Job-work versus hired labour: independent contractor status can defeat duty demand, and penalty needs notice to the affected person.

An independent registered contractor functioning as a genuine job worker was treated on a principal-to-principal basis, not as hired labour, because the contractual language and factual control did not show an employment-like relationship. On that footing, duty liability on goods manufactured through the contractor was set aside. The text also states that penalty cannot be sustained against a person who was neither made a party to the adjudication nor issued notice, so the penalty order on that person was unsustainable. The discussion thus confirms that job-work arrangements are not recharacterised merely from contractual wording, and penalty requires prior notice and participation in the proceedings.

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Issues: (i) Whether the assessee's contractor was engaged on a principal-to-principal basis or as hired labour, and whether duty was payable on the goods manufactured through such contractor; (ii) whether penalty could be imposed on a person who was not a party to the proceedings and had not been issued notice.

Issue (i): Whether the assessee's contractor was engaged on a principal-to-principal basis or as hired labour, and whether duty was payable on the goods manufactured through such contractor.

Analysis: The contract showed that the contractor was an independent registered unit with its own setup and was functioning as a job worker. The mere use of the expression that taxes and duties were not applicable in the purchase order did not convert the contractor into hired labour. Hired labour denotes a person under the total control of the employer and working only on wages, which was not the factual position here. The reasoning followed the earlier view taken on similar contractual arrangements in comparable cases.

Conclusion: The relationship was on a principal-to-principal basis and not that of hired labour. The duty demand on that footing was set aside in favour of the assessee.

Issue (ii): Whether penalty could be imposed on a person who was not a party to the proceedings and had not been issued notice.

Analysis: Penalty cannot be sustained against a person who was not put to notice or made a party to the adjudication proceedings. The order imposing penalty on such person was therefore unsustainable.

Conclusion: The penalty could not be sustained, and the Revenue's challenge on this aspect succeeded.

Final Conclusion: The assessee succeeded on the main duty demand, while the Revenue succeeded on the challenge to the penalty imposed on a non-party, resulting in a mixed disposal.

Ratio Decidendi: An independent registered contractor engaged under a genuine job-work arrangement is not treated as hired labour merely because the contract refers to job work or non-application of taxes and duties, and penalty cannot be imposed on a person not made a party to the proceedings or issued notice.

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