Limitation and penalties fail for job worker where undervaluation was supplied by merchant-manufacturers without proof of knowledge

A job worker who filed price declarations on the basis of declarations and grey bills supplied by merchant-manufacturers was not shown to have knowledge of, or participation in, the undervaluation. On that factual basis, the extended period of limitation could not be invoked against the job worker, so the differential duty demand was time-barred beyond the normal period. Because the demand itself failed on limitation, the consequential penalties on the company and its director had no independent basis and could not be sustained.

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Issues: Whether the demand of differential duty on the job worker was barred by limitation on account of undervaluation by the merchant-manufacturers, and whether the consequential penalties could survive.

Analysis: The appellants had filed price declarations on the basis of declarations and grey bills furnished by the merchant-manufacturers. The record showed that the merchant-manufacturers accepted responsibility for undervaluation and that the appellants merely carried forward the values supplied to them. No contrary evidence was produced to show that the appellants had knowledge of the undervaluation or had manipulated the declarations. In such circumstances, the extended period of limitation was not available against the job worker, and the demand could not be sustained beyond the normal period. Once the demand was time-barred, the penalties imposed on the company and its director also had no independent footing.

Conclusion: The demand was barred by limitation and the penalties were unsustainable, resulting in a decision in favour of the assessee.

Ratio Decidendi: Where a job worker acts on declarations furnished by the supplier and there is no finding or evidence that the job worker knew of or deliberately ated in the supplier's undervaluation, the extended period cannot be invoked against the job worker and consequential penalties cannot be maintained.

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