Job-work manufacture and full disclosure defeated penalty under central excise rules for the loan licencee appellants.

Manufacture on a job-work basis meant the job worker was the manufacturer for central excise purposes, and the disclosed price list and classification list already showed that the goods were produced for the loan licencee. The notification did not require a separate declaration by the loan licencee to the Department, and no material suppression or independent violation was established against the appellants. On that basis, the conditions for invoking Rule 209A and imposing penalty were not met, so the penalty was held unsustainable and was set aside.

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Issues: Whether penalty could be imposed on the loan licencee appellants under Notification No. 305/77 read with Rule 174A of the Central Excise Rules, 1944 and Rule 209A of the Central Excise Rules, 1944 when the goods were manufactured by a job worker and the relevant information stood disclosed.

Analysis: The manufacture was found to be on job work basis, and in that situation the job worker was the manufacturer for central excise purposes. The notification did not require a separate declaration by the loan licencee to the Department, and the price list and classification list disclosed that the goods were manufactured for the appellants. Since no material was withheld and no separate violation by the appellants was established, the basis for invoking Rule 209A and imposing penalty was absent.

Conclusion: The penalty on the appellants was unsustainable in law and was set aside.

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