2025 (5) TMI 58 - AT - Central Excise

Eagle brand flasks manufactured in rural areas through job workers qualify for SSI exemption under notification 8/2003-CE

M/s. Exotic Industries (India) Versus Commissioner of Central Tax (GST & C. EX.) Howrah Commissionerate And M/s. Eagle Home Appliances Pvt. Ltd. Versus Commissioner of Central Tax (GST & C. EX.) Howrah Commissionerate

M/s. Exotic Industries (India) Versus Commissioner of Central Tax (GST & C. EX.) Howrah Commissionerate And M/s. Eagle Home Appliances Pvt. Ltd. Versus ... The core legal questions considered in this judgment include:1. Whether the appellant, engaged in the manufacture and sale of branded goods through job workers, is liable to pay Central Excise Duty despite claiming Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE dated 01.03.2003.2. Whether the turnover of the appellant and the partnership firm M/s Shanti International, operating from the same premises and having common partners, can be clubbed for the purpose of quantifying Central Excise Duty liability.3. Whether the appellant's activities constitute manufacture under the Central Excise Act, given that they do not have their own manufacturing unit and outsource production to job workers in rural areas.4. Whether the penalty and interest imposed on the appellant and the brand owner M/s Eagle Home Appliances Pvt. Ltd. are sustainable in light of the findings on duty liability.Issue 1: Liability for Central Excise Duty and Eligibility for SSI ExemptionThe legal framework revolves around the Central Excise Act, 1944, and Notification No. 8/2003-CE dated 01.03.2003, which exempts branded goods manufactured in rural areas from excise duty. The relevant provision excludes goods bearing a brand name of another person from exemption except when manufactured in a rural area.The Court examined the appellant's statement and investigation findings, which established that the appellant did not possess its own manufacturing unit but supplied raw materials, moulds, and dies to various job workers located in rural areas who manufactured parts of the 'Eagle' brand thermo flasks. These parts were then assembled and packed in a rural location (village Bhattanagar, Anandpur, Liluah), which qualifies as a rural area under the notification.The Court noted that no manufacturing activity was observed at the appellant's premises during the search, and the appellant consistently maintained that it acted as a trader purchasing finished goods from rural job workers. The Revenue failed to produce contrary evidence disproving this assertion.Applying the law to these facts, the Tribunal held that the exemption under Notification No. 8/2003-CE applies because the branded goods were manufactured in a rural area, and the appellant merely acted as a trader. The demand for excise duty on the appellant for manufacture and sale of branded goods was therefore unsustainable.Competing arguments from the Revenue alleging that the appellant was engaged in manufacture and assembly at their premises were rejected due to lack of supporting evidence and the appellant's credible statements supported by investigation records.Conclusion: The appellant is eligible for SSI exemption under Notification No. 8/2003-CE, and the demand for excise duty on this ground is set aside.Issue 2: Clubbing of Turnover of Appellant and M/s Shanti InternationalThe Revenue's contention was that both the appellant and M/s Shanti International operated from the same premises, were controlled by a single family, and shared production activities, warranting clubbing of their turnover to prevent fragmentation of business for evading excise duty.The Court analyzed the relationship between the two entities and found that although they shared premises, the spaces were demarcated and separated by walls. Both had distinct VAT/CST registrations, Income Tax accounts, Central Excise registrations, separate books of accounts, and filed independent tax returns. There was no evidence of profit-sharing, common financial interest, or a single beneficiary controlling both firms.The Tribunal relied on established precedents which hold that mere sharing of premises or common partners does not justify clubbing of turnover unless there is demonstrable control or financial integration. The cited judgments emphasized the requirement of a single entity or control for clubbing to be valid.Applying these principles, the Tribunal concluded that the clearances of the appellant and M/s Shanti International could not be clubbed for excise duty demand purposes.Conclusion: The demand confirmed by clubbing the turnover of both entities is set aside.Issue 3: Nature of Manufacturing Activity and LiabilityThe appellant contended that they did not carry out any manufacturing activity themselves but outsourced production to job workers in rural areas, supplying raw materials and moulds. The Revenue alleged that the appellant effectively manufactured and assembled the goods at their premises.The Court found that the final assembly and packing of the 'Eagle' brand flasks occurred at a rural location and that no manufacturing activity was conducted at the appellant's premises in the urban area. The appellant's role was limited to coordinating manufacture through job workers and trading the finished goods.This factual finding was crucial in determining that the appellant did not manufacture the goods within the meaning of the Central Excise Act at their premises and was therefore entitled to exemption under the relevant notification.Conclusion: The appellant's activities do not amount to manufacture at their premises, supporting their claim for exemption.Issue 4: Penalty and InterestSince the Tribunal set aside the demand for Central Excise Duty on both the grounds of eligibility for exemption and non-clubbing of turnover, the question of liability for interest and penalty did not arise.The Tribunal accordingly set aside the penalty imposed on the appellant under Section 11AC of the Central Excise Act and the penalty on M/s Eagle Home Appliances Pvt. Ltd. under Rule 26 of the Central Excise Rules, 2002.Conclusion: Penalties and interest confirmed in the impugned order are set aside.Significant Holdings'If the 'Eagle brand' flasks are manufactured in rural areas, then the said goods are eligible for the exemption provided under the above said notification.''The clearances of the appellant company and that of M/s. Shanti International cannot be clubbed, as both have separate independent existence.''The appellant do not have any manufacturing unit on their own... Both the units have separate VAT and Income Tax Registration Numbers... Both firms are maintaining separate Books of Account, Profit and Loss Account etc. and filing their own Income tax returns.''The demand of duty from the appellant for manufacture and sale of branded goods of another person is not sustainable and accordingly, the same is set aside.''As the demands confirmed are not sustained, the question of demanding interest and imposing penalty does not arise.'The Court ultimately allowed the appeals, setting aside the impugned order confirming Central Excise Duty, interest, and penalties. The core principles established include the recognition of SSI exemption for branded goods manufactured in rural areas even when coordinated by a trader without own manufacturing facilities, and the requirement of clear evidence of control or financial integration before clubbing turnover of separate entities for excise duty purposes.