Custom, Excise & Service Tax Tribunal
M/S Raunag International Ltd vs Cce, Lucknow on 14 August, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. II DATE OF HEARING : 14/08/2015. DATE OF DECISION : 14/08/2015. Excise Appeal No. 2396 of 2006 [Arising out of the Order-in-Appeal No. 13-CE/2006 dated 31/01/2006 passed by The Commissioner (Appeals), Customs, Central Excise & Service Tax, Lucknow.] For Approval and signature : Honble Shri Ashok Jindal, Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) 1. Whether Press Reporters may be allowed to see : the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it would be released under Rule 27 of : the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? M/s Raunag International Ltd. Appellant Versus CCE, Lucknow Respondent
Appearance Shri Pradeep Kumar Mittal, Advocate for the appellant.
Shri Ranjan Khanna, Authorized Representative (DR) for the Respondent.
CORAM: Honble Shri Ashok Jindal, Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Final Order No. 52629/2015 Dated : 14/08/2015 Per. Ashok Jindal :-
The appellant is in appeal against the impugned order demanding duty alongwith interest and imposing penalty by the lower Authorities.
2. The facts of the case are that the appellant is engaged in a activity of undertakings Civil/ Mechanical, turn-key projects at various sites of their customers. The appellant was awarded work order from M/s National Thermal Power Corporation (NTPC) for supply of Low Pressure Piping Package comprising of Design, Engineering, Packing and Forwarding and supply of Feroze Gandhi Unchahar TPP Unchahar Stage II. The appellant, further, sub-contracted the work for Pipeline Packages to M/s Varshney Engineers & Erectors (in short VEE) through Minutes of Meeting dated 19/08/1996. As per the said contract, M/s VEE was required for transportation, fabrication, erection of piping works start to finish till its final acceptance by the appellant and NTPC. On the work executed by M/s VEE, no duty has been paid therefore proceedings were initiated against the appellant to pay the duty on the work executed by the M/s VEE being a Labour Contractor of the appellant as the appellant is required to pay duty on the said work. In these set of facts, the proceedings were initiated against the appellant for demanding duty alongwith interest and imposition of penalty and penalty on M/s VEE. The show cause notice was adjudicated which converted into the impugned demands. Aggrieved from the said order, the appellant is before us.
3. The learned Counsel for the appellant submits that the appellant had sub-contracted certain work to M/s VEE under an agreement and as per the terms of the agreement, M/s VEE is the fabricator of those piping and are liable to pay duty thereof being a job worker/manufacturer of such said goods, therefore, the appellant is not liable to pay duty. He also contested the issue on the ground of limitation as well as on the ground that the goods fabricated M/s VEE is not a pipe but it is only a Shell and not liable to pay duty thereof.
4. On the other hand, learned AR reiterated the findings of the impugned order.
5. Heard the parties considered the submissions.
6. On examination of the show cause notice as well as the agreement, it is very much clear the nature of work executed by M/s VEE. Some of the Clauses are reproduced here as under :-
(1) M/s VEE will do the works from transportation, fabrication, erection of piping works start to finish till its final acceptance by RIL and NTPC.
(2) M/s VEE will carryout the works from start to finish as per technical specifications, approved drawings, FOP (S), WPS, requirements and instructions of Engineer Incharge of NTPC and RIL in toto without any deviations or extra cost to RIL for successful completion of works from start to commissioning, handing over and expiry of warranty period, (3) M/s VEE shall carryout works as per approved FQP (S), WPS and Drawings.
(4) It was agreed by M/s VEE that whatever LD on delay is imposed by NTPC on RIL shall be recovered the portion of works in VEEs scope as penalty from M/s VEEs running/ final bills/security deposits bank guarantees or from any other due payments for their portion of works. M/s VEE agreed for this penalty price reduction on their defaults.
(5) M/s VEE confirmed that they shall arrange and deploy all required tools, plants and machineries (including lifting, shifting, hoisting and scaffolding etc.) testing equipment whatever may be required to adhere the schedule of completion of their portion of works including consumable, manpower, supervisors and engineers etc. without any extra cost to RIL. RIL shall give 4 MG sets to M/s VEE free of charge in working order. The same shall be maintained by M/s VEE and returned in working order. Use of other heavy machinery like hydra and tractor trailor etc. shall be given on O&M charge basis. The O&M charges for the following shall as mentioned.
Hydra ---- Rs. 195/- Per hour Tractor/trailor ---- Rs. 180/- Per hour
However, M/s VEE shall maintain a log book, to be signed by RIL supervisor for the use of RILs equipment. The charges shall be based on actual hours the machine is used by M/s VEE.
(7) Water and Power for construction purposes as available from NTPC shall be supplied by RIL free of cost and further distribution whatever required shall be done by M/s VEE.
(8) Except for making payments against monthly work RA Bills. M/s RIL will have no other liability to M/s VEE on any account whatsoever.
(10) M/s VEE shall arrange for construction of their office/ godown/establishment for their staff and workers for which suitable space as available from NTPC shall be provided by RIL. Similarly conveyance and other facilities will also be arranged by M/s VEE for their operation at site on the assigned works. These all arrangements shall be made by M/s VEE without any extra cost to M/s RIL.
(11) The unit rates as agreed by M/s VEE are inclusive of loading, unloading, transportation, handling and cartage etc. from NTPC/RIL stores, local site/shop handling etc. and no extra payments shall be made on this account. It shall be M/s VEEs responsibility for safe transit of entrusted materials to site and for safe custody and protection at project site against all risks whatsoever till materials are used for construction by them and are finally accepted and taken over by RIL/NTPC.
(12) M/s VEE shall mobilize site by 10/09/1996 as advised by RIL.
(13) Entire scope from transportation, erection to commissioning of pipes, valves and specialties shall be paid for the finished work on actual measurement basis.
(16) Raw Steel plates, structural sections, machined flanges, pipes valves and in line accessories shall be given by RIL to M/s VEE free of cost. All fabrication and erection of R&W pipes, fittings, supports etc. are in the scope of work of M/s VEE including arrangement of temporary supporting material, testing material etc. required. It shall be the responsibility of M/s VEE to ensure safe custody of all such free issue materials, accounting and reconciliations, of the same as required by NTPC/RIL as per their specification/norms on such works.
(18) The schedule of rates for above subjected works shall remain firm and fixed throughout the execution and till the completion of work. The payments shall be released by RIL only on the basis of actual quantum of job done by M/s VEE and accepted/certified by RIL/NTPC based on agreed rates as mentioned in schedule of rates enclosed. No escalation, enhancement of rates shall be done in schedule of rates/ lump sum value during the tenure of execution of above subjected works till finally completed, handed over and expiry of warranty/guarantee period.
(19) M/s VEE shall execute the works under normal condition of interference/power failure/fronts/local weather conditions/time required for testing etc. and no compensation or extra shall be paid to them due to such disruption of works.
Note :
(i) RIL shall deduct income tax and work contract/ turnover from the payments made to M/s VEE against their RA bills as per rules and laws applicable at NTPC UNCHAHAR site.
25. All taxes, duties levies and octroi etc. are inclusive in schedule of rates (enclosed herewith) and no extra payment on any of these account shall be made to VEE. VEE shall take care of all the tax liabilities/ formalities etc. to bring all materials, equipments, tools and plants and to complete assigned works in all respects. The work contract tax/turn over tax as applicable shall be deducted from VEE bills for their portion of works done.
7. On going through the above, clauses of said Minutes of Meeting dated 19/08/1996, we find that nature of work executed by M/s VEE is being a manufacturer/job worker of the appellant on principal to principal basis. In these circumstances, it cannot be said M/s VEE is a labour contractor of the appellant and has fabricated the goods on behalf of the appellant.
8. A similar issue came up before this Tribunal in the case of AFL Pvt. Ltd. vs. CCE, Mumbai II reported in 2013 (295) E.L.T. 211 (Tri. Mumbai), wherein this Tribunal has observed as under :-
7.?Shri J. Pochkhanwala, Sr. Advocate appearing on behalf of the appellants submits that M/s. N.S. Guzder & Co. Pvt. Ltd. secured a contract for movement of Over Dimensional Cargo (ODC) from Kolkata to Jagdishpur via Mirzapur to fulfill a project of M/s. Indo Gult Fertilizers & Chemicals Ltd. (Indo Gulf). N.S. Guzder in turn assigned the work to the appellants. As per the contract with Indo Gulf, it is contemplated that the ODC may be moved inter alia by sea and therefore the tugs or barges which are required for the purpose should be adequately constructed. An agreement was entered into by the appellants with the designers of the said goods wherein AMC Marcons also contemplates that the said goods should be constructed as sea going vessels. On the basis of the above, the appellants entered into an agreement dated 15-9-1986 with M/s. Raigad whereby M/s. Raigad was required to manufacture the said goods as per the designs and specifications of the appellants as job contractors. The said agreement is on principal to principal basis. The appellants acted as M/s. Raigads representative that it had expertise in shipbuilding. The appellants and M/s. Raigad are completely separate legal entities. The appellants have not provided any financial assistance to M/s. Raigad. The appellants provided only raw materials i.e. basic steel and other essential items required to be placed on board tugs to M/s. Raigad. M/s. Raigad is not a dummy of the appellants. The appellants hired BPT premises as indicated to them by M/s. Raigad. M/s. Raigad used its own expertise, its own electricity, its own equipment and machinery like generators, transformers, cutting, welding, grinding equipment, all to be run with the aid of power, cables and tools as well as its own labourers to manufacture the said goods. Therefore, M/s. Raigad did not merely provide labour manpower. The manufacture of the said goods would be supervised by the Architect Shri Kapur of AMC Marcons to designs the said goods. He also contends that Shri Kapur, apparently introduced to the appellant by M/s. Raigad through its director Shri Usman Malwankar who is also a director of Maldar Shipping Services Pvt. Ltd. The appellant paid M/s. Raigad as contractors by the connage and not by way of compensation to individual labourers. The learned Advocate submits that from the above, it is clear that M/s. Raigad was not merely a labour supplier as held in the impugned order.
7.1?It is also contended that although as per the agreement in Clause 10, M/s. Raigad was required to discharge any Central taxes on the said goods and in turn the appellants have to reimburse the same. He further contended that as held by this Tribunal in the case of JCB India Ltd. - 2008 (12) S.T.R. 714 (Tri.) which was upheld by the Honble Apex Court as reported in 2010 (18) S.T.R. J110 wherein it has been held that by merely writing in an agreement that all central taxes would be payable by the appellants has no force in law inasmuch as no parties to a contract can contract themselves out of statutory provisions of law and any clause in an agreement contrary to law is not sustainable.
7.2?It is further contended that as per various statements recorded during the investigation, it is clear that the main raw materials (i.e. steel, tug engines, pipes, electrical material) were supplied by the appellant and M/s. Raigad supplied labour, tools, tackles, electrodes and electricity. It is also an admitted position that machines which were procured for manufacturing process are cutting machines run with the aid of power, welding machine run with the aid of power, electrical cables, grinders run with the aid of power and electrical generating sets for generating electricity. It is M/s. Raigad who used their own machinery for fabrication of the said goods by using generators, transformers, cables, welding machines, cutting machines. It was further submitted that the show-cause notice clearly reflect the admission of M/s. Raigad that in terms of the said agreement they were paid on the basis of tonnage of manufacture. The appellants did not discharge any payment towards the individual labourers. Further from the statement of Shri Salim Kasim, it is clear that he provided and hired to M/s. Raigad generators and welding machines for manufacturing the said goods who has also produced the vouchers and bills in respect of the hiring of the said machinery in the name of M/s. Raigad for the manufacture of the said goods. Therefore, he submits that M/s. Raigad cannot be termed as labour supplier. In fact, M/s. Raigad were experts in building of ships and vessels and they were job work contractors. As contractors, M/s. Raigad provided all the requisite machinery electricity and labour. Therefore, M/s. Raigad is the manufacturer of the said goods not the appellants.
9. In those set of facts, the Tribunal has observed as under :-
14.?On the contrary in the case of Diamond Cements Ltd. v. CCE, Bhopal - 2012 (283) E.L.T. 226 (Tri.-Del.) the Tribunal held that merely because the appellants were supplying the raw material and was exercising supervisory quality control over the goods, it cannot be held that the contractors were actually hired labourers especially when the contractors have admitted having fabricated the goods for and on behalf of the appellants. Similarly, merely because the said fabrication was being done by the contractors as per the design and drawings of the appellants cannot be made a ground for holding that it is the appellants who had fabricated the goods. Therefore, it was held that the appellant cannot be held as a manufacturer. Same view was taken by the Tribunal in the case of Kerala State Electricity Board (supra) which has been upheld by the Honble Apex Court and in the case of M.M. Khambatwala (supra) the Honble Supreme Court held that the assess having paid wages to the house-hold ladies for manufacturing agarbatti, amlapodi and dhup etc. It was the contention of the assessee that the goods manufactured by such house-hold ladies though in their own premises must be taken as manufactured in the factory of the assessee. It is not in dispute that levy of excise duty is attracted on the incident of manufacture. Wherein in that case the Honble Apex Court held that the assessee cannot be considered as manufacturers of agarbatti, amiapodi and dhup etc. manufactured in the premises of house-hold ladies as described above without the aid of power. The undisputed facts are that the respondents supplied raw materials for rolling incense sticks etc. to outside manufacturers and paid wages to them on the basis of number of pieces manufactured. Such manufacture was without the aid of power. There was no supervision over the manufacture. Incense sticks were put in packets and such packets were sold from the premises of the house-hold ladies and they did not go to the factory premises of the assessee. No doubt the sale proceeds went to the respondents but that will not change the character of manufacture. If the conclusion is that the house-hold ladies were the real manufacturers then the decision of the Tribunal cannot be faulted. In the case before us, although the said goods were manufactured by M/s. Raigad at the premises hired by the appellant from BPT that the machineries of M/s. Raigad under the supervision of supervisors appointed by the appellant. On the basis of above discussion, it cannot be held that the appellants are the manufacturers. Only M/s. Raigad are the manufacturers. Therefore, on this ground alone the appellants succeed.
10. As in this case also M/s VEE has executed the work of fabrication of piping being a job worker and payment was being made on running bill basis and not on labour contract basis. Therefore, relying on the decision of AFL Pvt. Ltd. vs. CCE, Mumbai II (supra), we hold that the appellant is not a manufacturer of the goods, in question. M/s VEE is the manufacturer of said goods only, therefore, duty cannot be demanded from the appellant.
11. In these circumstances, as the appellant has succeed on the issue i.e. who is the manufacturer and it is held that M/s VEE is the manufacturer, proceedings against the appellant were not warranted. As on merits, we have decided in favour of the appellant, therefore, we are not going into the issue of classification i.e. whether the item manufactured by M/s VEE is pipe or shell and the issue of limitation.
12. In these terms, we set aside the impugned order and allow the appeal with consequential relief, if any.
(Operative part of the order pronounced in the open court.) (Ashok Jindal) Member (Judicial) (B. Ravichandran) Member (Technical) PK we observed that as per the condition No. 5 to 25 of the Minutes of Meeting are as under :-
(a) It appears that pipe of different sizes were rolled by M/s VEE on job work basis as per system of projects as specified in the drawing of the customers i.e. NPTC out of MS Sheets provided by the appellant and M/s VEE has recovered job charges from appellant through running bill.
(b) In the show cause notice, it is mentioned that all taxes, duties, levies and octroi etc. were to be borne by RIL but as per the Minutes of Meeting the learned Counsel drew our attention and as per Clause 25 of Minutes of Meeting which are reproduced here as under :-
All taxes, duties levies and octroi etc. are inclusive in schedule of rates (enclosed herewith) and no extra payment on any of these account shall be made to VEE. VEE shall take care of all the tax liabilities/ formalities etc. to bring all materials, equipments, tools and plants and to complete assigned works in all respects. The work contract tax/turn over tax as applicable shall be deducted from VEE bills for their portion of works done.
7. As per the said Clause all the taxes, duties etc. shall be borne by M/s VEE only and not by the appellant. Therefore the recording of fact in the show cause notice is totally on incorrect.
8. We further find that the terms of Minutes of Meetings, ??
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