duty liability should fall on them due to the absence of compliance with Notification No. 214/86. The appellants also disputed the applicability of Rule 7AA of CER 1944 during the relevant period and argued that the job workers were independent principals, not mere workers, supported by sample invoices provided.

The Tribunal found that even if the process amounted to manufacture, the job workers or sellers were the true manufacturers, as the appellants only received and sold the dress material sets. Since the appellants did not undertake any manufacturing activities on the premises and the job workers performed all necessary tasks, the liability for duty could not be shifted to the appellants in the absence of Rule 7AA of CER 1944. The Tribunal emphasized that the absence of a specific provision in the Central Excise law to transfer duty payment responsibility to the seller meant the Commissioner's decision lacked a legal basis. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellants, granting them consequential relief.