ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Original No. 6/2006 dated 17.08.2006 passed by the Commissioner of Central Excise, Bangalore-III Commissionerate, Bangalore.
2. The appellants are the manufacturers of HDPE/PP tapes, woven fabrics and sacks, which are all excisable. Revenue proceeded against the appellants after certain investigations. According to the Revenue, the appellants received raw materials from the principal manufacturers namely M/s. Vishnu Synpac and M/s. Kudva Plastisac. After converting these raw materials into HDPE tapes and thereafter fabrics, the appellants have cleared the goods to the principal manufacturers and in certain cases on the directions of the principal manufacturers, they had cleared it to their buyers without payment of duty. The contention of the Revenue is that the appellants are liable to discharge duty on the goods manufactured for M/s. Kudva Plastisac and M/s. Vishnu Synpac. Further the appellants were availing of the benefit of Notification No. 9/2002. According to the Revenue, the clearances of the goods meant for M/s. Vishnu Synpac and M/s. Kudva Plastisac had not been included in the aggregate value of the clearances by the appellant. Once these values are included, it was contended that they would not be entitled for the benefit of the small-scale exemption for 2001-2003. The Revenue issued show cause notice on the basis of the investigation and the Adjudicating Authority passed the impugned order.
3. The Adjudication authority confirmed a demand of Rs. 42,57,602/-, which represents the duty on the goods manufactured by the appellants as job work for M/s. Kudva Plastisac and M/s. Vishnu Synpac. The confirmation has been done on the ground that the principal manufacturers had not filed the declaration required under Notification No. 83/94, therefore, they are not entitled for the benefit of the notification. Further it has been held that the appellants who are the job workers and the other two units who sent the raw materials for conversion, have relationship on principal-to-principal basis. Invoking Board’s Circular, the Adjudicating Authority came to the conclusion that in the present case the job worker is the manufacturer of the goods and they are liable for discharging the Central Excise duty. As the principal manufacturer had not complied with the conditions of Notification No. 83/94, no exemption is available for the impugned goods and therefore, the duty has to be discharged on the said goods by the job worker. Further, another demand of Rs. 12,80,000/- has been confirmed on the appellants on the ground that they would not be entitled for the benefit of exemption Notification No. 9/2002 for the period from 1.4.2001 – 31.03.2003 in view of the fact that they had not included the value of the clearances made on job work basis and once this clearances are included in the aggregate value of clearances they would not be entitled for the benefit of the Notification as the aggregate value of the clearances would exceed Rs. 3,00,00,000/-. Interest under Section 11AB was demanded. A penalty of Rs. 55,37,602/- being equal to the duty demanded has been imposed under Section 11AC. Further, a penalty of Rs. 10,00,000/- has been imposed on the appellants under Rule 173Q of erstwhile Central Excise Rules and also Rule 25 of the Central Excise Rules, 2002. The appellants are highly aggrieved over the impugned order. Therefore, they have come before this Tribunal for relief.
4. Shri K.S. Ravi Shankar, the Learned Advocate appeared on behalf of the appellants and Ms. Sudha Koka, Learned SDR for the Revenue.
5. We have heard both sides. On a very careful consideration of the entire issue, we find that the appellants are manufacturers of the products on their own right apart from acting as job workers for the two companies M/s. Vishnu Synpac and M/s. Kudva Plastisac. The principal manufacturers are in the present case M/s. Kudva Plastisac and M/s. Vishnu Synpac. They have actually sent the raw materials to the appellants who manufacture HDPE tapes out of the raw material supplied and these HDPE tapes were used for making woven fabrics etc. It is on record that the appellants returned the fabrics or the finished products to the principal manufacturers. In this connection a Circular dated 20.03.1997 issued by the CBEC is very relevant. The said circular is reproduced below:
Circular No. 306/22/97-CX., dated 20-3-1997
Modvat credit – Inputs used by job workers in job working contracts
Circular No. 306/22/97-CX., dated 20-3-1997
[From F. No. 267/127/96-CX.8]
Government of India
Ministry if Finance (Department of Revenue)
Central Board of Excise and Custom, New Delhi
Subject: Availability of Modvat credit on inputs used by job workers in job-working contracts – Regarding.
Instances have come to the notice of the Board where job workers have availed the credit on inputs used for job-work done by them under the provisions of Rule 57F(4) of the Central Excise Rules, 1944.
Under 2. The provisions of Rule 57F(4), a manufacturer can get the job work done on his inputs or on partially processed inputs in terms of the provisions of Rule 57F(4) of the Central Excise Rules, 1944. In such cases duty liability is required to be discharged by the manufacturer and not by the job workers. Accordingly job worker is not eligible to avail credit in such cases.
5.1 In terms of this Circular, when the raw materials are sent to job workers, the modvat credit can be taken by the principal manufacturer who is the raw material supplier. He is supposed to send the raw materials under erstwhile Rule 57F(4) Challan for getting the job work done. So the principal manufacturer or the raw material supplier is entitled to avail modvat credit on the inputs used for job work. It has been clarified that the job worker is not eligible to avail the credit. What is important here is, in these cases the duty liability is required to be discharged by the principal manufacturer and not by the job worker. In the present case, it is on record that the finished products have been returned to the principal manufacturers and in certain cases, they have been cleared to the buyers of the principal manufacturers. In other words the principal manufacturers have sold the goods which have been manufactured. Now the point is, is there no liability on the principal manufacturer for payment of duty on the goods? If we go by the show cause notice issued to the appellants and also the impugned order, we find that the department holds that the job worker is the manufacturer and the job worker has the liability to pay excise duty. On the ground that the two principal manufacturers and the job worker namely the appellant have their dealings only on principal-to-principal basis, taking shelter of a circular issued by the Board, the Adjudicating Authority has come to the conclusion that in the present case the job worker is the manufacturer and therefore, they are liable to pay duty.
6. Moreover, Revenue has also invoked Notification No. 83/94 which is very relevant in respect of the job work. This Notification provides exemption to goods specified in the SSI exemption Notification which are issued from time to time. If a principal manufacturer sends raw materials to the job worker and the goods are returned to the principal manufacturer, he can avail exemption on the goods manufactured by a job worker. For clarity we are reproducing the said Notification:
Notification No. 83/94-C.E dated 11-Apr-1994
Job work – Exemption to goods specified in the SSI Exemption Notification No. 1/93-C.E., if manufactured on job work basis
In exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in the Annexure to the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 1/93-Central Excises, dated the 28th February, 1993 and falling under the Schedule to Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the specified goods) manufactured in a factory as job work, from the whole of the duty of excise leviable thereon, which is specified in the said Schedule, subject to the condition that the supplier of the raw materials or semi-finished goods gives an undertaking to the proper officer having jurisdiction over the factory, of the job worker –
(a) that the specified goods received from the job worker shall be used in the factory of such supplier in or in relation to the manufacture of specified goods which are exempted from the whole of the duty of excise leviable thereon under the aforesaid notification; and
(b) that in the event of his failure to do so, he undertakes to pay excise duty, if any, payable on such goods, but for the exemption contained in this notification, as if such goods were manufactured by the said supplier and sold on his own account:
Provided that the waste or bye-product, if any, generated during the process of such job work shall also be exempt from the whole of the duty of excise leviable thereon under the said Schedule if –
(i) such waste or bye-product is used by the job worker for the manufacture of the said specified goods within his factory; or
(ii) returned to the said supplier and are used in the factory of the said supplier in or in relation to the manufacture of the specified goods.
Explanation. – For the purposes of this notification, the expression “job work” means processing of or working upon raw materials or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process, and the expression “job worker” shall be construed accordingly.
6.1 A very careful reading of the Notification reveals that when goods are sent for job work and the job worker completes the manufacturing processes, then such goods are entitled for exemption from duty on certain conditions. What are the conditions? The first condition is (a). In terms of the condition (a), the specified goods received from the job worker shall be used in the factory of the supplier of the raw materials. That means if a principal manufacturer or raw material supplier sends the raw materials to a job worker and receives such finished products, then first condition is that he should use these goods in his factory. That is condition No. 1. The second condition is (b) in case the goods are not returned to the principal manufacturer or the supplier and if they are sold on his account, then the principal manufacturer undertakes to pay excise duty, if any, payable on such goods but for the exemption contained in this Notification as if such goods were manufactured by the said supplier and sold on his account. Therefore, this Notification No. 83/94 casts a responsibility on the supplier of raw material and the supplier of raw material can avail exemption provided the conditions are followed. In other words, if the supplier of the raw material does not want to avail this exemption Notification No. 83/94, he is duty bound to discharge the duty liability on the goods received from the job worker. Therefore, this position has to be understood clearly. The job worker has actually been defined even in the Notification and it is also defined in the Cenvat Credit Rules also. The meaning of job work and job worker has been made very clear. The responsibility or the liability to discharge duty is on the raw material supplier. The job worker in this case has returned the goods. That is an important point.
7. Further in the present case, the job worker has not availed any credit on the inputs. In fact, no information is available on the credit taken on the inputs. The inputs obviously have been purchased by the two principal manufacturers. So it is not understood or it is not clear whether they had taken modvat credit on them. If it is presumed that they had taken credit, then in terms of the Circular dated 20.3.1997 reproduced supra, the duty liability is required to be discharged by the principal manufacturer and not by the job worker. This Circular has not been rescinded by the Board. Therefore, the liability for payment of duty rests on the raw material supplier.
8. It is also further revealed that the finished goods have been sold on account of the raw materials suppliers or the principal manufacturers, so it is not understood why the department has not taken any action on the raw material supplier. We find that the raw materials have been sent to the appellant on delivery Challan and the appellants have stressed that even from 1999 onwards they have been regularly filing the declarations required for availing the benefit of SSI Notification and also they have stressed the point that the audit parties have visited them several times. So the department was fully aware of the activities of the appellants. Therefore, we are not convinced that the department has made a strong case for invoking the longer period in respect of the appellants.
9. We do not find that there is any strong reason for holding that they had an intention to evade Central Excise duty especially when it is on record that they had manufactured the goods on job work basis and sent the same to the principal manufacturer. In this connection, we had gone through the agreement between the appellant and the two raw material suppliers. Nowhere in the agreement, it is stated that the job worker will be clearing the goods on payment of duty. In our view, there is no justification for extending the longer period, because the period of dispute is from 1.04.2001 to 31.03.2003. The officers visited the unit and carried out search operations on 26.03.2003. However, the show cause notice was issued only on 30.06.2005. There is an enormous delay. Of course, the longer period can be invoked, provided there is suppression of facts with an intention to evade duty. In this case, the appellants have submitted periodical declarations. They have been availing SSI exemption. The audit parties also have visited them several times. So in these circumstances, we cannot accept that they had suppressed the facts with an intention to evade duty. So the longer period is not applicable.
10. The finding of the learned authority that the relation between the appellant and raw material supplier is on principal-to-principal basis and therefore, the raw material supplier is not the manufacturer and the job worker who is the appellant is only the manufacturer does not stand to logic. The relation between the appellant and the raw material supplier has to be seen in respect of the goods or raw materials supplied by the principal manufacturer. As far as the raw materials supplied by the principal-manufacturer are concerned, the appellant in terms of the agreement is bound to convert them into finished products and send them back. It is not understood how the department and especially the Adjudicating Authority holds that the principal manufacturer or the raw material supplier is not liable to pay Central Excise duty. It is also a fact and it is on record that the raw material supplier has sold the goods. Even though the show cause notice was issued to the two raw material suppliers for imposing penalty, the Adjudicating Authority has given a finding that the raw material suppliers have the option to avail the benefit of the exemption Notification No. 83/94 and they cannot be compelled to avail the Notification. This finding is not correct. The first is liability to pay duty, the exemption notification comes later. When the raw material supplier sends the goods to the job worker and if the products resulting from the job worker are not to be paid duty or in other words, if they have to be cleared without payment of duty either by the job worker or by the principal manufacturer, then their principal manufactures or the raw material suppliers are duty bound to follow or comply with Notification No. 83/94 Central Excise dated 11.04.94. If they do not want to comply with the Notification, then the liability is on them to pay Central Excise duty and not on the job worker. The job worker in his own right he may be an independent manufacturer, but as far as these raw materials are concerned his job is only to convert them and to send them back to the principal manufacturer. The liability of the principal manufacturer cannot be extinguished on the ground that the relationship between the appellant and the principal manufacturer is on a principal-to-principal basis. This approach is entirely wrong.
11. In this connection, this bench in the case of Sree Rayalaseema Dutch Kassenbouw Ltd v. CCE, Tirupathi has clearly held that the duty liability is squarely on the shoulders of the raw material supplier and not on job worker. It has also been held that the demand of duty for the reason that raw material supplier has not followed the provisions of Notification No. 214/86 CE, is not correct. In that case, the demand was set aside. This ratio of the decision will be squarely applicable to the present case also. In the present case, the principal manufacturer should have followed the conditions of Notification No. 83/94. It is not correct to say that he has a choice to opt for a notification and he did not opt for this notification. If he had not opted for the Notification, the next course would be for him to discharge the duty liability especially when the principal manufacturer had availed the modvat benefit and also sold the goods. Therefore, we do not find any justification in the demand. We have also held that in this case, there is no justification for invoking the longer period. In view of the above findings, we do not find any merit in the impugned order. We set aside the same and allow the appeal with consequential relief.
(Pronounced in open Court on 8 OCT 2007)