Job worker duty liability is excluded when processed goods are returned under challans to the principal manufacturer.

Where raw material is sent to a job worker under challans for processing and the finished goods are returned to the principal manufacturer, the job worker is not liable to pay central excise duty. The Court applied the settled position already upheld by the Supreme Court that duty liability rests with the final manufacturer, particularly where that manufacturer avails Modvat credit. On that basis, the reference was answered in favour of the assessee and against the Revenue.

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Issues: Whether a job worker who receives raw material under challans for job work is liable to pay central excise duty on the goods returned after processing.

Analysis: The Tribunal's earlier view that job workers receiving inputs under challans under the relevant rule and returning the processed goods to the principal manufacturer were not liable to pay duty had already been upheld by the Supreme Court. The Court applied that settled position to the present reference and noted that the final manufacturer, and not the job worker, was the party availing Modvat credit.

Conclusion: The job worker is not liable to pay central excise duty in such circumstances.

Final Conclusion: The reference was answered in favour of the assessee and against the Revenue on the liability of a job worker to pay duty for goods processed and returned under challans.

Ratio Decidendi: Where inputs are sent to a job worker under challans for processing and the processed goods are returned to the principal manufacturer, the job worker is not the person liable to pay central excise duty.

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