2014 (8) TMI 1047 - AT - Central Excise

Fabric Manufacturers Absolved of Duty Liability, Penalties Inapplicable; Duty Recoverable from Actual Manufacturers

The Tribunal determined that Chandan Processors and Ram Processors were the actual manufacturers responsible for processed fabrics, absolving the ... Clandestine clearances of fabrics processed and cleared - actual manufacturer - duty demand - Held that:- Merely because the factory was registered in the name of the appellants and the same was given on license by the appellants to the said Chandan Processors/Ram Processors for carrying out the manufacturing activity, that in law would not make the appellants liable for payment of duty on the goods manufactured by the said Chandan Processors/Ram Processors. The appellant had licensed their factory to Chandan Processors, who manufactured the goods on their own account using their own labour and materials. The appellants had given their factory on license to Chandan Processors/Ram Processors, who were the actual manufacturers and who have during the investigations admitted to the manufacture and clearance of the goods and also undertaken to pay the duty. Thus, the duty is recoverable from the said Chandan Processors/Ram Processors and not from the appellants. The impugned Order passed against the appellants is therefore liable to be set aside. Further, in any event, penalty is not sustainable in view of the Hon’ble Delhi High Court judgment in Pioneer Silk Mills P. Ltd. v. U.O.I. [1991 (9) TMI 93 - HIGH COURT OF DELHI ] [upheld by Hon’ble Supreme Court in 2003 (11) TMI 75 - SUPREME COURT OF INDIA ], as the demand is for additional duty of excise under Goods of Special Importance Act to which the penal provisions of Central Excise Act, 1944 were not applicable for the period prior to 13-5-1994. The major part of the period in the present case is prior to 13-5-1994. The search operations took place on 30-5-1994 and there is no separate quantification of the duty for the period 13-5-1994 to 30-5-1994. - Decided in favour of assessee Issues Involved:1. Determination of the actual manufacturer responsible for the processed fabrics.2. Liability for payment of excise duty.3. Applicability of penalties under the Central Excise Act, 1944.Detailed Analysis:1. Determination of the Actual Manufacturer:The primary issue in this case was to ascertain who was the actual manufacturer of the fabrics processed and clandestinely cleared from the factory premises of Sant Processors during the period from September 1993 to May 1994. The Tribunal directed the Commissioner to evaluate who received the grey fabrics, who conducted the processing, and who returned the processed fabrics.Evidence showed that Chandan Processors and Ram Processors, not the appellants, received the grey fabrics, conducted the processing, and returned the processed fabrics. Statements from Raju Lakhwani of Chandan Processors and K.N. Mehta of Ram Processors confirmed that they were responsible for the processing and clandestine clearances. Suppliers of grey fabrics also corroborated that they dealt with Chandan Processors and Ram Processors.2. Liability for Payment of Excise Duty:The Tribunal found that merely because the factory was registered in the name of the appellants and given on license to Chandan Processors/Ram Processors, it did not make the appellants liable for the excise duty on the goods manufactured by the licensees. According to Section 2(f) of the Central Excise Act, 1944, the manufacturer is the entity that employs labor and engages in production on its own account. In this case, Chandan Processors and Ram Processors were the manufacturers since they hired labor and processed the fabrics on their own account. The Tribunal cited precedents from the Bombay High Court, Gujarat High Court, and Calcutta High Court, which supported the view that the licensee who carries out the manufacturing is liable for excise duty.3. Applicability of Penalties:The Tribunal held that penalties were not sustainable based on the judgment of the Delhi High Court in Pioneer Silk Mills P. Ltd. v. U.O.I., upheld by the Supreme Court, which stated that penal provisions of the Central Excise Act, 1944, were not applicable to additional duty of excise under the Goods of Special Importance Act for the period prior to 13-5-1994. Since the major part of the period in question was before this date, and there was no separate quantification of duty for the period from 13-5-1994 to 30-5-1994, penalties could not be imposed.Conclusion:The Tribunal concluded that the duty was recoverable from Chandan Processors/Ram Processors, who were the actual manufacturers, and not from the appellants. Consequently, the impugned order against the appellants was set aside, and any consequential relief was to be provided in accordance with the law.