Job-work duty liability upheld, but penalty deleted where the trader's non-payment arose from a bona fide procedural misunderstanding.

Where Rule 12B of the Central Excise Rules made the trader liable for duty on raw materials sent for job work, the duty demand was sustained because the record showed that neither the trader nor the job worker had discharged the liability. However, penalty under Section 11AC of the Central Excise Act, 1944 was set aside because the rule was newly introduced and the dispute arose from a procedural misunderstanding rather than deliberate evasion. Duty and interest were therefore upheld, while the equal penalty was deleted.

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Issues: (i) whether duty was payable by the trader who supplied raw materials to a processor for job work under Rule 12B of the Central Excise Rules; and (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable.

Issue (i): whether duty was payable by the trader who supplied raw materials to a processor for job work under Rule 12B of the Central Excise Rules.

Analysis: Rule 12B, introduced by Notification No. 24/2003-C.E. (N.T.) dated 25.03.2003, provided for duty liability on the trader who sends raw materials for further processing. The record showed that the appellant had not discharged the duty liability and the departmental case was also that neither the appellant nor the job worker had paid duty. The objection that the department had not verified payment by the job worker was therefore not accepted.

Conclusion: The duty demand was upheld.

Issue (ii): whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable.

Analysis: The Tribunal accepted that the rule was newly introduced and that the appellant was not fully aware of the procedure. In these circumstances, and where the dispute turned on the statutory mechanism for duty payment rather than deliberate evasion, equal penalty was considered unwarranted.

Conclusion: The penalty under Section 11AC was set aside.

Final Conclusion: The demand of duty and interest was sustained, while the penalty was deleted, resulting in only partial relief to the assessee.

Ratio Decidendi: Where a specific excise rule makes the trader liable for duty on goods sent for job work, the duty demand is sustainable if liability remains unpaid, but penalty under Section 11AC is not justified absent circumstances warranting penal action despite a bona fide procedural misunderstanding.

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