2012 (10) TMI 626 - HC - Central Excise

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

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. ... Manufacture - job worker - recovery of duty on articles of apparel manufactured on job work - liability to pay duty cast on person who gets goods produced on his account on job work - exemption for articles of apparel manufactured from material supplied by the customer for personal use - deviation from the general rule that manufacturer pays dutyManufacture - job worker - liability to pay duty cast on person who gets goods produced on his account on job work - exemption for articles of apparel manufactured from material supplied by the customer for personal use - Whether respondents were liable to pay excise duty on garments stitched by them from fabric supplied by customers (either bought from respondents or brought from outside). - HELD THAT: - The Court examined Rule 7AA (and its successor provisions, Rule 4(1) and 4(3)) and Notification No. 7/2003-C.E. The rules place responsibility for duty on the person who gets goods produced on job work on his account, permitting that person to authorise the job worker to pay duty on his behalf; they do not by their terms make the job-worker automatically the person liable in every case. Notification No. 7/2003-C.E. exempts apparel or clothing accessories knitted or stitched by a tailor from material supplied by the customer for the personal use of the customer. Applying the notification, tailoring establishments that stitch garments in a customised manner from customer-supplied fabric are exempt from excise duty. In the present facts the customers supplied the already purchased fabric for stitching; consequently the tailoring activity falls within the exemption. The Tribunal correctly construed Rule 7AA and its successors and correctly concluded that duty liability had not been cast on the respondent in these circumstances. The Court also rejected the departmental reasoning that provision of buttons, threads or labels or handing over material to others converted the respondent into the manufacturer, noting no material showed the respondent undertook part of the manufacturing process as contemplated by the definition of 'job worker' in the rules. [Paras 6, 7, 10, 11, 12]Respondents are not liable to pay excise duty on garments stitched from fabric supplied by customers; the exemption in Notification No. 7/2003-C.E. applies and the appeal is dismissed.Final Conclusion: The appeal is dismissed; garments stitched by the respondents from fabric supplied by customers are exempt from excise duty under Notification No. 7/2003-C.E., and the Tribunal's conclusion that respondents are not liable is upheld. 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.