2019 (8) TMI 1363 - AT - Central Excise

Tribunal grants appeal, overturns Order-in-Original, clarifies job worker clearances, rules show cause notice time-barred.

M/s. Mewar Hi-Tech Engineering Ltd. Versus Commissioner of Central Goods & Service Tax, Udaipur

M/s. Mewar Hi-Tech Engineering Ltd. Versus Commissioner of Central Goods & Service Tax, Udaipur - TMI Issues Involved:1. Clubbing of clearances for SSI exemption.2. Determination of the relationship between the appellant and job workers.3. Definition and scope of 'manufacture' under the Central Excise Act.4. Liability of excise duty on goods manufactured by job workers.5. Applicability of the extended period of limitation for issuing the show cause notice.Detailed Analysis:1. Clubbing of Clearances for SSI Exemption:The core issue was whether the clearances of the final product by job workers should be clubbed with the clearances of the appellant for denying the SSI exemption. The Tribunal concluded that the job workers were independent manufacturers acting on a principal-to-principal basis. Therefore, their clearances should not be clubbed with those of the appellant, making the denial of SSI exemption unjustified.2. Determination of the Relationship Between the Appellant and Job Workers:The Tribunal examined whether the relationship between the appellant and the job workers was on a principal-to-principal basis. It was found that the job workers operated independently without any financial or operational control from the appellant. The Tribunal referred to the Circular No. 56/56/94-CX dated 14.09.1994 and various judicial precedents to support this conclusion, emphasizing that the job workers were not mere agents or dummies of the appellant.3. Definition and Scope of 'Manufacture' under the Central Excise Act:The Tribunal analyzed whether the activities of the job workers amounted to 'manufacture' as defined under Section 2F of the Central Excise Act, 1944. It was determined that the job workers' activities did constitute manufacturing, as they transformed raw materials into new products independently. The Tribunal cited several Supreme Court judgments, including Union of India Vs. Delhi Cloth and General Mills and Empire Industries Ltd. Vs. Union of India, to affirm that the job workers were indeed manufacturers.4. Liability of Excise Duty on Goods Manufactured by Job Workers:The Tribunal held that the job workers, being independent manufacturers, were liable to pay excise duty on the goods they manufactured. The appellant's role was limited to supplying raw materials, and there was no further control or supervision over the job workers' activities. The Tribunal noted that the job workers were not exempt from paying duty unless specific conditions under Rule 57 F(4), Rule 4(5)(a) of the Cenvat Credit Rules, or Notification No. 214/86-CE were met, which were not applicable in this case.5. Applicability of the Extended Period of Limitation for Issuing the Show Cause Notice:The Tribunal found that the show cause notice issued on 25.04.2011 for the clearances made between April 2007 and August 2009 was beyond the permissible period of one year. It was determined that there was no intent to evade duty or any act of suppression by the appellant. Consequently, the extended period of limitation could not be invoked, rendering the show cause notice time-barred.Conclusion:The Tribunal set aside the Order-in-Original and allowed the appeal, concluding that the clearances by job workers should not be clubbed with those of the appellant, and the SSI exemption benefit was wrongly denied. The Tribunal also ruled that the show cause notice was barred by time, and there was no basis for imposing penalties on the appellant.