Contractor-made steel structurals qualified for in-factory exemption; supervision and raw material supply did not make the assessee the manufacturer.

Fabrication of steel structurals and allied items by independent contractors in the factory did not make the assessee the manufacturer where the contractors raised separate bills and carried out the work on their own, even though the assessee supplied raw material and exercised supervision. The goods were eligible for exemption because they were manufactured in a workshop within the factory and shown to be intended for installation, erection, repair and maintenance within the factory, with no clearance as finished excisable goods. In the absence of suppression during a period of legal uncertainty on cutting, drilling and welding, the extended limitation period and penalty were not sustainable.

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Issues: (i) Whether the fabrication of steel structurals and allied items through contractors in the factory premises made the assessee the manufacturer liable to duty. (ii) Whether the goods were eligible for exemption under the relevant notifications for goods manufactured in a workshop within the factory and used in the factory. (iii) Whether the extended period of limitation and penalty could be sustained.

Issue (i): Whether the fabrication of steel structurals and allied items through contractors in the factory premises made the assessee the manufacturer liable to duty.

Analysis: The fabrication was admittedly carried out by contractors who raised separate bills for the work done and had also admitted the fabrication activity. Mere supply of raw material by the assessee, or supervision and quality control, did not convert the contractors into hired labour or make the assessee the actual fabricator. The fact that the goods were made according to the assessee's drawings and requirements was not enough to shift the character of manufacture to the assessee.

Conclusion: The assessee was not the manufacturer of the goods fabricated by the contractors.

Issue (ii): Whether the goods were eligible for exemption under the relevant notifications for goods manufactured in a workshop within the factory and used in the factory.

Analysis: The evidence showed that the items were intended for installation, erection, repair and maintenance within the factory and were not cleared as finished excisable goods. On that footing, the conditions of the exemption notifications covering goods manufactured in a workshop within the factory and used in the factory were satisfied. The exclusion relating to machines, machinery, plant, equipment and appliances did not apply to the structurals and allied items in question.

Conclusion: The assessee was entitled to the benefit of the exemption notifications.

Issue (iii): Whether the extended period of limitation and penalty could be sustained.

Analysis: During the relevant period, the legal position on cutting, drilling and welding was not settled against the assessee and the prevailing decisions were in its favour. In such circumstances, suppression could not be attributed so as to justify invocation of the longer limitation period, and the basis for penalty also failed.

Conclusion: The extended period of limitation and the penalty were not sustainable.

Final Conclusion: The demand and penalty were set aside, and the assessee obtained full relief.

Ratio Decidendi: Where fabrication is admittedly carried out by independent contractors, mere supply of raw material and supervisory control by the recipient does not make the recipient the manufacturer; exemption for in-factory goods used in the factory is available when the goods are shown to be meant for internal use, and the extended period cannot be invoked absent suppression in a period of legal uncertainty.

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