Job-work clearances and prior departmental knowledge defeat suppression, extended limitation, and duty demand on the job worker.

Prior departmental knowledge of job-work clearances and supporting returns, invoices and audit records defeated any allegation of wilful suppression, so the extended limitation period could not be invoked. Where scrap was received for conversion under the job-work procedure, processed into billets and ingots, and returned to the principal manufacturers, duty could not be fastened on the job worker merely because the declaration under Notification No. 214/86-C.E. was filed with the principal manufacturer's jurisdictional authority. On those facts, duty, interest and consequential penalties on the job worker and co-noticees were unsustainable.

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Issues: (i) Whether the demand was barred by limitation on the ground that the department had prior knowledge of the job-work clearances and there was no suppression of facts; (ii) Whether duty could be demanded from the job worker and penalties sustained when the goods were received for conversion and returned to the principal manufacturers under the job-work procedure and Notification No. 214/86-C.E.

Issue (i): Whether the demand was barred by limitation on the ground that the department had prior knowledge of the job-work clearances and there was no suppression of facts

Analysis: The record showed that the appellants and the principal manufacturers had intimated the jurisdictional authorities about receipt of scrap for conversion, the movement of goods for job work, and return of the converted goods. The correspondence, invoices, ER-1 returns, and audit scrutiny indicated that the department was aware of the transactions. In such circumstances, mere later objection on scrutiny of returns did not establish wilful suppression. The extended period could not be invoked without proof of deliberate withholding of information with intent to evade duty.

Conclusion: The demand was barred by limitation and the invocation of the extended period was unsustainable.

Issue (ii): Whether duty could be demanded from the job worker and penalties sustained when the goods were received for conversion and returned to the principal manufacturers under the job-work procedure and Notification No. 214/86-C.E.

Analysis: The goods were received under conversion agreements, converted into billets and ingots, and returned to the principal manufacturers. The documents indicated that the goods were sent for conversion under Rule 4(5)(a) of the Cenvat Credit Rules, 2002, and the principal manufacturers had filed intimation in relation to job work under Notification No. 214/86-C.E. The fact that the declaration was filed with the principal manufacturer's jurisdictional authority, rather than the job worker's authority, was not treated as a fatal defect in the facts of the case. Since the converted goods were returned and the liability, if any, lay on the principal manufacturer, duty could not be fastened on the job worker. Consequential penalties on the co-noticees also could not survive.

Conclusion: Duty, interest, and penalties were not sustainable against the job worker or the co-noticees.

Final Conclusion: The appeals succeeded, the duty demand and penalties were set aside, and the matter was finally concluded in favour of the assessees.

Ratio Decidendi: Where the department had prior knowledge of the material facts and the goods were processed as job work under the notified procedure, suppression and extended limitation cannot be invoked, and duty cannot be shifted to the job worker merely because of a procedural defect in the filing of the principal manufacturer's declaration.

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