1996 (3) TMI 248 - AT - Central Excise

Summary

Issues: Determination of duty payable by job workers of a company, applicability of duty exemption notifications, manipulation of prices by the company affecting duty payable, imposition of penalty on job workers, invocation of extended period of limitation for demand, protection of job workers from pre-deposit requirement, dispensation of pre-deposit requirement for penalty imposed on a director.

Analysis:

The judgment pertains to a batch of appeals filed by manufacturers of cigarettes, acting as job workers of a company, regarding the determination of excise duty payable during the period of 1983 to 1987. These job workers, considered as manufacturers of cigarettes, were required to pay excise duty at the time of clearance, with the company paying the duty on their behalf. The duty was based on printed prices on packages, and duty exemption notifications were linked to these prices.

The central issue revolved around the company allegedly manipulating price levels, squeezing retailer margins, and selling packages above printed prices. Consequently, the duty payable was determined based on these higher market prices, leading to a demand for differential duty from both the company and the job workers. The total amount of duty due from the job workers was significant, amounting to Rs. 115.27 crores, with a penalty of Rs. 6.76 crores imposed on them.

The judgment highlighted that the job workers were not involved in marketing, sales, or profit decisions of the company. The show cause notice primarily targeted the company for fraud and suppression of facts, without specific allegations against the job workers. The court found that the job workers had a strong prima facie case against the application of the extended limitation period, as they were not directly linked to the alleged fraudulent activities of the company.

Regarding the imposition of penalties, the court decided to dispense with the pre-deposit requirement for both the job workers and a director of the company involved in the appeals. It was deemed necessary to protect the job workers from pre-deposit, considering the lack of specific evidence connecting them to the company's actions. The judgment concluded by staying the recovery of demanded amounts until the disposal of the appeals, providing relief to the appellants.