Job worker machining determines manufacture in excise; raw material supplier is not the manufacturer of finished parts.

Unmachined castings sent to independent job workers did not become finished parts/components at the appellants' factory; the manufacturer was the person who carried out the machining and brought the new excisable product into existence. The appellants were therefore liable only for castings cleared from their own factory, not for finished parts made by job workers. For the period in question, the facts also supported invocation of the extended limitation period because the Department learned of the activity only later. Penalty was not justified on the facts and was set aside, and recomputation was directed where necessary.

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Issues: (i) Whether castings cleared from the factory and machined by independent job workers to produce finished machinery parts/components were to be treated as parts/components manufactured by the appellants for central excise purposes; (ii) Whether the demand for the earlier period could be sustained on the ground of suppression and invocation of the extended period of limitation; (iii) Whether penalty was warranted.

Issue (i): Whether castings cleared from the factory and machined by independent job workers to produce finished machinery parts/components were to be treated as parts/components manufactured by the appellants for central excise purposes.

Analysis: Castings are separate articles and are not automatically to be treated as parts merely because they are capable of being used as such after machining. Where unmachined castings were sent to independent job workers and the machining operations were carried out there according to drawings and specifications, the conversion into finished parts/components took place at the job workers' end. The person who brings into existence the new product is the manufacturer, while the raw material supplier does not become the manufacturer merely because the materials originated from its factory.

Conclusion: The job workers were the manufacturers of the finished parts/components wherever machining was done by them, and the appellants were liable only in respect of castings cleared from their own factory.

Issue (ii): Whether the demand for the earlier period could be sustained on the ground of suppression and invocation of the extended period of limitation.

Analysis: The record indicated that the Department came to know of the activity only later, after the period for which duty was demanded. Prior knowledge arising subsequently did not erase earlier non-disclosure for the relevant period. In so far as duty was otherwise payable on parts/components manufactured by the appellants, the facts justified invocation of the larger period.

Conclusion: The extended period of limitation was available to the Department.

Issue (iii): Whether penalty was warranted.

Analysis: On the facts and circumstances, the case did not justify penal action against either appellant.

Conclusion: Penalty was set aside.

Final Conclusion: The appeals succeeded in part: the duty liability was confined to the legal position stated above, the matter was remitted for recomputation where necessary, and the penalty was annulled.

Ratio Decidendi: In central excise, a raw material supplier is not the manufacturer of the finished product when independent job workers carry out the machining that brings the new excisable goods into existence.

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