Job-work duty demand cannot rest on a ground not alleged in notice; Rule 57CC liability also fails without Modvat credit.
A duty demand on job-work clearances was held unsustainable where the adjudication confirmed liability on a ground not stated in the show-cause notice; the demand was set aside because the basis of confirmation differed from the notice. The note also states that no liability arose under Rule 57CC where the assessee had not taken Modvat credit on the relevant inputs and the transaction was treated as a Rule 57F(2) job-work arrangement. On that footing, the consequential interest and penalty demands also failed, including the challenge to the reduced penalty.
Issues: (i) Whether the duty demand on job-work clearances was sustainable when the confirmed demand was founded on a ground different from that stated in the show-cause notice; (ii) whether any liability arose under Rule 57CC on the footing that common inputs were used for dutiable and exempted clearances without separate accounts.
Issue (i): Whether the duty demand on job-work clearances was sustainable when the confirmed demand was founded on a ground different from that stated in the show-cause notice.
Analysis: The notice alleged non-inclusion of the cost of inputs procured and used by the assessee in the manufacture of the job-worked product, whereas the adjudication confirmed demand on the footing that the value of raw material supplied by the principal manufacturer had not been included. The basis of demand in the order, therefore, differed from the basis alleged in the notice. A demand confirmed on a foundation not put to notice cannot be sustained.
Conclusion: The demand on this issue was unsustainable and was set aside.
Issue (ii): Whether any liability arose under Rule 57CC on the footing that common inputs were used for dutiable and exempted clearances without separate accounts.
Analysis: The assessee had not taken Modvat credit on the inputs received from the principal manufacturer or on the inputs used from its own account. The job-work transaction was under Rule 57F(2), and on that footing the job worker was not liable to discharge duty on the inputs supplied by the principal manufacturer. In the absence of availed credit, the demand of 8% under Rule 57CC could not survive, and the consequential interest and penalties also failed.
Conclusion: No liability arose under Rule 57CC, and the connected interest and penalty demands were unsustainable.
Final Conclusion: The assessee succeeded on both the valuation demand and the Rule 57CC demand, and the departmental challenge to the reduced penalty also failed.
Ratio Decidendi: A demand cannot be sustained when it is confirmed on a ground not alleged in the show-cause notice, and Rule 57CC liability does not arise where no Modvat credit was availed on the relevant inputs in a Rule 57F(2) job-work arrangement.
TaxTMI 
AI Drafter ✕
TaxTMI 
