Job-work excise liability cannot be retrospectively shifted to brand owners after clearances already made at the applicable rate.

Excise duty on ready-made garments manufactured through job work was attributable to the job worker as manufacturer at the time of removal from the job worker's premises. Where the goods were cleared before the rate change, the later increase in duty could not be imposed again on the brand-owning traders, and the amended rule fastening liability on traders applied only from 1-5-2001, not retrospectively. On that basis, the duty demand on the traders failed and the consequential penalty was also unsustainable.

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Issues: Whether the traders, being brand owners supplying materials to job workers, were liable to pay central excise duty on ready-made garments cleared by the job workers prior to 1-3-2001 and whether the penalty imposed was sustainable.

Analysis: The majority held that under the governing excise regime the job worker was the manufacturer and duty, if any, was attracted at the time of removal from the job worker's premises. Since the goods had been cleared on payment of duty at the then applicable nil rate before the change in rate, the subsequent increase to 16% could not be fastened again on the traders. It was also held that the amended rule fastening liability on brand-owning traders operated only from 1-5-2001 and could not retrospectively create liability for clearances already effected. On that basis, the demand itself failed and the penalty, being consequential, could not survive.

Conclusion: The traders were not liable to pay duty on the stock cleared by the job workers prior to 1-3-2001, and the penalty was also unsustainable. The appeal was allowed.

Ratio Decidendi: Excise duty liability on job-work manufacture attaches to the manufacturer at the time of removal, and a later rule or rate enhancement cannot retrospectively fasten a second duty liability on the brand owner for clearances already made on payment of the applicable duty.

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