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TMI Blog2013 (9) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... e paying excise duty on ready-made garments which they got manufactured on job work basis by supplying raw materials to their job workers. In respect of such goods though the manufacturing activity was undertaken by the job workers, they were paying excise duty in view of the special provisions under Rule 7AA of the Central Excise Rules, 1944 and its successor rules namely, Rule 4 of Central Excise Rules, 2001 and Rule 4 of Central Excise Rules, 2002. The duty liability on such goods is not under dispute in the present proceedings. But this fact is relevant for appreciating the dispute at hand. 3. The dispute in these appeals is in respect of those cases where their customers came to their shop and purchased fabric and thereafter gave it to the appellants to get garments stitched according to the measurement of individual customers. There were also cases where some customers bring fabric bought by them from other shops and give it to the appellants for getting it stitched. On garments so stitched they were affixing a label "Specially Tailored by Diwan Saheb Designs for Men". The question is whether the appellants were liable to pay excise duty in respect of garments stitched by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Central Excise Rules, 2002 and penalty of Rs. 5.00 lakhs each was imposed on Shri M.L. Diwan of M/s. East West Attire and Smt. Usha Diwan of M/s. Ethnocity under Rule 26 of Central Excise Rules, 2002. Aggrieved by the order, the appellants had filed appeals before the Tribunal. The Tribunal disposed of the appeals vide its Order Nos. 237-241/2008-EX.(DB), dated 2-5-2008 [2008 (229) E.L.T. 240 (Tri.)]. In the said order, the Tribunal held as under : "8. In view of the above, while holding that - (a) the clearances of Ethnocity and East West Attire are liable to be clubbed with the clearances of Diwan Sons for the purpose of SSI exemption notification and duty demand on this basis raised vide Show Cause Notice dated 12-8-2003 is not time-barred; and (b) the garments made as part of "tailoring activity" as per individual customer's measurements and specifications are excisable and the same are not eligible for exemption under Notification No. 76/86-C.E. we remand the matter to the adjudicating authority for determining whether in terms of the provisions of Rule 7AA of the Central Excise Rules, 1944 and its successor Rule 4(3) of the Central Excise Rules, 2001/2002, the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the remand made by the Supreme Court vide its order dated 27-3-2009, as reproduced above is an open remand to the Tribunal to decide all the issues involved or it is a restricted order to decide only whether the dummy units through whom some alleged transactions have taken place were really dummy units and to decide who was the real manufacturer of the garments cleared in the name of East West attire and Ethno City and then decide the applicability of SSI exemption notification. It is noted that no specific notification has been mentioned by Hon'ble Apex Court. 10. The ld. Advocate for the appellant submits that in the first place, the issues of excisability of garments stitched from fabric bought or brought by the customers and the clubbing of the clearance of the two units in the hands of M/s. Diwan Sons and the issue of time-bar were the issues decided against the appellant in the decision dated 2-5-2008 of the Tribunal and this decision was appealed against in the Hon'ble Supreme Court. Other issues raised stand remanded to the lower authority by the Tribunal by the first decision. He submits that there has to be necessarily a decision with reference to the issues remande ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. B4/5/2001-TRU, dated 30-4-2001 issued at the time of imposing duty on ready-made garments as under :- "3. It is understood that readymade garments, particularly those bearing brand names, are manufactured in a big way through job workers. Not only that, stitching and other ancillary activities are entrusted to different job works, sometimes smaller ones. Keeping this aspect in view it has been decided that in the case of garments manufactured on job work basis, the liability to pay the excise duty shall be on the person who gets the goods manufactured on his own account from the job workers (called merchant-manufacturer in common excise parlance) and not on the job workers. Rule 7 has been suitably amended for this purpose and a new Rule 7AA has been inserted. The duty liability has to be discharged by the merchant-manufacturer as if the garments have been manufactured by him on his own." 14. The second argument is that garment stitched according to measurement of particular customers is not marketable and hence no excise duty is payable because these are not marketable goods. He relies on the decision of the Tribunal in the case of C.C.E. v. Gujarat Narmada Valley Fertiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional services, which include diagnosis and advice over and above any work in the making up of the medicine. In contrast, a chemist who makes up a prescription sells it, since his work and skill goes entirely into the product - it is simply a component reflected in the price of the goods. Benjamin concludes - "where work or skill is involved over and above what goes into the making of the goods delivered, it is possible and often correct to view the contract as 'substantially' one for work or services. "In our opinion a reverse case would be one of sale. Benjamin gives yet another illustration. A meal supplied to a customer in a restaurant is a sale of goods, the element of service being subsidiary; but a meal supplied to a lodger or a resident hotel guest is part of a contract for services." (emphasis supplied) 15.1 The counsel for the appellant also contests that when excise duty was imposed for the first time on textile fabrics in the year 2001, the highly decentralised manufacturing operations in the textile industry was recognised by the Government and it was considered that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (62) E.L.T. A52 (S.C.) and other cases. The appellant had accepted the liability under this rule and that is the reason why they paid excise duty on ready-made garments manufactured by their job workers out of materials supplied by them. If the job workers were to be considered to be liable to pay excise duty they did not have to pay any excise duty on such goods. The Appellant is not contesting excise duty paid by them on such goods. The appellant is only arguing that for the fabrics bought or brought by the customer to the appellants also the same rule should be applied. That is to say excise duty liability, if any, on such garments was to be paid by the individual customers and not by the appellant. 17. The Tribunal in its previous order dated 2-5-2008 had specifically directed that this issue has to be examined by the Adjudicating Authority in de novo proceeding with reference to Rule 7AA and successor Rules. In the order dated 31-12-2008 passed by the Adjudicating Authority in de novo proceedings he deals with this issue at pages 39 and 40 of the Order-in-Original without any numbers for paragraphs. He rejected the argument of the appellant on the ground that acceptance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Counsel also submits that the value of apparels should have been determined under provisions of Notification No. 20/2001-C.E. (N.T.), dated 30-4-2001 under which tariff values are fixed for payment of duty on articles of apparel falling under Chapter 62. He further points out during the period 1-3-2001 to 30-4-2001, garments not bearing a registered brand name was exempted from duty under Notification 12/2001-C.E., dated 1-3-2001. Their brands were not a registered brand name during the said period and they should be given the benefit of the notification for the said period. 20. He also points out that there is no specific finding regarding culpability of each of the individuals on whom penalty has been imposed. 21. The ld. SDR submits that the question whether stitching of garments amount to manufacture is already settled in the proceedings so far in these appeals. He further relies on the decision of Regional Director Employees State Insurance Corporation v. Ram Chander - 1987 (32) E.L.T. 231 (S.C.) to buttress his argument that stitching of garments amounts to manufacture. He also submits that the garments made to measurement of one individual can fit many other individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready settled in the proceedings so far in these appeals that these demands are not time- barred. He further relies on the decision of the Supreme Court in the case of CCE v. Mehta & Co. reported at 2011 (264) E.L.T. 481 (S.C.). 25. Further, he argues that in this case of clandestine removal the benefit of working out assessable value considering the amount realised as cum-duty realisation cannot be given and the amounts realised from the customers should be taken as the assessable value. 26. We have considered arguments on both sides. The decision of the Apex Court in the case of Hindustan Shipyard Ltd. v. State of A.P. is only to the effect that there is no sale involved when a tailor stitches garments from goods supplied and returns it to the customer. The issue of manufacture is not examined in the order. On the other hand the Apex Court has clearly held in the case of ESIC (supra) that stitching of cloth amounts to manufacture. The issue whether the garments made to the measurement of one individual is something that can be brought and sold in the market also needs consideration. Ready-made garments are also stitched according to certain measurements for different sizes and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise Rules also because as per the Rule such liability is normally on the manufacturer. But these are different issues. There is no ruling by the Courts that a rule cannot be framed to make the supplier of raw material liable to pay duty. This is to say that there is no ruling that a Rule like Rule 7AA and its successor rules are bad in law. That is to say even when the manufacturer of the goods is the job worker, the liability to pay duty can be on another. This position becomes very clear if the definition of assessee and the Rules prescribing who has to pay duty are scrutinized. Rule 7AA was for making a deviation, for textile goods, from the general rule that manufacturer has to pay duty. The position becomes clear when Rule 4 of Central Excise Rules as it existed prior to 25-3-2003 (After 25-3-2003 similar provisions were incorporated as a new Rule 12B), is examined. This is reproduced below. "4. Duty payable on removal. - (1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on but should bring back the same for the completion of the manufacturing process in his factory. Explanation II - For the purposes of this rule, excisable goods manufactured in a factory and utilised, as such or after subjecting to any process, for the manufacture of any other commodity, in such factory shall be deemed to have been removed from such factory immediately before such utilisation." 28. This rule does not state that for textile items job-worker is not the manufacturer. It only says that the duty is to be paid by the person supplying the material as if he is the manufacturer. So this position is not in contradiction with the ruling of the Apex Court in Kerala [State] Electricity Board to the effect that the job-worker was the manufacturer and duty liability should have been determined in his hands. So we are of the view that the appellant had no obligation to pay excise duty on garments stitched out of fabrics bought or brought by the customers. Thus the argument that in the case of textile goods got manufactured on job work basis during the period 2001-2004, the job worker has to discharge excise duty liability is not acceptable. Further if duty liability is determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) E.L.T. 85 (iii) CCE v. Vaspar Concepts - 2006 (196) E.L.T. 95 (iv) Studioline Interior System v. CCE - 2006 (201) E.L.T. 250 (v) Alpha Toyo Ltd. v. CCE - 1994 (71) E.L.T. 689 (vi) CCE v. Sotex - 2007 (209) E.L.T. 9 (S.C.) (vii) CCE v. Auto India - 2007 (213) E.L.T. 436 (viii) Shiplachem v. CCE - 2005 (187) E.L.T. 360 (ix) Summerking Electricals v. CCE - 2004 (176) E.L.T. 302 (x) Bright Paints & Chemicals v. CCE - 2007 (216) E.L.T. 36 (xi) Jifcon Tools Pvt. Ltd. v. CCE - 2007 (208) E.L.T. 345. 30.1 Issue (i). The evidence collected shows that these firms had no employees, no equipment or other manufacturing facilities. They were stated to be supplying fabric and branded stickers to M/s. Impex India and getting goods manufactured and the manufactured goods were sent to the show rooms of Diwan Sons for sale to customers. The statement of the storekeeper, Shri Bahadur Prasad, shows that the raw materials for all the three entities were managed from the same store by the same persons. Proprietors of both the firms admitted that the day-to-day affairs of both the firms were managed by Shri Surinder Diwan. It is also accepted that the profits are shared by the family members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anikandan - 2009 (246) E.L.T. 349 (Tri.-Chennai) (ii) Ramsay Pharma (P) Ltd. v. CCE - 2001 (217) E.L.T. 789 (Tri.-Del.). Out of these cases, the Counsel is relying more on the first case because in that case the notice was issued to one of the partners of the allegedly dummy unit for imposition of penalty but no notice was issued to the allegedly dummy firm itself. Still the Tribunal held that order for clubbing the clearances of the allegedly dummy firm with the other firm cannot be made for the reason that no notice was issued to the allegedly dummy firm. In the second case the two parties involved were two limited companies and there was no notice to the allegedly dummy company at all. 31.2 It is not denied that the proprietors of the two firms M/s. Ethnocity and M/s. East West Attire were parties to the Show Cause Notices and they were fully aware of the proposal to club the clearances as contained in the SCNs and they have replied to the Show Cause Notices. So the argument that there was no separate Show Cause Notices addressed to them in their capacity as the partners as the said firms proposing clubbing of their clearances with that M/s. Diwan Sons is not a valid argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim for exemption under Notification 12/2001-C.E. for the period 1-3-2001 to 30-4-2001 also needs to be examined and the consequence of such claim on the duty demanded needs to be determined. The question whether the valuation has been done as per Notification 20/2001-C.E. (N.T.) needs to be looked into once again. We also notice that the appellant have substantially paid the duty on this count and had at the investigation stage expressed their willingness to settle this matter if that was the only issue involved. However the adjudication order in the first round and second round confirmed duties far in excess of the amount due on such issue and they were also not given an opportunity to pay the full duty liability, interest and 25% of duty evaded as penalty as per provisions of Section 11AC of the Act. So considering the decision of the Delhi High Court in K.P. Pouches Pvt. Ltd. v. Union of India - 2008 (228) E.L.T. 31 (Del.) we order that the respondents should be given an opportunity for settling the matter by payment of the dues as envisaged in Section 11AC of the Act. Further the role played by each of the persons may be specifically stated and penalty determined considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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