Job-worker manufacture and excise liability: demand falls on the actual manufacturer, with connected penalty also set aside.
Where electrical goods are manufactured by independent job workers at their premises, excise liability attaches to the actual manufacturer under section 2(f) of the Central Excise Act, not to a recipient who merely arranges supply; on the recorded facts, the demand against the appellant was unsustainable. A limitation challenge based on the gap between the relevant period and the show cause notice was rejected because the intervening investigation and lack of demonstrated full knowledge in the earlier period prevented the notice from being treated as time barred. Once the substantive demand failed, the connected penalty on the director under Rule 26 also could not survive and was set aside.
Issues: (i) Whether excise duty could be confirmed against the appellant as the manufacturer in respect of electrical goods supplied through job workers. (ii) Whether the show cause notice was barred by limitation. (iii) Whether the penalty imposed on the director under Rule 26 could survive.
Issue (i): Whether excise duty could be confirmed against the appellant as the manufacturer in respect of electrical goods supplied through job workers.
Analysis: The appellant had no manufacturing facility for the disputed electrical items and the record indicated that the goods were either purchased from third parties or manufactured by job workers and then supplied to electricity boards. The materials on record did not establish that the appellant itself manufactured the goods in its own factory. Where manufacture takes place at the job worker's premises, the job worker answers the description of manufacturer under section 2(f) of the Central Excise Act, 1944. The demand was raised against the appellant without issuance of notice to the job workers who actually carried out the manufacture.
Conclusion: Excise duty could not be fastened on the appellant as manufacturer for the disputed job-work goods, and the demand was unsustainable.
Issue (ii): Whether the show cause notice was barred by limitation.
Analysis: The dispute related to the period ending in 2006, while the show cause notice was issued in 2008. However, the intervening investigation included summons and recording of statements, and the revenue was not shown to have possessed full knowledge of the relevant facts in 2006 itself. On that basis, the notice was not treated as time barred.
Conclusion: The plea of limitation was rejected.
Issue (iii): Whether the penalty imposed on the director under Rule 26 could survive.
Analysis: Once the duty demand against the appellant failed on the substantive issue, the foundation for the connected penalty also failed.
Conclusion: The penalty could not survive and was set aside.
Final Conclusion: The substantive demand and the connected penalty were set aside, while the limitation objection did not succeed.
Ratio Decidendi: When manufacture is carried out by independent job workers at their premises and the assessee merely arranges supply, excise liability attaches to the actual manufacturer and not to the recipient of the finished goods.
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
