2019 (9) TMI 275 - AT - Central Excise

Misdeclaration of value of intermediate goods - Job-work - Benefit of N/N. 214/86-CE dated 25th March 1986 - it is alleged that the inputs received from customers and claimed to have been utilized for job-work had not complied with prescription relating to supplies from principal manufacturer - HELD THAT - We find nothing on record to contradict the documented claim of the appellant that some downstream manufacturers did supply them with grinding/scrap which is one of the sources for manufacture of ABS/PP sheets/HIPS sheets. Admittedly, the appellant is also required to utilize some prime material of their own in the manufacture and, in proportion with the contribution so made, is entitled to claim ownership of some of the products while the rest are required to be returned to the principal-manufacturer as the job-work undertaken by them. It is apparent from the decisions of the Hon ble Supreme Court in INTERNATIONAL AUTO LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BIHAR 2005 (3) TMI 132 - SUPREME COURT and of the Tribunal in UMESH RAI VERSUS COMMR. OF C. EX. CUS., VAPI 2009 (6) TMI 274 - CESTAT AHMEDABAD that job-worker is not transformed as independent manufacturer merely because of their own material being deployed. Therefore, it is well within the scheme of job-work for the appellant-assessee to be entitled to the benefit of exemption intended for job-workers subject to fulfilment of the conditions prescribed therein. As the said exemption is available to job-workers, it naturally follows that the consequences should necessarily be available to the appellant-assessee if the conditions therein are complied with. The ordinary scheme of levy of duties of excise does not brook any distinction among manufacturers. However, to accommodate the commercial reality of outsourcing, job-workers are segregated for appropriate exemption from payment of duties and in the rules pertaining to availment of credit of duties/taxes paid on input goods/input service. Thus, the provisions of exemption notifications, as interpreted in the decisions, accord the privileges of job-worker to a manufacturer if the supplier of inputs undertakes to discharge the duty liability on the finished goods so manufactured with the job-worker as the default manufacturer even for a contracted manufacturer. The facts of the present case would need to be tested against this meaning of job-worker. We discern a patent lack of such examination in the impugned order. Ascertainment of value to be adopted for the purpose of discharge of duty liability - HELD THAT - In the normal course, liability of a job-worker, for the discharge of duty of central excise, is restricted to the labour charges and the nominal profit - It is common ground that the raw material supplied by the customer was to be mixed with the material belonging to the appellant-assessee for manufacture of the products to be cleared to the former. A part of the production, claimed to represent the value of the inputs belonging to the appellant and utilized for production, is retained by the appellant for sale on its own account on payment of full duty. The other portion, admittedly containing also material belonging to the appellant-assessee has been cleared as that of job-work. Thus, the entire quantity of raw material received from the customer has not been utilized for job-work and not included in the resultant product cleared to the supplier. The presumption of the goods remaining unutilized merely because of artificial segregation based on the input contribution of the supplier and the appellant-assessee may not be sustainable. This is an aspect that has not been examined in the order of the first appellate authority who has preferred to be convinced by the circumstances of entries in the production register, first to conclude non-utilisation of goods supplied as job-worker. In the process, there has been no ascertainment of discharge of duty liability on input received as job-worker that was not returned along with finished products. Matter remanded back to the first appellate authority to consider the dispute in the light of the findings that the appellant-assessee is a job-worker, that the portion of inputs received from the principal-manufacturer which was not put to use for production as job-worker has discharged duty liability and that, as producer of goods, duty on job-work has also been discharged - appeal disposed off by way of remand.

Summary

Issues Involved:
1. Mis-declaration of value of intermediate goods.
2. Compliance with conditions for availing exemption under Notification No. 214/86-CE.
3. Ascertainment of value for discharge of duty liability.

Issue-wise Detailed Analysis:

1. Mis-declaration of Value of Intermediate Goods:
The dispute revolves around the demand of ?27,43,688/- to be recovered from M/s SJS Plastiblends Pvt Ltd, along with an equivalent penalty under Section 11AC of the Central Excise Act, 1944. The penalties were also imposed on three individuals associated with the appellant-assessee. The issue pertains to the alleged mis-declaration of the value of intermediate goods manufactured by the appellant-assessee and cleared by availing the benefit of Notification No. 214/86-CE dated 25th March 1986. The appellant-assessee claimed that they received grindings/scrap from customers, which were mixed with their prime material, and a portion of the sheets manufactured was cleared as job-work while the rest were cleared as normal manufacture. The original authority dropped the proceedings, but the Commissioner of Customs, Central Excise & Service Tax (Appeals), Nagpur, reversed this finding, leading to the present appeal.

2. Compliance with Conditions for Availing Exemption under Notification No. 214/86-CE:
The first appellate authority's finding was based on the premise that the inputs received from customers did not comply with the prescription relating to supplies from the principal manufacturer. It was alleged that the production records were manipulated to convey that a major portion was cleared in accordance with orders from the principal manufacturer. The Tribunal found no contradiction in the documented claim that some downstream manufacturers supplied grindings/scrap for the manufacture of ABS/PP sheets/HIPS sheets. The Tribunal referenced multiple decisions, including International Auto Ltd v. Commissioner of Central Excise, Bihar, which clarified that a job-worker does not become an independent manufacturer merely because of using their own material. The exemption intended for job-workers is applicable if the conditions prescribed are fulfilled.

3. Ascertainment of Value for Discharge of Duty Liability:
The Tribunal noted that the ordinary scheme of levy of duties of excise does not distinguish among manufacturers. However, job-workers are segregated for appropriate exemption from payment of duties. Various decisions have examined this distinction, and it was held that the duty liability is transferred from the job-worker to the principal manufacturer. The Tribunal also discussed the ascertainment of value for the purpose of duty liability. In Vako Seals Pvt Ltd v. Commissioner of Central Excise, Mumbai, it was held that the job-work activity is exempt from duty if the principal supplier of raw material discharges the excise duty on their final product. The Tribunal found that the appellant-assessee discharged duty liability on goods cleared as job-work and that the customers utilized these goods as inputs for the manufacture of final products.

Conclusion:
The Tribunal discerned a lack of examination in the impugned order regarding whether the appropriate duties were discharged on goods cleared by the appellant-assessee as a job-worker. The Tribunal set aside the impugned order and remanded the matter back to the first appellate authority to consider the dispute in light of the findings that the appellant-assessee is a job-worker, that the portion of inputs received from the principal manufacturer not put to use for production as a job-worker has discharged duty liability, and that duty on job-work has also been discharged.

Order:
The appeal is disposed of in the above terms, with the order pronounced in the open court on 06/09/2019.