Joint Liability

[sujatha shirolkar]

The primary and fundamental meaning of "Excise Duty" or Duty of Excise is tax on articles produced or manufactured in the taxing country and intended for home consumption (i.e. consumption within the same country). It is an indirect duty which the manufacture or producer passes on the ultimate consumer, that is, its ultimate incidence will always be on the consumer. What attracts the duty of excise is an activity, namely, the production or manufacture of goods.

Central Excise duty is an indirect tax levied on goods manufactured in India. The taxable event under the Central Excise law is manufacture and the liability of Central Excise duty arises as soon as the goods are manufactured. The duty, though it becomes payable on the manufacture of goods, is collected at the time of removal of goods from the factory.

To levy Central excise duty, it is necessary that a new article should come into existence as a result of manufacturing activity; unless there is finding of manufacture, excise duty is not attracted. Repair or reconditioning of an article does not amount to manufacture because no new goods come into existence.

The term manufacture is defined under section 2(f) of Central Excise Act 1944. Manufacture involves bringing into existence a new substance having different name, character or use. As the duty is on goods, manufacture must be of goods. In order to be goods, the product should be marketable i.e the product should be known in the market as such and should be capable of being bought and slod in the market. It does not mean that sale of goods is pre-condition for charging duty. Goods which have capability of being bought and sold in the market, will attract Central excise duty even if they are not marketed and may be consumed captively.

Manufacturer is the one who actually undertakes the manufacturing activity. A customer does not become manufacturer by merely supplying raw materials or getting goods manufactured according to his drawings or specifications or with his brand name or trade name. The actual manufacturer or job worker should not be a dummy or hired labourer of the customer.

Under Section 11A of Central Excise Act 1944, Rule 92 of Central Excise Rules 1944 read with Charging section 3 ibid the liability for any duty short levied / short paid is only on the manufacturer and not any other person.

The Tax dispute between assessee and revenue is decided by adjudication officer in adjudication proceedings. These proceedings are quasi judicial in nature. The adjudicating Officers must carefully consider each facts of the case and come to a conclusive proof as regards evader of duty before passing the order. He should not follow easy way and blindly impose duty liability jointly and severally on two companies for the same goods without segregating amount.

It is the consistent view of the Hon’ble High Court and Hon’ble Tribunal in various cases held that there cannot be two manufacturers for the same goods. This Hon’ble Tribunal in recent case in matter of Rimjhim Ispat Ltd V/s.CCE Kanpur 2013 (12) TMI 1233 - CESTAT NEW DELHI held that -

Demand and penalty –Clandestine removal – joint Liability –duty imposed jointly and severally on two companies without segregating amount confirmed against each- Duty cannot be demanded jointly and severally from two different legal entities, one manufacturing ingots and other manufacturing flats following decision in R. Kapadia (2013 (3) TMI 256 - CESTAT MUMBAI) and holding individual liability to be segregated separately against each different individual and common order of joint demand in respect of different assesses cannot be upheld - Impugned order set-aside and matter remanded to adjudicating authority for fixing individual liability separately-Section 11A and 11AC of Central Excise Act.

This Hon’ble Tribunal in a similar matter in Para 6 of their judgment Sree Aravindh Steels Ltd. & ORS. Vs CCE, Trichi 2007 (3) TMI 133 - CESTAT, CHENNAI has observed as under:-

“After considering the submissions, we find that the question whether there could be two manufacturers in respect of the same goods is no longer res integra. There cannot be two manufacturers for the same product” as held by the Tribunal in Orissa Women's Voluntary Services (supra) Tecumseh Products India (supra) and Vadilal Embroidery Unit (supra). It was held to the same effect by the Allahabad High Court in the case of Philips India Limited and Others Vs. Union of India and Others - 1979 (12) TMI 63 - HIGH COURT OF JUDICATURE OF ALLAHABAD. In view of these judicial authorities we cannot accept the finding of the Commissioner that the subject goods had been manufactured jointly by M/s Aravindh and M/s. Arudra and that the two companies are jointly and severally liable to pay duty thereon.”

And also same view is drawn in the following cases;

1. 2005 (7) TMI 206 - CESTAT, MUMBAI Famous Textile Vs CCE, Rajkot;
2. 2005 (7) TMI 602 - CESTAT, MUMBAI Pro-Fashional Computers Vs CCE, Mumbai V
3. 1997 (5) TMI 50 - SUPREME COURT OF INDIA Gajanan Fabrics Distributors Vs Collector central Excise

To Sum Up :

There can not be two manufacturers for the same goods and duty can not be imposed on both legal entities joinltly and severally in view of findings of various authorities.