Free-supplied inputs and job-work duty treatment: duty demand on the intermediate manufacturer was held unsustainable.

Intermediate manufacturers processing raw materials supplied free of cost by the final product manufacturer were not required to pay duty on the manufactured goods where no credit had been availed on the inputs and duty was paid only on job charges. Applying the Rule 57F procedure and the principle adopted in the Supreme Court ruling on similar facts, the duty demand was held unsustainable. The alternative of paying duty on the full value with credit available to the recipient manufacturer was noted, but the demand against the intermediate manufacturer was set aside.

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Issues: Whether the appellants, as intermediate manufacturers processing raw materials supplied free of cost by the final product manufacturer, were required to pay duty on the manufactured goods when duty had been paid only on job charges and not on the value of raw materials and transport charges.

Analysis: The appellants received raw materials free of cost from the final product manufacturer and supplied the manufactured bricks back to that manufacturer. The legal position considered was that, under the relevant Rule 57F procedure, the intermediate manufacturer could clear the goods without duty where the inputs were supplied free and no credit had been availed by the intermediate manufacturer. The decision also noted that the alternative course would have been to pay duty on the full value and permit credit to the recipient manufacturer. Following the binding principle adopted in the earlier Supreme Court ruling on similar facts, and consistent Tribunal orders in analogous cases, the duty demand on the intermediate manufacturer was not sustainable.

Conclusion: The appellants were not liable to pay duty on the bricks manufactured for the Bhilai Steel Plant, and the demand was set aside.

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