2025 (3) TMI 1243 - AT - Central Excise

Process amounting to manufacture or not - job work activities - liability to pay excise duty despite the principal manufacturers not filing the necessary declarations as per N/N. 214/86 CE - onus to prove - invocation of extended period of limitation - penalties under Rule 25 of the Central Excise Rules 2002 read with Section 11AC of the Central Excise Act 1944. HELD THAT - It is a cardinal principle of adjudication that the adjudicating authority has a bounden duty to address the contentions raised in the reply to show cause notice and pass an order either accepting the contentions or reject them while stating reasons for the decision so taken. Indisputably the aforesaid contentions of the appellant raised before both the adjudicating authority and the appellate authority has not elicited any rebuttal from both of them. Without specifically rebutting the contentions merely the fact that the appellant is engaged in manufacturing parts of Motor Vehicle Speedometer parts of Power-Driven Pumps parts of Textile Machinery parts of Press Tools cannot lead to any automatic assumption that the job worked goods are also such parts as the onus is on the Revenue to prove that the appellant has indeed manufactured dutiable goods. The Honourable High Court of Bombay in the case of Annapurna Engineering Corpn v ACCE Div-I Nagpur 2010 (9) TMI 369 - BOMBAY HIGH COURT has held that failure to pass a reasoned order resulted in miscarriage of justice. While we would have ordinarily remitted the matter back for denovo adjudication given the efflux of time of nearly a decade and the quantum of revenue involved we think that this is a fit case where the indolence of the adjudicating and appellate authorities ought not to result in protracting the litigation for the appellant for no fault of the appellant and instead the benefit ought to enure to the appellant. A coordinate bench of this Tribunal in its decision in Southern Plywoods v CCE (Appeals) Cochin 2009 (2) TMI 331 - CESTAT BANGALORE have found that non consideration of all the submissions of the appellant and passing the orders without discussion thereon renders the order liable to be set aside. Accordingly we hold that the impugned OIA is liable to be set aside on this ground alone. It is not the case of the Revenue that the goods cleared by the appellant are further not utilised by the principal manufacturers in their manufacture rather it has been found that the goods received from the job worker (i.e. the appellant) are further used in the manufacture of parts of motor vehicles pumps machineries etc. The denial is solely on the ground that on enquiry with the jurisdictional ranges of the Principals it is found that the Principal manufacturers have not filed declarations under the said notification 214/86 CE ibid. Extended period of limitation - HELD THAT - The appellate authority has upheld the invoking of extended period of limitation as a natural corollary of non payment of duty and incorrect adoption of valuation which came to the knowledge of the department only through scrutiny by Audit. The said finding is not in consonance with the requirement of statute. In the absence of any positive evidence let in by the department of wilful suppression of facts or misstatement with intent to evade payment of duty the invocation of extended period is untenable more so when the appellant were under the bonafide belief that their activity does not amount to manufacture as they were only clearing semi-finished goods manufactured out of the raw materials supplied to them by the principal manufacturer and clearing the same to the principal manufacturer - even otherwise the demand is substantially also barred by limitation. Conclusion - i) The procedural lapses by principal manufacturers should not negate substantive benefits to job workers. ii) The invocation of the extended period of limitation requires explicit evidence of wilful suppression which was absent in this case. The demand is barred by limitation. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the job work activities performed by the appellant constitute "manufacture" under the Central Excise Act, 1944, thus attracting excise duty.
• Whether the appellant is liable to pay excise duty despite the principal manufacturers not filing the necessary declarations as per Notification No. 214/86 CE.
• Whether the invocation of the extended period of limitation for duty demand is justified.
• The applicability of penalties under Rule 25 of the Central Excise Rules, 2002, read with Section 11AC of the Central Excise Act, 1944.

ISSUE-WISE DETAILED ANALYSIS

1. Job Work Activities and Manufacture

• Relevant Legal Framework and Precedents: The determination of whether an activity amounts to "manufacture" is guided by the Central Excise Act, 1944. The Tribunal referenced precedents such as Tamil Nadu Generation & Distribution Corporation Ltd Vs C.C.E., Salem, and Namdhari Industrial Traders Vs Commr of Cex & ST Ludhiana, emphasizing that not all processes constitute manufacture.
• Court's Interpretation and Reasoning: The Tribunal noted that the appellant's activities involved machining, bending, cutting, and pressing, which resulted in semi-finished goods. These goods were further processed by the principal manufacturers before being marketed, indicating that the appellant's activities did not result in a new, marketable product.
• Key Evidence and Findings: The appellant's submissions highlighted that they only collected labor charges and did not add materials, reinforcing that their activities did not amount to manufacture.
• Application of Law to Facts: The Tribunal found that the onus was on the Revenue to prove that the appellant's activities amounted to manufacture, which was not sufficiently demonstrated.
• Treatment of Competing Arguments: The Tribunal acknowledged the appellant's reliance on case law that supported their position and criticized the lower authorities for not addressing these arguments adequately.
• Conclusions: The Tribunal concluded that the appellant's activities did not constitute manufacture under the Central Excise Act.

2. Non-Filing of Declarations and Notification No. 214/86 CE

• Relevant Legal Framework and Precedents: Notification No. 214/86 CE provides exemptions for job work activities, contingent on the principal manufacturer filing necessary declarations.
• Court's Interpretation and Reasoning: The Tribunal referenced decisions such as Moon Chemicals Vs. Commissioner of Central Excise and Salem Weld Mesh Vs. Commissioner of Central Excise, which held that procedural lapses by the principal manufacturer should not negate substantive benefits to the job worker.
• Key Evidence and Findings: It was undisputed that the goods processed by the appellant were used by the principal manufacturers in further manufacturing.
• Application of Law to Facts: The Tribunal found that the denial of exemption based solely on procedural non-compliance by the principal manufacturers was unjust.
• Treatment of Competing Arguments: The Tribunal favored the appellant's position that procedural lapses should not deny substantive benefits, aligning with established case law.
• Conclusions: The Tribunal held that the appellant was entitled to the exemption under Notification No. 214/86 CE.

3. Invocation of Extended Period of Limitation

• Relevant Legal Framework and Precedents: The extended period of limitation under the Central Excise Act requires evidence of wilful suppression or intent to evade duty.
• Court's Interpretation and Reasoning: The Tribunal noted the absence of evidence indicating wilful suppression or intent to evade duty by the appellant.
• Key Evidence and Findings: The appellant's belief that their activities did not constitute manufacture was supported by case law, indicating a lack of intent to evade duty.
• Application of Law to Facts: The Tribunal found the invocation of the extended period unjustified in the absence of wilful suppression.
• Treatment of Competing Arguments: The Tribunal criticized the lower authorities for failing to provide evidence of wilful suppression.
• Conclusions: The Tribunal concluded that the demand was barred by limitation.

4. Imposition of Penalties

• Relevant Legal Framework and Precedents: Penalties under Rule 25 of the Central Excise Rules, 2002, and Section 11AC of the Central Excise Act require evidence of intent to evade duty.
• Court's Interpretation and Reasoning: The Tribunal found no basis for penalties given the lack of evidence for wilful suppression or intent to evade duty.
• Key Evidence and Findings: The appellant's timely payment of duty, interest, and partial penalty was noted.
• Application of Law to Facts: The Tribunal found the imposition of equal penalty unjustified.
• Treatment of Competing Arguments: The Tribunal noted the lack of reasoning by the appellate authority in upholding the penalty.
• Conclusions: The Tribunal set aside the penalties imposed.

SIGNIFICANT HOLDINGS

• The Tribunal emphasized the importance of addressing contentions raised by appellants and criticized the lower authorities for failing to do so, resulting in a miscarriage of justice.
• The Tribunal reaffirmed that procedural lapses by principal manufacturers should not negate substantive benefits to job workers, as established in prior case law.
• The Tribunal held that the invocation of the extended period of limitation requires explicit evidence of wilful suppression, which was absent in this case.
• The Tribunal set aside the impugned orders, allowing the appeal with consequential relief.