Job work duty liability rests with the principal manufacturer; penalty and interest fall once the demand fails.

Duty liability for goods manufactured on job work basis was held to rest on the principal manufacturer where the raw materials were supplied by that principal and only limited materials were added by the job worker. Applying Rule 57F(4) of the Central Excise Rules, 1944, the Tribunal followed the view that duty could not be demanded from the job worker on the full value of the goods merely because duty had been mistakenly paid on materials used by him. As the duty demand itself was unsustainable, consequential penalty and interest were also not sustainable against the assessee.

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Issues: Whether duty demand could be sustained against a job worker who fabricated goods from raw materials received from the principal manufacturer, and whether penalty and interest could be imposed consequentially.

Analysis: The goods were manufactured on job work basis using materials supplied by the principal manufacturers, with only some of the job worker's own materials added in the process. Under Rule 57F(4) of the Central Excise Rules, 1944, the duty liability in such circumstances was held to rest on the principal manufacturer. The Tribunal followed the earlier view relied upon by the appellants that duty cannot be demanded from the job worker on the entire value of the goods merely because he had, by mistake, paid duty on the materials used by him. Once the demand itself was unsustainable, there was no basis for penalty or interest.

Conclusion: The duty demand, penalty, and interest were not sustainable against the assessee.

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