2024 (12) TMI 344 - AT - Central Excise

Trading of the goods or manufacturing activity - Revenue contended that the Appellant had actually undertaken the manufacturing activity by themselves and created a network of job workers to create an impression that the goods were manufactured by job workers - entire case has been built upon by the department on the basis of the statements recorded from the job workers - invocation of extended period of limitation. Whether the appellant-company is the manufacturer or the job worker, who has undertaken the activities as per the designs supplied by the Railways, on the raw materials supplied by the appellant, is the actual manufacturer? HELD THAT - It is observed that the activities such as quality testing, labelling/branding etc may or may not amounts to 'manufacture'. It depends upon the facts and circumstances of each case. However, before going into the question whether quality testing, labelling/branding etc amounts to manufacture or not it must be established that the appellant has actually undertaken such activities in their factory premises. In the present case, it is observed that the appellant did not have any manufacturing facility in their premises; there was no machinery found during the course of search; no raw material or manufactured goods were found in the process of manufacturing at the time of search; there was no manpower employed by them for undertaking the manufacturing process; the monthly electricity charges of the factory was within Rs.4,000/- to Rs.5,000/- which evidences that no manufacturing activity was undertaken in the factory. Thus, we observe that the evidences available on record does not support the conclusion arrived at by the adjudicating authority that the appellant has undertaken some activity amounting to 'manufacture' in their premises. The adjudicating authority has not produced any other evidence to substantiate the allegation that the appellant has actually carried out testing, branding etc in their premises. In the absence of any such evidence, it cannot be presumed that the appellant has undertaken these activities after receiving the goods from the job workers. Further, it is observed that the levy of Central Excise Duty is on the activity of manufacture , but in the Show Cause Notice it is nowhere mentioned as to what item had been manufactured and as to what quantity of the goods had been manufactured by them. It is observed that without identification and quantification of the goods, the Show Cause Notice issued is ex-facie bad in law. The evidence available on record does not indicate that the appellant has undertaken any of the activities amounting to 'manufacture' in their factory premises. Accordingly, the demand of central excise duty confirmed in the impugned order set aside. Since, the demand of duty is not sustainable, the question of demanding interest or imposing penalty on the appellant-company does not arise. Invocation of extended period of limitation to demand central excise duty - HELD THAT - Since, there is no suppression of facts with intention to evade the tax established in this case, raising the demand by invoking extended period of limitation again is legally not sustainable. It is found that this view has been held by the Hon ble Supreme Court in the NIZAM SUGAR FACTORY VERSUS COLLECTOR OF CENTRAL EXCISE, AP 2006 (4) TMI 127 - SUPREME COURT wherein it has been categorically held that once a demand has been raised for any issue by invoking the extended period of limitation, then another demand cannot be raised again by invoking the extended period on the same issue for a subsequent period - the demands confirmed in the impugned order by invoking the extended period of limitation is not sustainable. Since there is no corroborative evidence brought on record by the respondent to substantiate the allegation that the Appellant are the actual manufacturers of the goods in question, it is held that the job workers are the actual manufacturers of the goods in this case, as has been claimed by the Appellant. The demand of Central Excise duty from the Appellant-company is not sustainable in law. Since the demand itself is not sustainable, the question of demanding interest or imposing penalty on the Appellant-company under Section 11AC of the Central Excise Act, 1944 or under Rule 25(1)(c) of the Central Excise Rules, 2002 does not arise - the demand of interest and penalties imposed on the Appellant-company are set aside. Penalty imposed on the Partner of the Appellant-company - HELD THAT - Penalty has been imposed on the ground that the Partner played a role in the commission of the alleged offence. Since it is already held that the demand of duty on the activity undertaken by the Appellant is not sustainable, the role of the appellant in commission of the alleged offence is not established. Accordingly, the penalty imposed on the Partner viz. Shri Sudipta Dey under Rule 26(1) of the Central Excise Rules, 2002 is also set aside. The demands confirmed in the impugned order are set aside and the appeals filed by both the Appellants are allowed

Issues Involved:

1. Determination of the actual manufacturer liable for Central Excise Duty.
2. Legality of the Show Cause Notice based on identification and quantification of goods.
3. Invocation of the extended period of limitation for raising the demand.
4. Validity of penalties imposed on the Appellant-company and its partner.

Detailed Analysis:

1. Determination of the Actual Manufacturer:

The primary issue was whether the Appellant-company or the job workers were the actual manufacturers liable for Central Excise Duty. The Appellant argued that due to labor unrest, they outsourced manufacturing to job workers who independently completed the manufacturing process. The department alleged that the Appellant was the manufacturer because they supervised the job workers and conducted some processes on semi-finished goods. However, the tribunal found no evidence of manufacturing activity at the Appellant's premises, such as machinery or significant electricity usage. Statements from job workers did not conclusively prove that the Appellant undertook any manufacturing process. Therefore, the tribunal concluded that the job workers were the actual manufacturers, and the Appellant was not liable for the duty.

2. Legality of the Show Cause Notice:

The Appellant contended that the Show Cause Notice was flawed as it did not specify the items or quantities allegedly manufactured. The tribunal agreed, noting that the notice lacked identification and quantification of goods, making it legally unsustainable. The tribunal emphasized that without clear identification of manufactured goods, the notice was invalid.

3. Invocation of the Extended Period of Limitation:

The Appellant argued against the invocation of the extended period of limitation, citing a previous adjudication where similar charges were dropped. The tribunal agreed, referencing a Supreme Court decision that once an issue is settled, the extended period cannot be invoked again for the same issue. The tribunal found no suppression of facts by the Appellant and held that the demand was time-barred.

4. Validity of Penalties:

The penalties imposed on the Appellant-company and its partner were challenged. Since the tribunal found the demand for duty unsustainable, it concluded that the penalties were also unwarranted. The tribunal set aside the penalties, noting that the Appellant had not committed any offense warranting such penalties.

Conclusion:

The tribunal set aside the demand for Central Excise Duty and associated penalties against the Appellant-company and its partner. It ruled that the job workers were the actual manufacturers and that the Show Cause Notice was legally deficient. The invocation of the extended period of limitation was deemed unsustainable, and the penalties were invalidated. The appeals were allowed with consequential relief as per law.

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