Job-work excise liability and limitation turn on principal manufacturer responsibility and absence of suppression

In a genuine job-work arrangement, the duty on finished goods is stated to rest with the supplier of raw materials or principal manufacturer, where the goods are processed and returned under the governing exemption conditions and circulars; the job worker is not treated as liable merely because the arrangement is described as principal-to-principal. The note also states that the extended period of limitation is unavailable absent suppression of facts with intent to evade duty, especially where declarations were filed, exemption was claimed, and departmental audit had noticed the activity. On that basis, the duty demand, interest and penalties were set aside.

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Issues: (i) Whether, in a job-work arrangement, the central excise duty on the finished goods was payable by the job worker or by the supplier of raw materials / principal manufacturer. (ii) Whether the demand, interest and penalties could be sustained by invoking the extended period of limitation.

Issue (i): Whether, in a job-work arrangement, the central excise duty on the finished goods was payable by the job worker or by the supplier of raw materials / principal manufacturer.

Analysis: The goods were manufactured from raw materials supplied by the principal manufacturers and were returned to them or cleared on their directions. The governing circular clarified that, in job-work contracts, duty liability rests on the manufacturer supplying the inputs and not on the job worker. Notification No. 83/94-C.E. also contemplated exemption for goods manufactured on job work, subject to compliance by the supplier of raw materials, and if the exemption was not availed, the duty obligation remained on the supplier of raw materials. The job worker's role in respect of the supplied materials was only to process and return the goods. The view that the job worker became liable merely because the relationship was described as principal-to-principal was rejected.

Conclusion: The duty on the impugned goods was not payable by the assessees as job workers, and the demand on that basis was unsustainable.

Issue (ii): Whether the demand, interest and penalties could be sustained by invoking the extended period of limitation.

Analysis: The assessees had filed periodic declarations, were availing small-scale exemption, and had been visited by audit parties. The department was aware of the activity, and there was no material showing suppression of facts with intent to evade duty. In these circumstances, the conditions for applying the longer limitation period were not satisfied. Once the basic duty demand failed, the consequential levy of interest and penalties also could not stand.

Conclusion: The extended period of limitation was not available, and the demand, interest and penalties were liable to be set aside.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: In a genuine job-work arrangement, duty liability lies on the supplier of raw materials / principal manufacturer in accordance with the governing exemption conditions and departmental circulars, and the extended period cannot be invoked absent suppression of facts with intent to evade duty.

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