2023 (5) TMI 931 - AT - Central Excise

Job worker not liable for supplier's compliance issues. Tribunal rules in favor of appellant.

M/s. Fabkraft Industries Versus Commissioner of Central Excise, Mumbai-II

M/s. Fabkraft Industries Versus Commissioner of Central Excise, Mumbai-II - TMI Issues Involved:1. Demand of Central Excise duty.2. Imposition of penalty under Section 11AC of Central Excise Act, 1944.3. Compliance with Notification No. 214/86-CE and Notification No. 83/94-CE.4. Availment of Cenvat credit and clearance without payment of duty.5. Proper accounting and documentation under Central Excise Rules.6. Determination of value under Central Excise Valuation Rules.7. Submission of monthly returns and adherence to procedural requirements.Issue-wise Detailed Analysis:1. Demand of Central Excise Duty:The appeal challenges the confirmation of Central Excise duty amounting to Rs. 13,36,872/- on the appellant under Section 11A(1) of the Central Excise Act, 1944. The demand was based on the appellant's failure to comply with the provisions of Notification No. 214/86-CE and Notification No. 83/94-CE, as neither the appellant nor the supplier of raw material followed the conditions laid down in these notifications. The Tribunal referred to previous judgments, including Vandana Dyeing Pvt. Ltd. and Inar Profiles Pvt. Ltd., which clarified that the duty liability in respect of goods moved under Rule 4(5)(a) is on the supplier of the goods and not on the job-worker.2. Imposition of Penalty under Section 11AC:A mandatory penalty equal to the duty amount was imposed under Section 11AC of the Central Excise Act, 1944, read with Rule 25 of the Central Excise Rules, 2000. The appellant argued that penalties should not be imposed on the job worker for non-compliance by the principal manufacturer. The Tribunal supported this view, citing cases like Bharat Foundry and Sunco Rubber Ltd., where it was held that the job worker cannot be held liable for the principal's failure to comply with procedural requirements.3. Compliance with Notification No. 214/86-CE and Notification No. 83/94-CE:The core issue was whether the appellant, as a job worker, was required to comply with the conditions of the aforementioned notifications. The Tribunal noted that the obligation to file declarations and undertakings rested with the supplier of raw materials, not the job worker. Previous rulings, such as those in Bharat Foundry and Sunco Rubber Ltd., reinforced that the job worker is not liable for the principal manufacturer's non-compliance.4. Availment of Cenvat Credit and Clearance without Payment of Duty:The appellant was accused of availing Cenvat credit on inputs and clearing goods without payment of duty, thereby contravening various rules of the Central Excise Rules, 2002. The Tribunal found that the appellant's actions were consistent with the established practice of job work, where the duty liability is on the supplier of raw materials.5. Proper Accounting and Documentation under Central Excise Rules:The appellant was found to have violated rules related to accounting and documentation, including failing to properly account for excisable goods in the daily stock account and clearing goods without valid invoices. The Tribunal acknowledged these procedural lapses but emphasized that the primary responsibility for compliance lay with the principal manufacturer.6. Determination of Value under Central Excise Valuation Rules:The show cause notice demanded that the value of goods manufactured under job work and cleared without payment of duty be determined under Rule 11 read with Rule 6 of the Valuation Rules, 2000. The Tribunal reiterated that the duty liability for goods moved under job work lies with the supplier of raw materials, as established in previous cases like Vandana Dyeing Pvt. Ltd.7. Submission of Monthly Returns and Adherence to Procedural Requirements:The appellant was accused of not showing the manufactured and cleared goods in their monthly returns (ER-1). The Tribunal noted that the appellant had not provided evidence of compliance with these procedural requirements but emphasized that the job worker's liability should not extend to the principal's procedural lapses.Conclusion:The Tribunal set aside the impugned order, allowing the appeal and holding that the job worker could not be held responsible for the principal manufacturer's non-compliance with the conditions of the relevant notifications. The duty liability and procedural compliance were the responsibility of the supplier of raw materials, not the job worker. The Tribunal's decision was consistent with previous rulings, ensuring that the legal obligations were correctly assigned.