2024 (9) TMI 307 - AT - Central Excise

100% EOU - process amounting to manufacture or not - processes undertaken by the appellant on job work basis - duty liability is on the appellant who is a job-worker or the suppliers of raw materials - time limitation - invocation of proviso to Section 11A of CEA. HELD THAT - The process of populating the PCBs by the appellant as a job worker is not in dispute. As long as there is transformation of a product into a new product marketable and commercially known comes into existence, manufacture takes place. In the instance case, there is no dispute that the appellant receives raw materials and converts them into a populated PCB which is recognised as entirely a different product and returns the same to the supplier of the raw materials - In the instance case, the tests stand satisfied and the goods manufactured by the appellant amounts to manufacture. Who is liable to pay duty? - Whether the supplier of raw materials or the job-worker (appellant)? - HELD THAT - Admittedly, none of these conditions have been satisfied and therefore, the Commissioner considering the clearances made were on principal-to-principal basis has rightly demanded duty from the job worker. Whether non-compliance of these conditions is only procedural as claimed by the appellant needs to be examined. The Supreme Court of India in the case of Commissioner of C. Ex., New Delhi vs. Hari Chand Shri Gopal 2010 (11) TMI 13 - SUPREME COURT observed that 'The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. In Novopan Indian Ltd. 1994 (9) TMI 67 - SUPREME COURT , this Court held that a person, invoking an exception or exemption provisions, to relieve him of tax liability must establish clearly that he is covered by the said provisions and, in case of doubt or ambiguity, the benefit of it must go to the State.' Time Limitation - HELD THAT - Having known that the appellant was clearing the PPCBs without payment of duty in 2009 itself, the delay of issuing notice after 3 years cannot be justified to invoke suppression on the part of the appellant. Hence, the demand cannot be sustained beyond the normal period for the show-cause notice dated 07.03.2013, Since all other show-cause notices are for the normal period only. The appellant has produced a similar document for the relevant periods which have not been considered by the Commissioner in the impugned orders but only on the ground that required procedures are not being followed. However, the fact remains that even if the appellant is liable to pay duty there cannot be duty liability on the appellant in the event the supplier of raw materials has cleared the goods either on payment of duty or under various exemptions as claimed by the appellant. Since, documents have been produced to substantiate their claim these documents need to be verified and to that extent the duty liability on the appellant gets reduced. Therefore, the matter needs to be remanded for verification of the documents produced by the appellant for substantiating their claim that either the goods are exempted or they have cleared on payment of duty. The penalties under Section 11AC and Rule 25 are set aside - Appeal are remanded for re-quantification of demand based on our observations - appeal disposed off by way of remand.

Summary

Issues Involved:
1. Whether the processes undertaken by the appellant on job work basis amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.
2. Whether the duty liability is on the appellant who is a job-worker or the suppliers of raw materials.
3. Whether the proviso to Section 11A can be invoked.

Detailed Analysis:

1. Whether the processes undertaken by the appellant on job work basis amounted to manufacture under Section 2(f) of the Central Excise Act, 1944:

The Tribunal examined Section 2(f) of the Central Excise Act, 1944, which defines "manufacture" to include any process incidental or ancillary to the completion of a manufactured product. The Tribunal found that the process of populating PCBs by the appellant constitutes manufacture since it transforms raw materials into a new product, i.e., populated PCBs, which are commercially distinct from plain PCBs. This transformation satisfies the criteria set forth by the Supreme Court in Commissioner of Central Excise, Mumbai-IV Versus Fitrite Packers, where the Court held that a process amounts to manufacture if it results in a new product with a distinctive name, character, or use. Therefore, the Tribunal concluded that the processes undertaken by the appellant amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.

2. Whether the duty liability is on the appellant who is a job-worker or the suppliers of raw materials:

The Tribunal examined the appellant's contention that the duty liability should rest on the suppliers of raw materials under Notification No. 214/86-CE and No. 83/1994-CE. However, the Tribunal noted that the appellant did not comply with the conditions specified in these notifications, such as the requirement for the suppliers to file declarations with the jurisdictional Assistant Commissioner. The Tribunal referred to various judgments, including Commissioner of C. Ex., New Delhi vs. Hari Chand Shri Gopal, which held that conditions in exemption notifications must be strictly complied with. The Tribunal also cited CBIC Circular No. 56/56/94-CX, which clarifies that where the relationship between the raw materials supplier and the job-worker is on a principal-to-principal basis, the job-worker is the actual manufacturer and liable to pay duty. Therefore, the Tribunal concluded that the duty liability rests on the appellant.

3. Whether the proviso to Section 11A can be invoked:

The Tribunal examined whether the extended period of limitation under the proviso to Section 11A could be invoked. The appellant argued that the department was aware of their job work activities since 2009, as evidenced by an audit conducted that year. The Tribunal found that the department was indeed aware of the appellant's activities in 2009, but the show-cause notice was issued only in 2013, beyond the normal period of limitation. Therefore, the Tribunal held that the extended period of limitation could not be invoked, and the demand could only be sustained for the normal period.

Conclusion:

The Tribunal confirmed the demands only for the normal period and set aside the penalties under Section 11AC and Rule 25. The appeals were remanded for re-quantification of the demand based on the Tribunal's observations, with an emphasis on verifying the documents produced by the appellant to substantiate their claims that the goods were either exempted or cleared on payment of duty. The Tribunal also emphasized the need for the appellant to cooperate in providing the necessary documents and details for the relevant periods.