2019 (3) TMI 101 - SC - Central Excise

Job work - Computation of Aggregate turnover of the goods - Rectification of mistake - Section 35L of the Central Excise Act, 1944 - clearance of cotton fabrics and cotton made-ups without payment of any duty - case of appellant is that the job workers were the manufacturers and that no liability could be fixed on the traders - Circular dated 30.10.2003 - threshold limit of clearances for each job-worker - whether the Appellants liability is only in respect of the clearance of that job worker whose clearance was greater than the limit of ₹ 25 lakhs or in respect of the entire aggregate value of clearances? Held that - The Exemption Notification dated 30.04.2003 exempts first clearances for home consumption, upto an aggregate value not exceeding twenty lakh rupees . The emphasis is on the aggregate value and what is exempted is, upto an aggregate value . The conditions stipulated in Para 2 of said Exemption Notification, specially clauses (i) and (ii) again emphasize the applicability in respect of aggregate value of clearances for home consumption and not separately regarding individual clearances . The extent of limits was raised by subsequent Notification dated 17.05.2003. 3 Introduced on 25.03.2003 - The Exemption Notification does not put the matter at individual clearances of job workers and what is to be considered is an aggregate value of the clearances. It is well settled that if a legal fiction is introduced that legal fiction must be taken to the logical end. If the contention of the Appellant is accepted, a dealer may get the goods referred to in Rule 12B manufactured from several job workers to ensure that the value of the clearances from each job worker is less than the limit prescribed for individual clearances. In such a case the emphasis in the Rule regarding aggregate clearances would be rendered meaningless. The assessment made by the Appellate Authority and the Tribunal was, therefore, correct - Consequently, it was not the individual clearance of one single job worker alone exceeding the limit of ₹ 25 lakhs but the aggregate of all clearances made by the Appellant, was liable to duty. Appeal dismissed.

Summary

Issues Involved:
1. Applicability of Rule 12B of the Central Excise Rules, 2002.
2. Interpretation of Exemption Notification dated 30.04.2003.
3. Clarification issued by Circular dated 30.10.2003.
4. Liability of traders versus job workers for excise duty.
5. Aggregate value of clearances and its implications.

Issue-wise Detailed Analysis:

1. Applicability of Rule 12B of the Central Excise Rules, 2002:
The appeals questioned the applicability of Rule 12B, which mandates that any person who gets yarn or fabrics, or readymade garments or made-up textile articles produced on job work must obtain registration, maintain accounts, and pay duty as if he is an assessee. The Appellants argued that the duty liability should be on the job workers who are the actual manufacturers. However, the court noted that Rule 12B creates a legal fiction, treating the person who gets the goods manufactured as an assessee, thereby fixing liability on such person.

2. Interpretation of Exemption Notification dated 30.04.2003:
The Notification exempts first clearances for home consumption up to an aggregate value not exceeding twenty lakh rupees from excise duty. The emphasis is on the "aggregate value" of clearances. The court highlighted that the language of the Notification is clear in exempting only up to an aggregate value of clearances, not individual clearances.

3. Clarification issued by Circular dated 30.10.2003:
The Circular provided three illustrations to clarify the applicability of the Exemption Notification. The court found that the first and second illustrations support the view that once the aggregate value of clearances exceeds the limit, the entire clearance becomes dutiable. The third illustration, which seemed to exempt traders if individual job workers' clearances were below the limit, was found inconsistent with the overall scheme of Rule 12B and the Exemption Notification.

4. Liability of traders versus job workers for excise duty:
The Appellants contended that job workers should be liable for duty, not the traders. However, the court upheld the view that under Rule 12B, the trader who gets the goods manufactured is treated as the assessee and is liable for duty on the aggregate value of clearances. The court rejected the argument that only the job worker exceeding the limit should be liable, affirming that the trader's aggregate clearances are subject to duty.

5. Aggregate value of clearances and its implications:
The court emphasized that the Exemption Notification and Rule 12B focus on the aggregate value of clearances. Accepting the Appellants' contention would render the emphasis on aggregate clearances meaningless, as traders could circumvent liability by distributing manufacturing across multiple job workers. The court concluded that the aggregate value of all clearances made by the Appellants was liable to duty, affirming the decisions of the Appellate Authority and the Tribunal.

Conclusion:
The appeals were dismissed, affirming the Tribunal's view that the Appellants were liable for excise duty on the aggregate value of clearances made through job workers, in line with Rule 12B and the Exemption Notification. The court upheld the imposition of duty and penalties as per the show cause notices, emphasizing the legal fiction created by Rule 12B and the aggregate value criterion in the Exemption Notification.