ORDER
1. In this petition for a certiorari the petitioner calls in question the validity of Trade Notice No. 230/88 issued by the Collector, Central Excise, Bangalore, and the order dated 20th of July 1990 passed by the Assistant Collector, Central Excise approving the classification list submitted by the petitioner but disallowing the exemption claimed by it on goods manufactured on Job Work Basis. Consequent show cause and demand notices issued by the respondents have also been called in question.
2. The petitioner is a Small Scale Industrial Unit engaged in the manufacture of machine parts. These parts are manufactured by the petitioner on its own account as also on ‘Job Work Basis’ making use of raw materials supplied to it by the parties. In terms of Notification No. 175/86 dated 1st of March 1986, excisable goods manufactured by a Small Scale Industrial Unit are eligible for a concessional slab rate of duty prescribed therein. The petitioner it is not in dispute qualifies for the benefits admissible under the notification and has been availing of the same with effect from 1st of March 1986.
3. A classification list effective from 10th of March 1990 was submitted by the petitioner to the 3rd respondent for approval claiming benefit under the aforesaid notification for including such of the goods as were classifiable under Chapters 85 and 87 and were manufactured on Job work basis. On receipt of this list the 4th respondent issued notice to the petitioner to show cause to the 3rd respondent as to why the concessional slab rates of duty should not be denied and consequently short levied amount demanded from it in the light of Trade Notice No. 230/88, dated 4th of October 1988 issued by the Additional Collector of Central Excise, Bangalore. The cause shown by the petitioner it appears did not find favour with the Assessing Collector who by his order dated 20th of July 1990 approved the classification list but disallowed to the petitioner the benefit of Notification No. 175/86 on goods manufactured on Job work basis. The differential duty on the goods already cleared was also demanded. Aggrieved the petitioner has questioned the validity of Trade Notice No. 230/88 as also the order passed by the Asstt. Collector in the present writ petition.
Heard.
4. Trade Notice No. 230/88, dated 4th of October 1988 issued by Addl. Collector stipulated that if inputs are supplied by the principal manufacturer for the manufacture of any goods on job work basis then the goods manufactured would not be entitled to Small Scale exemption unless the Principal manufacturer himself was entitled to any such exemption. In other words the Trade Notice held the job workers disentitled to the exemption in situations where the inputs for the job undertaken were supplied by another party. The order passed by the Asstt. Collector proceeds entirely on the basis of the aforementioned trade notice and has held that since the inputs in the instant case had been supplied to the petitioner by the principal manufacturers namely BHEL, Bangalore and BEML, KGF any work undertaken by the petitioner and any production out of such inputs on behalf of the said two companies did not qualify for the benefits admissible under Notification No. 175/86, dated 1-3-1986. The validity of a similar trade notice with similar purport was examined by the Customs, Excise and Gold (Control) Appellate Tribunal who held that the suppliers of raw materials would not become manufacturers by the mere fact that the raw material used had been supplied by them. This view when assailed in appeal was upheld by the Supreme Court in Collector of Central Excise, Cochin v. Kerala State Board [1990 (47) E.L.T. A161]. Consequent upon the said decision, Government issued yet another trade notice namely 156/90 which is on similar lines as Trade Notice No. 159/90, dated 3-9-1990 issued by the Additional Collector, Central Excise, Bangalore. The relevant portion of the aforesaid Trade Notice reads thus :
“Para 3 : The matter has been re-examined by the Board and it has been decided that if the relationship between the raw material supplier and the job worker is one of principal to principal, then the job worker will be the actual manufacturer. If from the facts of the case and the terms of agreement between the raw material supplier and job worker, it can be established that job worker is a dummy unit or is just a hired labour of the raw material supplier, then the raw material supplier would be the principal manufacturer and the job worker would be his workman of hired labour.
5. A plain reading of the above would show that the question whether or not the job worker is entitled to claim benefits flowing from Notification No. 175 dated 1-3-1986 in respect of job work done by it would depend upon whether the job worker was a dummy or a genuine unit to whom the materials were supplied on Principal to Principal basis. If from the facts of the case and the terms of the agreement between the raw material supplier and the job worker it is established that the job worker was no more than a dummy unit or has done work as a hired labour, the raw material supplier would be the principal manufacturer and the job worker treated as a workman or hired labour only. On the other hand if the facts and the terms of the agreement executed between the two establishes that the relationship between them is one of Principal and Principal then the job worker shall be treated as the manufacturer entitled to the benefit of the exemption admissible under the 1986 notification mentioned above. In the light of this clarification issued by the respondents, it is obvious that the view taken by the Assessing Collector placing reliance upon Trade Notice 230/88 would no longer hold good. That is so because the clarification issued by Trade Notice No. 230/88 is materially altered by the subsequent trade notice issued on the subject. It follows that the question whether or not the petitioner was a genuine job worker undertaking job work on Principal to Principal basis shall have to be examined by the Asstt. Collector afresh.
6. Counsel appearing for the petitioner however argued that the respondents had at no stage considered the petitioner to be a dummy unit engaged only in hired labour work for the Principal manufacturers. He urged that in the absence of any such case set up by the respondents the petitioner should be held entitled to the exemption under Notification No. 175/86. without any further reference to or examination by the authorities. I however find no substance in this submission. The order passed by the Asstt. Collector it is apparent proceeds on the basis of position as it stood in July 1990 when the field was covered by Trade Notice No. 230/88, according to which where ever inputs were supplied to the job worker by the Principal, the job worker would be disentitled to claim the benefits of exemption. Trade Notice 230/88 did not make any distinction between a dummy and genuine job worker. The test provided by it was whether the job worker was undertaking the manufacture of the goods out of the inputs supplied by the principal manufacturer. If so, the job worker would be disentitled to claim exemptions regardless whether it was a genuine or a dummy unit. The Asstt. Collector therefore had no occasion to consider whether or not the petitioner was a dummy unit doing only hired labour work for the Principal manufacturers. The necessity to go into the issue has arisen on account of the decisions delivered by the Supreme Court resulting in the issue of Trade Notice No. 159/90 under which the genuineness or otherwise of the unit is the crucial test to be applied while granting an exemption to such units.
7. In the light of what is stated above order dated 20th of July 1990 passed by the Asstt. Collector, Central Excise is hereby quashed with a direction to him to re-examine the petitioner’s request for approval of the classification list submitted by it in the light of Trade Notice No. 159/90 dated 3-9-1990 and the observations made herein above. Consequently show cause and demand notices Annexures-J, L and M shall also stand quashed. Fresh orders shall be passed by the Asstt. Collector within three months from the date a copy of this order is produced by the petitioner before him. No costs.
