Job-work exemption for supplied materials barred excise duty on returned goods, leaving the demand unsustainable.

Goods manufactured on a job-work basis from raw materials supplied by the principal and returned after processing were treated as covered by Notification No. 119/75-C.E., because the notification extended to goods falling under Tariff Item 68 manufactured in a factory as job work and returned to the supplier after manufacture. On the admitted facts, only job charges were paid and the value of the supplied materials fell within the exemption, so excise duty could not be levied on that value. The contrary assessment was therefore unsustainable, and the demand based on the supplied raw materials was set aside; the validity of Rule 10A was left open.

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Issues: Whether goods manufactured on job-work basis from raw materials supplied by the principal and returned after processing are exempt from excise duty under Notification No. 119/75-C.E. dated 30-4-1975 and therefore not dutiable under Tariff Item 68 of the First Schedule to the Central Excises and Salt Act, 1944.

Analysis: The goods were manufactured as job work, with the raw materials supplied by the principal, processed by the job worker, and returned after the intended manufacturing process on payment of job charges only. The exemption notification expressly covered goods falling under Tariff Item 68 manufactured in a factory as job work, and defined job work to include such processing where the article is returned to the supplier after manufacture. On these admitted facts, the cost of the supplied raw materials fell within the exemption, and excise duty could not be levied on that value. The contrary view taken by the Assistant Collector was therefore unsustainable.

Conclusion: The exemption applied and the excise demand on the supplied raw materials was not sustainable; the impugned order was liable to be set aside in favour of the assessee.

Final Conclusion: The writ petition succeeded, the assessment order was quashed, and the challenge to the notification-related demand was decided for the assessee while the validity of Rule 10A was left open.

Ratio Decidendi: Where goods are manufactured on job-work basis from materials supplied by another and are returned after the intended manufacturing process on payment only for the job work done, the value of the supplied materials falls within the exemption granted by the relevant notification and cannot be subjected to excise duty.

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