Manufacture and job work exemption under Notification No. 214/86-C.E. cannot be denied without proof of manufacture and proper accounting.

Processes undertaken on goods, other than machining of pinions, were treated as not amounting to manufacture, so excise duty could not be sustained on goods subjected only to those processes. As to machining of pinions, the record was found to contain no factual basis in the notice or adjudication order to conclude that manufacture had occurred, so the demand could not rest on assumption. Exemption under Notification No. 214/86-C.E. was also held not deniable to a job worker merely because the raw material supplier had not furnished the undertaking, where the goods were duly accounted for and there was no deficiency in accountal. The demand was therefore unsustainable and the appeal was allowed.

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Issues: (i) Whether the processes undertaken on the goods, other than machining of pinions, amounted to manufacture so as to sustain the duty demand; (ii) Whether benefit of Notification No. 214/86-C.E. could be denied to the job worker merely because the supplier of raw material had not furnished the undertaking required by the notification.

Issue (i): Whether the processes undertaken on the goods, other than machining of pinions, amounted to manufacture so as to sustain the duty demand.

Analysis: The order records that four out of the five processes were outside the purview of manufacture, and therefore no excise duty could be levied on goods that had only undergone those processes. As regards machining of pinions, the record did not disclose any factual basis in the notice or adjudication order to conclude that it actually amounted to manufacture, and the demand could not be sustained on a bare assumption.

Conclusion: The duty demand could not be upheld on the footing that the processes, other than machining of pinions, amounted to manufacture.

Issue (ii): Whether benefit of Notification No. 214/86-C.E. could be denied to the job worker merely because the supplier of raw material had not furnished the undertaking required by the notification.

Analysis: The order treats it as settled law that exemption for job work cannot be denied merely for the supplier's omission to furnish the undertaking, particularly where the goods were duly accounted for and there was no allegation of deficiency in accountal. The supplier being a public sector undertaking also supported the conclusion that the omission did not justify denial of the exemption.

Conclusion: The benefit of the notification could not be denied on that ground.

Final Conclusion: The demand was unsustainable and was dropped, with the appeal allowed and the stay application rendered infructuous.

Ratio Decidendi: A job worker cannot be denied exemption under Notification No. 214/86-C.E. merely because the supplier of raw material failed to furnish the required undertaking, where the goods were properly accounted for and the demand is otherwise unsupported by a finding of manufacture.

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