2019 (7) TMI 458 - AT - Central Excise

SSI Exemption - non-inclusion of value of goods which was manufactured by them on job work basis on behalf of the various principals - crossing of threshold exemption - non-filing of declaration/ undertaking under N/N. 214/86-CE. by the suppliers - Extended period of limitation - Penalty - HELD THAT - As per the decision of THERMAX BABCOCK AND WILCOX LTD., THERMAX LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I 2017 (12) TMI 266 - CESTAT MUMBAI the liability to pay duty in respect of goods produced on job work basis lies with the appellant being manufacturer of goods. However, since the issue regarding liability of duty on manufacturer vis a vis principal was referred to Larger Bench of Tribunal in case of Thermax Babcock Wilcox Ltd. extended period of limitation cannot be invoked in view of the decision of Tribunal in case of MARSHA PHARMA PVT. LTD. VERSUS COMMISSIONER OF C. EX., VADODARA 2009 (6) TMI 818 - CESTAT, AHMEDABAD . The demand beyond the normal period of limitation is set aside - penalty is also set aside - appeal allowed in part.

Issues: Appeal against confirmation of demand and penalty under small scale exemption Notification 8/03-CE for goods manufactured on job work basis without including their value in aggregate clearance. Dispute over denial of benefit under Notification 214/86 due to non-compliance by material suppliers. Jurisdictional issue regarding penalty imposition without notice. Dispute on limitation period for demand. Liability of duty on goods manufactured on job work basis.

Issue 1: Small Scale Exemption and Job Work Basis
The appeal was filed against the confirmation of demand and penalty by M/s Hi Scan Pvt. Ltd. for not including the value of goods manufactured on job work basis in their aggregate clearance under small scale exemption Notification 8/03-CE. The appellant argued that they were entitled to the exemption even for goods manufactured on job work basis, citing various Tribunal decisions supporting this claim. The original adjudicating authority had dropped the demand for the period before 01.04.2006 but confirmed it thereafter. The Commissioner (Appeals) upheld the demand and imposed a penalty, which the appellant contested. The Tribunal noted that the appellant had received material for manufacturing under job work but failed to consider these goods in their aggregate clearance. The issue of liability of duty on goods manufactured on job work basis vis-a-vis the principal was in doubt, leading to a referral to the Larger Bench, which resolved the doubt in favor of the appellant. Thus, the demand beyond the normal limitation period was set aside, and the penalty was also revoked, partially allowing the appeal.

Issue 2: Denial of Benefit under Notification 214/86
The dispute revolved around the denial of benefit under Notification 214/86 due to non-compliance by material suppliers in filing declarations or undertakings. The appellant argued that failure by the suppliers to follow the prescribed procedure should not disentitle them from the notification's benefits. The appellant cited various decisions supporting this argument and emphasized that the liability to pay duty on goods manufactured on job work basis lay with the appellant as the manufacturer. The Tribunal referenced the decision in the case of Thermax Babcock & Wilcox Ltd., stating that the liability rested with the job worker and not the principal. The appellant's contention that the extended limitation period could not be invoked due to the doubt regarding duty liability was supported by the Tribunal's decision in the case of Marsha Pharma Pvt. Ltd., leading to the setting aside of the demand beyond the normal limitation period and the penalty.

Issue 3: Jurisdictional Issue and Notice for Penalty Imposition
A jurisdictional issue was raised regarding the imposition of penalty without issuing a notice, as per Section 35A(3) of the Central Excise Act. The appellant argued that the Commissioner could only enhance penalties after providing a reasonable opportunity to show cause, which was not done in this case. The Tribunal noted that no notice was issued, questioning the jurisdiction of the Commissioner (Appeals) in confirming the duty demand and imposing the penalty. This lack of notice raised concerns about the validity of the orders passed without following the prescribed procedures.

Issue 4: Dispute on Limitation Period for Demand
The appellant contended that the notice for demand was barred by limitation, as they had a genuine belief that goods manufactured on job work basis were exempt from Central Excise duty. The appellant's timely registration upon crossing the prescribed limit in the financial year 2005-06 was highlighted as evidence of their bonafide belief. The Tribunal considered the doubt surrounding the liability of duty on goods manufactured on job work basis, especially in cases where the suppliers did not follow the prescribed procedures, leading to the invocation of the extended limitation period being set aside.

Overall, the Tribunal's decision in the case of M/s Hi Scan Pvt. Ltd. against the confirmation of demand and penalty under small scale exemption Notification 8/03-CE for goods manufactured on job work basis without including their value in aggregate clearance, highlighted the complexities surrounding job work arrangements, compliance with notification requirements, jurisdictional issues, and limitations on demand periods in Central Excise matters.

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