2012 (10) TMI 626 - HC - Central Excise

Court rules customers, not respondent, liable for excise duty on job-work garments

COMMISSIONER OF CENTRAL EXCISE Versus DIWAN SAHEB FASHIONS PVT LTD & ORS

The Court ruled in favor of the respondent, holding that they were not liable to pay excise duty on garments stitched from fabric provided by customers. ... Garments stitched by assessee from fabric either brought by the customers themselves or from the Respondent for stitching purpose - Whether liability to to pay excise duty arises? - Held that:- Under the special provisions made as per Rule 7AA of the Central Excise Rules, 1944 and its successor rules, the responsibility to pay duty on textile articles got manufactured on job-work basis is put on the person who gets goods manufactured on job-work basis. He has to discharge such liability “as if he is the manufacturer”. This rule does not say anywhere that the person supplying the raw material would be the manufacturer. The rule only says that such person has to discharge the liability and that in the normal course is done by the manufacturer… There is no ruling by the Courts that a Rule cannot be framed to make the supplier of raw material liable to pay duty. Thus the respondent (appellant before the Tribunal) was not liable to pay excise duty - against department. Issues:Determining liability for excise duty on garments stitched from fabric provided by customers.Analysis:The case involved a dispute regarding the liability to pay excise duty on garments stitched by the respondents from fabric either brought by customers or bought from the respondents. The respondents contended that the duty was payable by the individual customers based on specific rules, while the department argued that the respondents, as the job worker, were liable to pay the duty as the manufacturer.The Tribunal analyzed Rule 7AA and its successor rules, emphasizing that the responsibility to pay duty on goods manufactured on job-work basis lies with the person who gets the goods manufactured. The Tribunal referred to Notification No. 7/2003-C.E., which exempted tailoring establishments from excise duty when garments were stitched from fabric supplied by customers for personal use.The Tribunal concluded that the respondents were not liable to pay excise duty, as the duty liability was not cast on the customers. The Court agreed with the Tribunal's reasoning, noting that the customers were the ones getting the goods manufactured on job work basis, and the duty liability did not fall on them. The Court also highlighted that the reasoning of the Commissioner, who held the respondent liable for duty, was not sound as the respondent did not undertake any part of the manufacturing process.In light of the above analysis, the Court dismissed the appeal, ruling in favor of the respondent and against the department. The Court found no merit in the appeal and upheld the Tribunal's decision regarding the liability for excise duty on garments stitched from fabric provided by customers.