2001 (7) TMI 194 - AT - Central Excise

Manufacturers not Liable for Excise Duty as Tribunal Decides Contractual Basis

The Tribunal ruled in favor of the appellants, determining that they were not the manufacturers of the fabricated items and thus not liable to pay excise ... Manufacturer Issues:Manufacture under Section 2(f) of the Act, liability for excise duty, extended period of limitation, principal-to-principal basis of contract, determination of manufacturer in the case.Analysis:1. The case involved a dispute regarding the liability of the appellants to pay Central Excise duty on aluminium ductings and air grills fabricated in their premises by a contractor. The Collector of Central Excise had confirmed the duty demand and imposed a penalty, leading to the present appeal.2. The appellants argued that they were not the manufacturers of the items in question, emphasizing that the fabrication work was undertaken by the contractor on a principal-to-principal basis. The appellants contended that the contractor, not them, should be considered the manufacturer, citing relevant legal precedents.3. The appellants' counsel focused on establishing that the contractor undertook the fabrication work independently, supplying materials, using their own machinery and labor, and delivering the finished system to the appellants. The appellants' role was limited to approving designs and providing premises, not actively participating in the manufacturing process.4. The Department argued that the appellants should be treated as the actual manufacturers due to their involvement in supplying raw materials, approving drawings, and hiring laborers for the fabrication work. Legal precedents were cited to support this argument.5. The Tribunal examined the terms of the contract and the factual matrix, concluding that the contract was on a principal-to-principal basis between the appellants and the contractor. It was established that the contractor independently carried out the fabrication work, making them the manufacturer of the items.6. The Tribunal clarified that merely storing and issuing raw materials by the appellants did not make them manufacturers, especially when the contractor operated independently. Legal precedents were cited to support this interpretation, emphasizing the principal-to-principal relationship between the parties.7. The Tribunal referenced previous cases where contractors undertaking fabrication work independently were held liable for excise duty, reinforcing the appellants' argument that the contractor, not the appellants, should bear the duty liability.8. The Tribunal distinguished cases cited by the Department, highlighting the specific circumstances of the present case and the absence of evidence indicating the appellants' direct involvement in the manufacturing process.9. Ultimately, the Tribunal held that the appellants were not the manufacturers of the fabricated items and, therefore, were not liable to pay excise duty. The impugned order holding the appellants responsible for the duty payment was set aside, and the appeal was allowed.