Custom, Excise & Service Tax Tribunal
Smile Electronics Ltd vs Bangalore-I on 3 September, 2024
E/22225, 22236, 22237, 22238/2014
E/20636, 20637/2016, E/20921/2017
& E/20699/2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Central Excise Appeal No. 22225 of 2014
(Arising out of Order-in-Original No.22,23 & 24/2014 dated 30.04.2014
passed by the Commissioner of Central Excise, Bangalore.)
M/s. Smile Electronics Ltd.,
Plot No.13, Old Madras Road, Appellant(s)
Bhattarahalli, 17th KM,
K.R. Puram,
Bangalore - 560 049.
VERSUS
The Commissioner of
Central Excise Bangalore I
Commissionerate, Respondent(s)
C.R. Building, P.B.No.5400, Queens Road, Bangalore - 560 001.
With
i) Central Excise Appeal No. 22236 of 2014 (M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.22,23 & 24/2014 dated 30.04.2014 passed by the Commissioner of Central Excise, Bangalore.)
ii) Central Excise Appeal No. 22237 of 2014 (M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.22,23 & 24/2014 dated 30.04.2014 passed by the Commissioner of Central Excise, Bangalore.)
iii) Central Excise Appeal No. 22238 of 2014 (Sri Mukesh Gupta, MD, M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.22,23 & 24/2014 dated 30.04.2014 passed by the Commissioner of Central Excise, Bangalore.)
iv) Central Excise Appeal No. 20636 of 2016 (M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.BLR-EXCUS-005-COM- 39 & 40/15-16 dated 02.02.2016 passed by the Commissioner of Central Excise, Bangalore.) Page 1 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019
v) Central Excise Appeal No. 20637 of 2016 (M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.BLR-EXCUS-005-COM- 39&40/15-16 dated 02.02.2016 passed by the Commissioner of Central Excise, Bangalore.)
vi) Central Excise Appeal No. 20921 of 2017 (M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.BLR-EXCUS-005-COM- 43/16-17 dated 22.03.2017 passed by the Commissioner of Central Excise and Service Tax, Bengaluru.)
vii) Central Excise Appeal No. 20699 of 2019 (M/s. Smile Electronics Ltd.) (Arising out of Order-in-Original No.01/2019 dated 11.01.2019 passed by the Commissioner of Central Tax GST Commissionerate, Bengaluru East, Bengaluru.) APPEARANCE:
Mr. V. M. Doiphode, Advocate for the Appellant Mr. Rajiv Kumar Agrawal, Commissioner with Mr. H. Jayathirtha, Superintendent (AR) for the Respondent CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 20744 - 20751 / 2024 DATE OF HEARING: 30.04.2024 DATE OF DECISION: 03.09.2024 PER : R. BHAGYA DEVI These appeals are filed by the appellant M/s. Smile Electronics Limited against Order-in-Original No. 22,23 and 24/2014 dated 30.04.2014; Order-in-Original No.39-40/2015-16 dated 02.02.2016;
No.43/2016-17 dated 22.03.2017 and Order-in-Original No.01/2019 dated 11.01.2019 issued by the Commissioner of Central Excise, Page 2 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 Bangalore. Since the issue involved in all these appeals are similar, hence, they are taken up together for hearing and disposal.
2. The appellant, M/s. Smile Electronics Ltd., are manufacturers of Populated Printed Circuit Boards (PPCB) classifiable under Chapter Heading 8517 7010 of Central Excise Tariff Act (CETA), 1985. Since, the process of stuffing and soldering of components on the Printer Circuit Boards (PCB) supplied by the customers amounted to manufacture under Section 2(f) of the Central Excise Act (CEA), 1944, the appellant was liable to pay duty on the same. Therefore, the Commissioner in the impugned orders invoking the extended period of limitation confirmed duty demand along with applicable interest. He also imposed equivalent penalty under Section 11AC of the Central Excise Act, 1944 along with penalty under Rule 25 and 26 of the Central Excise Rules 2002. Aggrieved by this orders, the appellant is in appeal before us.
3. The learned counsel on behalf of the appellant has made the following submissions:
The Appellants had taken over M/s. Design & Assemblies Inc. which was a partnership firm which was undertaking job work of assembling components such as capacitors, resistors, inductors, transistors, diodes, chips, integrated circuits on to printed circuit board (PCB) supplied by following customers, namely:
i) 100% EOU or STPI units or SEZ units.
ii) Duty paying units who send raw material under job work
challans or under Rule 4 of Cenvat Credit Rules 2004.
iii) SSI Units having less than Rs.1.50 crore turnover.
iv) Units who in turn supplied to Research & Development, Department of Defence, Government of India.
v) Others.
Page 3 of 37
E/22225, 22236, 22237, 22238/2014
E/20636, 20637/2016, E/20921/2017
& E/20699/2019
3.1 These suppliers were sending raw materials under delivery
challans; Annexure-9 for EOU; Annexure-II under Notification
No.214/1986-CE dated 25.3.1986; and Challan under Notification No.36/2003-CE dated 13.3.2003 for Defence use and challan issued under Rule 4(5)(a) of Cenvat Credit Rules (CCR), 2002 whereupon Appellants returned PPCBs after assembly to suppliers under delivery challans. Hence, it was a bona fide belief that as job workers they are not liable to pay Central Excise duty and that the procedure described in Notification No.214/1986-CE dated 25.3.1986 and Notification No.83/1994-CE dated 11.4.1994/Notification No.84/1994-CE dated 11.4.1994 was to be followed by their suppliers.
3.2 The Learned Counsel submits that EA 2000 Audit was conducted on 5.10.2009 wherein clarification for non-payment of duty on job work was sought and the Appellant clarified the same and the objection was closed. Thereafter, Internal audit party again requested the Appellants under letter dated 27.5.2011 and reminder letter dated 17.7.2011 for certain details and thereafter, the matter was further investigated. The Officers visited the factory on 14.09.2011 and recovered sales invoices, purchase orders and process flow chart and collected various documents such as Bill of material, Registration Certificates, Delivery Challans, Ledgers, Gate passes, purchase orders, Customs Bonded license etc. The Appellants had also submitted Central Excise Registration details, SSI registration and EOU registration details to the Audit officers. Thereafter, Show Cause Notice dated 07.03.2013 was issued for the period 01.02.2008 to 31.10.2012 demanding central excise duty, interest and levy of penalty. The thrust of the Show-Cause Notice was that exemption Notification No.214/1986-CE dated 25.03.1986 was not available as they had failed to produce documents/evidence to claim exemption. The Appellants in their reply submitted as under:
Page 4 of 37E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 "(i) Benefit of Notification No.214/86-CE dated 25.3.1986 and Notification No.83/94-CE dated 11.4.1994 cannot be denied to the Appellants, if the suppliers had not filed declaration and followed the procedure as laid down under the Notifications. Reliance was placed on the Hon'ble Tribunal Judgements in the case of Salem Weld Mesh Vs. Commissioner of Central Excise, Salem reported in 2007 (218) E.L.T 401 (Tri. Chennai) and in the case of Bharat Foundry Vs. Commissioner of Central Excise Ahmedabad - II reported in 2009 (246) E.L.T 561(Tri. Ahmd).
(ii) That demand for the period prior to 07.03.2012 is clearly time barred, as the Audit Party in Letter dated 05.10.2009 had sought details and was satisfied.
(iii) Without prejudice, Appellants submitted that in respect of 100% EOU, STPI units, Govt. and Defence supplies and those suppliers under Rule 4 of the Cenvat Credit Rules, 2004 are otherwise exempted. The Appellants gave details category wise and stated that the worst case against them would be demand of Rs.5,87,685/-."
3.3 The learned counsel further stated that as per Notification No.36/2001-CE(NT) dated 26.6.2001, the Principal Manufacturer is exempted from registration under Rule 9 of Central Excise Rules if he authorises the job worker to comply with all procedural formalities under the Central Excise Act, 1944. Thus, if the Principal Manufacturer has not authorized the appellant, the liability will be on the Principal Manufacturer, as held by the Hon'ble Tribunal in the case of Suvikram Plastex (P) Ltd. vs. Commissioner of Central Excise, Bangalore- III: 2008 (225) E.L.T 282 (Tri - Bang). The learned Commissioner has erroneously relied upon the decision in the case of International Engg. & Mfg. Services P. Ltd. vs. Commissioner of Central Excise, Jaipur: 2001 (135) ELT 551 (Tri-Del.) which dealt only with the concept of who is the manufacturer and not who is liable to pay excise duty which is the crux of the issue. The learned counsel also relied on the decision in the case of Ashok Leyland: 1993 (68) ELT 65 (Mad.).
Page 5 of 37E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 3.4 The learned counsel submits that the Commissioner erred in denying the benefit of Notification No.83/1994-CE, No.214/1986-CE and No.84/1994-CE on the ground that declarations have not been filed before the jurisdictional Assistant Commissioner by the supplier which is contrary to the ratio of Hon'ble Tribunal decisions in the case of Salem Weld Mesh vs. Commissioner of Central Excise, Salem:
2007 (218) E.L.T 401 (Tri. Chennai) and Bharat Foundry vs. Commissioner of Central excise Ahmedabad - II: 2009 (246) E.L.T 561(Tri. Ahmd.) and in the case of Inar Profiles Pvt. Ltd. vs. CCE, Visakhapatnam: 2014 (310) ELT 200 (Tri-Bang). The reliance placed by Ld. Commissioner on the CBEC Circular No.56/56- 94-Cx. dated14.9.1994 is misplaced, as this Hon'ble Tribunal in the case of Suvikram Plastex (P) Ltd. (supra) by relying on Circular No. 306/22/97-Cx. dated 20.3.1997 held that when the job worker is not eligible to avail exemption, the duty liability is required to be discharged by the main manufacturer and not by the job worker.
3.5 It is further submitted that the learned Commissioner erred in observing that the Appellants have submitted only statements showing the amount of duty attributable to supplies made to EOUs, STPI Units, Central Excise Registered Units, BEL, SEZ etc. without supporting documents, though, Appellants had provided all the documents and the department themselves called for information from the suppliers and documents related to the following suppliers were submitted. The Appellants had also enclosed sample challans under which inputs were received for job work.
(i) goods supplied to Defence,
(ii) that they are 100% EHTP,
(iii) that the job work permission was obtained from jurisdiction range,
(iv) that the finished goods are cleared on payment of duty,
(v) that the job worker received goods are used in the manufacture excisable goods which are exempted under Notification No.6/2006-CE dated1.3.2006
(vi) that they have sent inputs under Rule 4(5)(a) of CCR, 2004.Page 6 of 37
E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 3.6 During investigation, the suppliers informed that either they are exempted from payment of Excise duty or are paying duty on final products manufactured out of job worked goods. For instance, a letter from ASTRA Microwave Products Ltd. confirmed that all the goods manufactured by them are excisable goods only and they are sending raw material/inputs to the Appellants; letter from Precimeasure Controls Pvt. Ltd. to the Commissioner also declared that the PCBs assembled in their main temperature controllers (final product) were sold on payment of Central Excise duty; and letter from B. S. Industries declared that they are below Excise duty exemption limit. Thus, the suppliers were availing exemption or paying excise duty on the final products which has been confirmed during investigation and therefore, substantial compliance of the condition of Notification No.214/1986 has been done.
3.7 The counsel further submits that the Appellants were also getting inputs from 100% EOU, SEZ and STPI and other units which in turn supplied goods to Defence use, or Government of India or Research and Development Units. It is also stated that the supplier who supplied finished goods to Defence confirmed regarding supply of finished goods to Defence. Thus, clearly supplies to such 100% EOU, TPI, SEZ, and for Defence use were exempted under different Notifications: -
i) Notification No.64/1995-CE dated 16/03/1995 for Defence
ii) Notification No.22/2003-CE dated 31/03/2003 for 100 EOU, STPI, EHTP
iii) Notification No.10/97-CE dated 01/03/1997 for goods supplies Research Institution, like Raman Research.
iv) Notification No.70/1992-CE dated 17/06/1992 for job worked goods and used by specified undertaking like BEL, Bharat Dynamics Ltd.
v) Section 26 of SEZ Act 2006 for supplier to SEZ.Page 7 of 37
E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 3.8 These suppliers were sending raw materials under delivery challans, Annexure-II under Notification No.214/1986-CE dated 25.3.1986 and Challan under Notification No.36/2003-CE dated 13.3.2003 for Defence use and challan issued under Rule 4(5)(a) of Cenvat Credit Rules, 2002 and Appellants returned PPCBs after assembly to suppliers under delivery challans.
3.9 The learned Commissioner has rejected alternative submissions of the Appellants by stating that the suppliers have not complied with the conditions of any of the Notification like No.22/2003-CE dated 31.3.2003, No.64/1995-CE dated 16.3.1995 No.10/1997-CE dated 01.3.1997, No.70/1992-CE dated 17.6.1992, No.83/1994 and No.84/1994 and Section 26 of the SEZ Act, 2006 without specifying as to how the suppliers or the Appellants have not followed the conditions or which conditions have not been followed by those suppliers. As per Notification No.64/1995-CE dated 16.3.1995, M/s. Bharat Electronics, Hyderabad, who supplied the raw material for job worker and ultimately supplied to defence establishment is exempted. There is clear exemption available to 100% EOU, STPI when such units have sent the goods for job work, there was no allegation in the show-cause notice that they have not followed the procedures of Notification No.22/2003-CE. Further, the Appellants had given sample challans indicating movements of raw materials under Rule 4 of Central Excise Rules, 2004, Notification No.10/1997-CE dated 1.3.1997 supplied to research institutions or a university or an Indian Institute of Technology or Indian Institute of Science, Bangalore. Notification No.70/1992-CE dated 17.6.1992 granted exemption to goods manufactured in a factory as a job work and used in undertaking specified in the table for manufacturer of goods for supply to ministry of Defence, the specified undertaking is M/s. Bharat Electronics Ltd. and Others. Sections 26 of SEZ Act, 2006 clearly provided the exemption without any condition. Therefore, the observations made by Page 8 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 learned Commissioner are without any basis in disregarding alternative submissions.
3.10 The learned Commissioner has erred in invoking extended period when the issue involved interpretation of duty liability and there are decisions holding that even if suppliers have not filed declaration, the job worker is eligible for exemption and further, the Audit on 5.10.2009 had enquired on this point and were satisfied that no duty was payable by the job worker. Therefore, the duty demand only for the normal period i.e.. 8.3.2012 to 2.3.2015 as the period covered in the notice is 1.2.2008 to 31.10.2012.
3.11 With regard penalty on the Managing Director, the issue involved being of interpretation and the liability on the job worker will not be there if all the records maintained properly such as challans indicating movement of inputs and proper accounting of goods, the job worker is eligible for exemption and therefore, no penalty is imposable on Shri Mukesh Gupta, Managing Director of Appellants.
3.12 He further submits that the Hon'ble Supreme Court in the case of Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal: 2010 (260) E.L.T. 3 (SC) dealt with regard to Notification No. 121/1994 C. Ex. which required to follow Chapter X procedure for the purpose of claiming duty exemption, and it was held that following Chapter X procedure is substantive and is a mandatory requirement to claim the benefit of exemption. The Hon'ble Supreme Court observed that Chapter X was designed in such a manner to ensure an inseparable link between the supplier and recipient of excisable goods for the manufacture of specified final products. Rule 192 of Chapter X states that a manufacturer intending to receive duty-free goods under remission is required to make an application in Form R-1 for obtaining excisable goods to be used for special industrial Page 9 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 purpose giving details of estimated quantity of each class or variety of goods and the value of such goods likely to be used during the year, commodities to be manufactured and estimated output and clearance of each commodity during the year, manner of manufacture, purpose for which manufactured product is supplied and the source from which excisable goods will be obtained. However, in the present appeals, the Notification No. 214/1986 C. Ex. dated 25/03/1986, no such conditions are required be followed by the Appellants, except that the suppliers of raw materials had to file declaration with the jurisdictional officer which has not been done in this case. However, while sending the goods for job work, the delivery challans were filed as per Annexure-II of the said Notification. The sample challans in Annexure -II are enclosed along with appeal paper-book.
3.13 He referred to the ratio of the judgement of the Hon'ble Supreme Court is distinguished in the following judgements:
(i) Commissioner of C. Ex Mumbai - II vs. Indian Oil Tanking Pvt. Ltd.: 2017 (6) G. S. T. L. 417 (Tri-
Mumbai) where it is held that the decision in the case of Hari Chand Shri Gopal was in the context of taxability of products and application of rate of tax, the condition was specific, the objective of Notification is unambiguously clear and could be met only by strict compliance.
(ii) Forging Machinery Manufacturing Co. vs. C. C. E. & S. T., Jalandhar: 2018 (364) E. L. T. 208 (Tri Chan.) wherein it was held that Chapter X is an elaborate procedure required to establish beyond doubt that the goods manufactured and cleared by NSSC stands reached in the factory of recipient and the stands further used by recipient in the manufacture of their product. The ratio of the above decision cannot be adopted and applied in the Page 10 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 present case where the assessee has not filed the declaration intending to avail benefit of excisable Notification especially when such Notification and option stands intimated to the Revenue in the Form of AR 3 returns, In the present case also by sending goods in Annexure - II mentioning the Notification no. 214/ 86 C. Ex., suppliers have made clear their intention of availing Notification No. 214/86 C. Ex.
(iii) Techfab India Industries Ltd. vs. Commissioner of C. Ex., Daman: 2016 (343) E.L.T. 418 (Tri.-Ahmd.), wherein the judgement of the Hon'ble Supreme Court is distinguished in Para 04 and 14.
3.14 The Appellants provided detailed differential duty calculation category-wise along with names of customers such as Defence, EHTP, EOU, Excise Registered Government, R and D, SEZ, SSI STPI and stated that in worst case, the Appellants would be liable to pay duty in the case of first appeal of Rs.24,95,797/- and in the case of second appeal of Rs. 17,90,736/-. The Appellants further submit that in the case of First Appeal, Central Excise Duty involved in respect of supplies to excise registered units is Rs. 2,22,18,740/- and in the case of second Appeal is Rs. 2,96,02,817.08 Even if appellants had paid the duty, cenvat credit would have been available to the excise registered units who were paying duty on finished goods. Therefore, in respect of duty demand on job worked goods supplied to excise registered units is revenue neutral and there is no loss of revenue to government. Therefore, even without prejudice to arguments on merits, demand to the extent of such supplies is not sustainable.
3.15 The decisions relied upon the Revenue has been distinguished by their following submissions:
Page 11 of 37E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019
(i) CCE, Udaipur vs. Sonex Marble Pvt. Ltd. - Final order dated 18.5.2023 - the Hon'ble Tribunal noted that the assessee did not maintain any kind of record for goods sent or received for job work. In Para 14.1, arguments of ld. A.R. appearing for Revenue is noted that none of the suppliers of raw material who operated under Rule 4(5)(a) of Cenvat Credit Rules never undertook the responsibility of using such raw materials in further manufacturing of dutiable goods and no undertaking was filed. However, in the Appellants case, raw materials have been supplied under Annexure - II Challan under Rule 4 of C.E Rules or Rule 4 (5) (a) of CCR and Revenue has verified that suppliers are either exempted being SSI units or duty was paid on final goods or exported or supplied to defence. Therefore, in the Appellants case, substantial compliance of conditions of Notification is met and intention behind these Notification is either job worker or principal manufacturer pays duty, which has been compiled. Therefore, ratio of the judgment in the case of Sonex Marble is not relevant.
(ii) The Hon. Apex Court Judgment in the case of CC. vs. Dilip Kumar & Company - 2018 (361) ELT 577 (SC) with regard to import of vitamin E50 powder benefit of Notification No. 20/1999 was denied as the goods under import contained chemical supplements for animal feed and not animal feed or prawn feed. The supreme court observed that the purpose of interpretation is essentially to know the interpretation of legislative and mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such Exemption Notification can be condoned if there is a substantial compliance with the main requirements. The core issue was that in the event of ambiguity in an Exemption Notification, the benefit of such ambiguity go to the subject/assessee. The Hon'ble Supreme Court stated that they are only concerned in this case with a situation where there is ambiguity in an exemption Notification. Therefore, it is submitted that in the present case there is no ambiguity in the Notification and the issue involved in these appeals is whether Appellants here complied conditions of Notification substantially and whether duty, if any payable, is paid by Principal Manufacturer and job worked goods are used. It is humbly Page 12 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 submitted that ratio of this constitutional bench judgment is not applicable to the case of Appellants.
(iii) Hon'ble Supreme Court in the case of CCE, Patna vs. Shapoorji Pallonji & Co. P. Ltd. - 2023 (79) GSTL 145 (SC), has distinguished Dilip Kumar & Co. Judgment. In Para 11 & 30, it is observed that there exists no ambiguity in so far as the interpretation of clause 2(5) is concerned.
(iv) This Hon'ble Tribunal in the case of Datex Ohmeda India Pvt. Ltd. vs. CC (Appeals) Bangalore - 2018 (362) ELT. 866 (Tri Bang), also distinguished judgment in the case of Dilip Kumar & Co. in Para 4.5 by holding that there is no ambiguity in the Notification. Hon'ble Tribunal, Ahmedabad Bench in the case of Kaybee Tex Exim Ltd. reported in 2022 (381) ELT 407 (Tri. Ahmd.) also distinguished judgment of Hon'ble Constitutional Bench. In that case, as seen from Para 1.1, duty was demanded as goods were never cleared without following procedure laid down under the Exim Policy and not fulfilled conditions of Exemption Notification No. 52/2023 dated 31.03.2003. But, full duty was paid on finished goods though permission from Development Commissioner was not obtained, demand of duty on imported raw material consumed was set aside as it would amount to double payment of duty.
(v) Ld. AR. relied upon Hon. Apex Court judgment in the case of Kartar Rolling Mills (page 55 of Revenue compilation). In that case in Para 3, it is observed that suppliers had not discharged duty liability in terms of Notification No. 1/93. In Para 10, the point of benefit of Notification No. 83/94 CE was raised before Hon. Apex Court for the first time and that was to grant benefit retrospectively. The core issue in the Appellants case, is whether they have complied conditions of Notification substantially. Therefore, the ratio of judgment of Kartar Rolling Mills is not applicable to the case of Appellants.
(vi) Regarding Larger Bench judgment in the case of Thermax Babcock & Wilcox Ltd. (page 27 of Revenue Compilation), it is noted that principal manufacture did not intend to pay duty on final products unlike the case of Appellants. Therefore, ratio of that judgment is not applicable.
(vii) Similarly, other judgments in the Revenue compilation are on different facts and Appellants case is squarely covered on facts and same Notification in the case of Innar Profiles at pages 316-319 in the first Page 13 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 Appeal. In a recent judgment, in the case of M/s Saravane Colour Match Works v/s Commissioner, GST and Central Excise, Tiruneveli - 2024(3) TMI 1225- CESTAT - Chennai , Hon'ble Tribunal held Department found delivery challans which evidences that the goods were being sent to the principal manufacture and therefore, merely because the procedure adopted for job work as per Notification No. 214/86 CE is not followed, the Department cannot demand duty from the job worker.
4. The Authorised Representative on behalf of the Revenue has submitted that the appellant, M/s, Smile Electronics Ltd., are engaged in the activity of manufacture and clearance of Populated Printed Circuit Boards (PPCB) falling under Chapter sub-heading 8517 7010 of the schedule to the CETA. During the course of audit verification, it was noticed that the appellants were manufacturing PPCBs by populating the Printed Circuit Boards (PCBs) and that the inputs required for manufacture of PPCBs were either procured by themselves or supplied free of cost by their suppliers/customers. The PPCBs manufactured using raw materials/components such as PCBs, resistors, capacitors, integrate circuits, etc., procured on their own account were cleared on payment of duty, whereas, those PPCBs manufactured using the raw materials supplied free of cost by their suppliers/customers were cleared without payment of duty through their Division M/s Design & Assemblies Inc. Further ,it was found that neither the appellant nor their customers were following any job work procedures as required under Central Excise Act, 1944 and the Rules made thereunder. The process of populating of PCBs amounted to manufacture as defined under Section 2(f) of the CEA and were liable to pay duty on the PPCBs manufactured and cleared using the raw materials and components supplied by their customers. The value of PPCBs so cleared was required to be arrived at by taking into account the value of the raw materials and components supplied free of cost by their customers and the conversion charges charged by the appellant. But the appellant failed to pay appropriate duty on the PPCBs Page 14 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 manufactured and cleared on behalf of their customers considering them to be manufactured on job work and was exempted. The Hon'ble Supreme Court and various High Courts have held that 'manufacture' involves transformation/conversion/processes involving change from one commodity to another which is different and having a distinct character, use and name. If the said ingredients are satisfied, then the same amounts to manufacture under CEA. In the present case, the appellants are receiving the raw materials free of cost from their customers and they carry out process of populating the PCBs to produce PPCBs. The plain PCB undergoes processing such as implanting of electronic components and as a result a new commercially known commodity viz., populated PCB emerges. The plain PCBs are identified differently in the commercial/market parlance when compared to PPCBs. The market categorically and definitely recognises Populated PCBs as distinct from plain PCBs and therefore, this change brings in manufacture - gets covered under the manufacture as defined under Section 2(f) of the CEA. The said product is absolutely capable of being bought and sold in the market, thus, proving the marketability of the PPCBs processed by the appellant. It is also a fact that the above fact is not denied by the appellants themselves in as much as they carry out the same process to manufacture PPCBs on their own account and are removed/invoiced by them to their customers. Therefore, the process viz., stuffing, soldering of the components carried out by them on the plain PCBs supplied by their customers on job work basis amounts to manufacture in terms of Section 2(f) of CEA.
4.1 The fact that the appellant undertook conversion of bare PCB into PPCB and collected job charges at mutually agreed rates based on the complexity of the job and the volume of the job, etc. is not disputed. M/s. Design & Assemblies Inc. a division of the appellant is exclusively engaged in undertaking of assembly of components on PCBs supplied by customers on collection of job charges. On Page 15 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 verification of records, it was revealed that the activities undertaken in the name and style of M/s .Design & Assemblies Inc. are accounted in the appellant's name and the procurement of consumables required for the job and other requirements by M/s. Design & Assemblies Inc. are made through the appellant. The goods cleared on payment of duty are under the invoices of appellant and those cleared without payment of duty are under the invoices of M/s. Design & Assemblies Inc. The goods cleared under the invoices of M/s. Design & Assemblies Inc. are produced at the factory of the appellant using their employees and plant & machinery.
4.2 After detailed investigation, it was revealed that the appellant and their customers had not followed any of the procedures laid down for the manufacture of goods under job work as per the relevant Notifications. The processes undertaken by them amounts to manufacture is not denied, but contended that since they are only job- workers and the job-worked goods were sent back to input supplier, the duty is liable to be paid by the input supplier. The Revenue's contention is that since no procedure was followed, being processors of the goods, the manufacture is complete in the hands of the job- workers, hence liable for payment of duty. Further, it is submitted that it is a well settled proposition that for availing the benefit of any Notification, the assessee should satisfy all the conditions of the said Notification and also should have scrupulously followed all the rigors of the procedures enshrined under the respective Notifications. The Adjudicating Authority relying on the decision of the Hon'ble Supreme Court has rightly held that there are no justifiable grounds to allow the benefit of job work Notifications as claimed by the appellant. The violations of the conditions of the said Notifications is not technical in nature in as much as the goods manufactured by the assesses have not suffered Central Excise duty either at the hands of the assessee or at their customer's place.
Page 16 of 37E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 4.3 The following decisions of various Tribunals and Courts have held that the job worker is the manufacturer and the Department would like to rely on the said decisions to hold that the appellant are the manufacturers and are liable to pay Central Excise duty.
a) The Principal Bench of the Hon'ble Tribunal in the case of CCE Udaipur Vs. Sonex marble Pvt. Ltd. in Excise Appeal No. 52070 of 2019 vide its Order dated 18/05/2023 held as under :
"Further, we note that in the present case, the transaction between job worker and principal manufacturer are on principal to principal basis. It is not in doubt that the marble slabs/tiles were manufactured by the job worker and the duty liability as per excise laws is only on the manufacturer. The duty liability can be shifted to the supplier of raw materials or semi-finished goods only if the supplier gives an undertaking in terms of the notification. We cannot accept the learned counsel's argument that this is a procedural lapse. We are of the opinion that this is a substantial condition which cannot be taken as a procedural condition, as it shifts the duty liability from the job worker to the supplier of raw materials or semi-finished goods. Until and unless this condition of giving undertaking is fulfilled, the duty cannot be fastened on the supplier of raw materials or semi-finished goods, as they were not the manufacturers of marble slabs/tiles. We note there are several case laws that have held that the condition of the exemption notification has to be construed strictly and if any condition is not fulfilled the same cannot be applied to a situation."
b) It is submitted that the appellants have not fulfilled the conditions of the Notification No.214/86 CE as amended or the conditions of Notification 36/2001 CE (NT). No declaration has been filed by the supplier of raw materials with the jurisdictional Assistant/ Deputy Commissioner as recorded by the adjudicating authority in para 29.3 of the OIO. As decided by the Hon'ble Tribunal in the case of M/s. Desh rolling Mills: 2000 (122) ELT 481 held that:
Page 17 of 37E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 "Notification 214/86 provides exemption to the goods manufactured in a factory as job work and used in or in relation to manufacture of final product on which duty of excise is leviable whether in whole or in part subject to the condition that supplier of raw materials gives an undertaking to the assistant collector of Central Excise, having jurisdiction over the factory of the job worker , that the goods shall be used in or in relation to the manufacture of final product in his factory; the said supplier produces evidence that the goods have been so used and he undertakes to the responsibilities of discharging the liabilities in respect of duty leviable on the finished product. We find that no evidence has been brought on record by the Appellants to prove that the supplier of raw materials had supplied the raw materials to them under the provisions of notification 214/86. In view of the absence of any material to this effect it is not open to the appellants to claim that they were working under the provisions of Notification no. 214/86." This case has been affirmed by the Hon'ble Supreme Court as reported in 2006(197) ELT 151[S.C.].
c) The Hon'ble Tribunal in the case of International Engg. Mfg. Services P. Ltd. vs. CCE, Jaipur: 2001 (135) ELT 551 held that "6. The fact that in the present matter, the raw material supplier has utilised goods manufactured by the appellants will not change the position as far as the question who is manufacturer is concerned. The Appellants have claimed the benefit of Notification No. 214/86-C.E. which provides exemption to the goods manufactured in a factory as job work and used in or in relation to the manufacture of final products on which duty of excise is leviable. This notification is a conditional notification and the benefit of the notification will be available only on fulfilment of the conditions specified therein. Para 2 of the notification provides, that the exemption contained in this notification shall be applicable only to the goods in respect of which the supplier of raw material has given an undertaking to the Assistant Commissioner having jurisdiction over the factory of the job workers, that the said goods shall be used in or in relation to the manufacture of the final products. In the present matter no evidence has been brought on record by the appellants to prove that the supplier of the raw material had supplied raw material to them under Page 18 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 the provisions of Notification No. 214/86. On query being made by the bench, the ld. Advocate could not also show any documents on the basis of which the Appellants presumed that they were working under Notification 214/86. As the conditions specified in the notification have not been complied with, the benefit of notification is not available to the goods manufactured by them. For the same reason the decision in the cases of Rubicon and Sonic Band International referred to by the ld.
Advocate are not applicable. The similar views were expressed by the Tribunal in Desh Rolling Mills case, supra, wherein it was held that "Notification No. 214/86 nowhere provides that the supplier of the raw material will be liable to pay the duty on the goods manufactured as a Job Work."
d) The Hon'ble High Court of Gujarat in the case of Apex Electricals Pvt. Ltd. vs. Union of India 1992(61) ELT 413 (Guj) has held that the job workers were no dummies of M/s Apex Electricals and therefore the job workers were actual manufacturers and M/s Apex were not liable for payment of duty.
e) The Hon'ble Tribunal in the case of M/s. AFL ltd. vs. CCE, Mumbai 2013 (295) E.L.T 211 Tri Mumbai has held that the job worker is the actual manufacturer. (para 12&14)
f) The Larger bench of Hon'ble tribunal in the case of Thermax Babcock & Wilcox limited Vs. CCE Pune -1 has held that the job worker is liable to pay duty when the conditions of Notification 214/86 were not met by the principal manufacturer. (para 7.6 and 7.7)
g) The Hon'ble Tribunal in the case of M/s. Raymond limited Vs. CCE, Bhopal: 2014 (308) ELT 151 has held that the Job worker has to be treated as the manufacturer hence the demand on Principal manufacturer was set aside. In this case also the job worker was an independent unit and the relation between the Principal manufacturer and the Job worker was on a principal to principal basis.
h) In the case of Jayant K. Furnishers vs. CCE Mumbai-1 the Hon'ble Tribunal relying on the judgement in case of M/s Raymond above, has held that Page 19 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 subcontractor, i.e., the Job worker is liable to pay Central excise duty and not the main contractor.
i) CBIC vide circular number 56/59/94-CX dated 14/09/1994 has clarified that where the goods are manufactured by a job worker out of raw materials received from a person or a manufacturer and where the relationship between the raw material supplier and the job worker is on a principal-to-principal basis, the job worker will be the actual manufacturer.
4.4. The appellants have contended that they have received the raw materials in most cases under Annexure-II Challan and Annexure-9 challans and hence, they have operated under the relevant Notifications and mere non-declaration/intimation which is only a procedural lapse cannot be a reason for denial of exemptions and demand of duty. The above decisions clearly held that the declaration/undertaking by the principal manufacturer is a substantial condition which cannot be taken as a procedural condition, as it shifts the duty liability from the job worker to the supplier of raw materials or semi-finished goods. Until and unless this condition of giving undertaking is fulfilled, the duty cannot be fastened on the supplier of raw materials or semi-finished goods, as they were not the manufacturers. Accordingly, mere receipt of goods under relevant challans will not make them eligible for exemption without following / complying with the conditions stipulated therein.
4.5. It is submitted by the Department that the provisions of Cenvat Credit Rules deal with the eligibility, availability and nature of cenvat credit that are allowed to an assessee and does not specify anything with regard to the valuation of the goods cleared under the said rules nor exempts any goods. The Hon'ble Larger Bench of the CESTAT in the case of Thermax Babcock & Wilcox Ltd vs CCE Pune-I {2018(364) ELT 945[Tri.-LB]} after perusing the provisions of Rule 4(5) of CCE has held that "Perusal of the above sub-rules reveal that Rule 4(5)(a) is concerned only with permitting removal of inputs to the job worker by Page 20 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 the principal manufacturer who has availed Cenvat credit on such inputs. Pertinently, Rule 4 of the Cenvat Credit Rules is concerned with the conditions under which a manufacturer is allowed to avail cenvat credit. Rule 4(5)(a), not cast any liability of duty upon the principal manufacturer who has sent the inputs for job work other than the condition that in case of non-receipt of goods within the stipulated period he shall be liable to reverse the Cenvat credit availed on such inputs. The rule is confined to the scope of Cenvat credit but has no relation with manufacture, manufacturer and payment of duty on the manufactured goods."
4.6. With regard to the job work undertaken for EOU units and SEZ units, they claim that they receive the raw materials under Annexure-9 and hence they are eligible for exemption under Notification. No. 22/2003-CE. The Board has issued a Circular No. 65/2002-Cus dated 07.10.2002 prescribing the procedure for clearance of raw materials, semi-finished goods by EOUs/EPZs/SEZ/EHTP/STP units for job work/processing in the DTA. It is clear from the facts of the case, which is not denied by the appellants that the procedure/conditions stipulated therein under the said circular have not been followed. Further, they claim that the goods processed by them in some cases have been utilised by their input suppliers for supplying to the defence, research & development, specified undertakings and the same are exempted under 64/95-CE, 10/97-CE & 70/92-CE. However, on perusal of the said notifications it becomes abundantly clear that the exemptions under the said notifications are available to the manufacturers who are manufacturing the goods and clearing under the relevant duty exemption certificates issued by the stipulated authorities. The said exemption has not been extended to the job workers and hence, the exemption is not automatically applicable to the job workers. The appellant has failed to provide any documentary evidence that the goods cleared by them were covered under any Certificate of Duty Exemption as required under the said notifications.
Page 21 of 37E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 In view of the above situation, the appellants/ raw material suppliers have not followed any procedures and not complied conditions to claim the exemptions under the said notifications. Hence, the job worker is liable to pay the appropriate duty since the process amounts to manufacture and the adjudicating authority has held accordingly, which is proper and legal.
4.7. The Hon'ble Apex Court in the case of Dilip Kumar & Company - 2018(361) ELT 577[S.C.] that "Words in a statute when clear, plain and unambiguous and only one meaning can be inferred, Courts bound to give effect to the said meaning irrespective of consequences - In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation especially in fiscal statutes and penal statutes." Similar decisions have been passed in the following cases, which are relied upon by the Department.
i. 2010(260) ELT 3[S.C.] - Hari Chand Shri Gopal ii. 2022(58) GSTL 129[S.C.] - Krishi Upaj Mandi Samiti iii. 2015(324) ELT 646[S.C.] - Larsen & Toubro Ltd. iv. 2015(325) ELT 417[S.C.] - Meridian Industries Ltd. v. 2015(319) ELT 556[S.C.] - B.P.L. Ltd.
vi. 2011(265) ELT 14[S.C.] - Uttam Industries.
4.8 The appellant contended that the suppliers of raw materials are either 100% EOU/STPI/SEZ units; customers availing SSI or customers who supply to Defence and hence, the job-worked goods are exempted, therefore, they are not liable for payment of duty. They claimed that mere non-filing of declaration by supplier is only a procedural and technical lapse and the same cannot be a reason for denial of exemptions and demand of duty is not sustainable. Referring to the above submissions the Adjudicating Authority held that they are not eligible for the exemption of the said Notifications since the process undertaken by them amounted to manufacture, and failed to Page 22 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 intimate the department of the process undertaken by them and no procedures were followed.
4.9 With regard to limitation, it is submitted that the appellant was clearing similar goods manufactured by them on payment of duty clearly admits that they were aware of the fact the process undertaken by them amounted to manufacture and that the goods manufactured by them were liable for duty. Inspite of that they have intentionally evaded payment of appropriate Central Excise duty. Further, even though show-cause notices were issued for evading duty payment, they continued to follow their own procedure and cleared the goods without payment of duty. The first show-cause notice was issued well within the time period of 5 years from the date of filing of the monthly return as envisaged under the provisions of Section 11A of CEA. The fact that the appellant was manufacturing PPCBs under job work and clearing the same without payment of appropriate duty came to the knowledge of the department only during the visit of Audit and hence, the extended period of limitation is rightly invoked and penalty imposed which is equivalent to the duty determined as held by the Hon'ble Supreme Court in the case of Dharmendra Textile Processors and Rajasthan Spinning and Weaving Mills.
5. Heard both sides and perused the records. There are 8 appeals for the period from 2008-2017 as tabulated below:
(Amounts in Rupees) Sl. Appeal No. SCN Period Order-in- Amount involved No. No./date Covered Original
1. 52/2013 Feb.2008 to 22,68,51,722 E/22225/2014 07.03.2013 Oct. 2012 No.22,23 & 24
2. 199/2013 Nov. 2012 dt.30.04.2014 1,74,85,256 E/22236/2014 05.12.2013
3. 01/2014 Dec. 2012 to 45,00,997 E/22237/2014 03.01.2014 Mar. 2013
4. 52/2013 Personal penalty on Feb. 2008 to E/22238/2014 07.03.2013 MD 5,00,000/- {Rule Mar. 2013 26} Page 23 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 Sl. Appeal No. SCN Period Order-in- Amount involved No. No./date Covered Original
5. 69/2014 Apr. 2013 to E/20636/2016 22.04.2014 Jan. 2014 No.39 & 40 dt. 3,65,78,893 02.02.2016
6. 10/2015 Feb. 2014 to 4,29,53,718 E/20637/2016 09.03.2015 Dec. 2014
7. 03/2016 Jan. 2015 to No.43/2016-17 3,89,66,492 E/20921/2017 08.01.2016 Sep. 2015 dt.22.03.2017
8. 16/03/2017 Oct. 2015 to 01/2019 dt. 6,76,07,235 E/20699/2019 09.11.2017 Mar.2017 11.01.2019 5.1 The main issues to be decided are as follows:
i) Whether the processes undertaken by the appellant on job work basis amounted to manufacture under Section 2(f) of the Central Excise Act, 1944.
ii) Whether the duty liability is on the appellant who is a job-
worker or the suppliers of raw materials.
iii) Whether proviso to Section 11A can be invoked.
5.2 Section 2(f) of Central Excise Act 1944 reads as:
(f) "manufacture" includes any process, -
incidental or ancillary to the completion of a manufactured product; which is specified in relation to any goods in the Section or Chapter notes
i) of 5[the Fourth Schedule] as amounting to 6[manufacture; or]
ii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-
iii) labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer;
and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;
5.3 The process of populating the PCBs by the appellant as a job worker is not in dispute. As long as there is transformation of a Page 24 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 product into a new product marketable and commercially known comes into existence, manufacture takes place. In the instance case, there is no dispute that the appellant receives raw materials and converts them into a populated PCB which is recognised as entirely a different product and returns the same to the supplier of the raw materials.
5.4 The Supreme Court of India in the case of Commissioner of Central Excise, Mumbai-IV Versus Fitrite Packers dated 2015 (324) E.L.T. 625 (S.C.) has observed as follows:
"8. In order to discern the principles that are to be applied for ascertaining as to whether a particular process amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944 (hereinafter referred to as the 'Act'), it is not necessary to refer to various case laws on the subject. Our purpose would be served by referring to a recent decision, which was rendered by this very Bench, in the case of Servo-Med Industries Pvt. Ltd. v. Commissioner of Central Excise, Mumbai - 2015 (319) E.L.T. 578 (S.C.). Our reason for saying so is that in this decision many earlier judgments are taken note of, considered and principles laid down therein are culled out. The judgment in the case of J.G. Glass Industries (supra) was also taken note of and discussed. There is an elaborate discussion on the following aspects, covering the entire spectrum :
(i) Distinction between manufacture and marketability:
It is pointed out that whereas excisable goods signifies that the goods are capable of being sold in the market, the manufacture is distinct from saleability. Manufacture takes place on the application of one or more processes and each process may lead to a change in the goods but every change does not amount to manufacture. To bring the process within the definition of 'manufacture' under Section 2(f) of the Act, it is essential that there must be a transformation by which something new and different comes into being, i.e., there must now emerge an article which has a distinctive name, character or use.
(ii) The judgment also explains the circumstances when transformation does not take place:Page 25 of 37
E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 Examples are given when character and use remain the same or when foreign matter is removed from an article or additions are made to the article to preserve it or increase its shelf life or when no change occurs in the name, character or use of the product.
(iii) It was noted that when essential character of the product does not undergo change there would be no manufacture. The Court explained 'retaining of essential character test' to mean that the product in its primary and essential character remains the same even after the process in-question and the product is sold in the market with its earlier character. Following passage from Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers - 1980 (6) E.L.T. 343 (S.C.), was quoted which drew a line between cases in which essential character had changed and those in which no such change had taken place.
"19. Interestingly, a line was drawn between cases in which the essential character had changed and those in which no such change had taken place in the following terms :
"5. A large number of cases has been placed before us by the parties, and in each of them the same principle has been applied : Does the processing of the original commodity bring into existence a commercially different and distinct article? Some of the cases where it was held by this Court that a different commercial article had come into existence include Anwarkhan Mehboob Co. v. The State of Bombay and Ors. (where raw tobacco was manufactured into bidi patti), A. Hajee Abdul Shukoor and Co. v. The State of Madras (raw hides and skins constituted a different commodity from dressed hides and skins with different physical properties), The State of Madras v. Swasthik Tobacco Factory (raw tobacco manufactured into chewing tobacco) and Ganesh Trading Co., Karnal v. State of Haryana and Anr., (paddy dehusked into rice). On the other side, cases where this Court has held that although the original commodity has undergone a degree of processing it has not lost its original identity include Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool (where hydrogenated groundnut oil was regarded as groundnut oil) and Commissioner of Sales Tax, U.P., Lucknow v. Harbiles Rai and Sons (where bristles plucked from pigs, boiled, washed with soap and other chemicals and sorted out in bundles according to their size and colour were regarded as remaining the same commercial commodity, pigs bristles)."Page 26 of 37
E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 This Court also explained the principle that where there was no commercial user without further process then the said process would amount to manufacture labelling it as 'test of no commercial user without further process' .
(iv) Another circumstance was taken note of and discussed which involves integrated process, culling out 'the test of integrated process without which manufacture would be impossible or commercially inexpedient' . It was, thus, explained that where the manufacture involves series of processes, i.e., various stages through which the raw-material is subjected to change by different operations, each step towards such production would be a process in relation to the manufacture.
9. On the basis of aforesaid discussion and formulation of certain tests to ascertain whether a particular process would amount to manufacture or not, the Court culled out four categories of cases in its conclusion in para 27 of the judgment. We reproduce these categories hereunder:
"27. The case law discussed above falls into four neat categories.
(1) Where the goods remain exactly the same even after a particular process, there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category.
(2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process.
(3) Where the goods are transformed into something different and/or new after a particular process, but the said goods are not marketable. Examples within this group are the Brakes India case and cases where the transformation of goods having a shelf life which is of extremely small duration. In these cases also no manufacture of goods takes place.
(4) Where the goods are transformed into goods which are different and/or new after a particular process, such goods being marketable as such. It is in this category that manufacture of goods can be said to take place."Page 27 of 37
E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019
10. On the facts of the present case, it is to be determined as to whether the case would fall under category (2) or category (4). We have already taken note of printing process. A cursory look into the same may suggest, as held by the Tribunal, that GI paper is meant for wrapping and the use thereof did not undergo any change even after printing as the end use was still the same, namely, wrapping/packaging. However, a little deeper scrutiny into the facts would bring out a significant distinguishing feature; a slender one but which makes all the difference to the outcome of the present case. No doubt, the paper in-question was meant for wrapping and this end use remained the same even after printing. However, whereas blank paper could be used as wrapper for any kind of product, after the printing of logo and name of the specific product of Parle thereupon, the end use was now confined to only that particular and specific product of the said particular company/customer. The printing, therefore, is not merely a value addition but has now been transformed from general wrapping paper to special wrapping paper. In that sense, end use has positively been changed as a result of printing process undertaken by the assessee. We are, therefore, of the opinion that the process of aforesaid particular kind of printing has resulted into a product, i.e., paper with distinct character and use of its own which it did not bear earlier. Thus, the 'test of no commercial user without further process' would be applied as explained in paragraph 20 of Servo- Med Industries (supra). The aforesaid paragraph is extracted hereunder.
"20. In Brakes India Ltd. v. Superintendent of Central Excise - (1997) 10 SCC 717, the commodity in question was brake lining blanks. It was held on facts that such blanks could not be used as brake linings by themselves without the processes of drilling, trimming and chamfering. It was in this situation that the test laid down was that if by adopting a particular process a transformation takes place which makes the product have a character and use of its own which it did not bear earlier, then such process would amount to manufacture irrespective of whether there was a single process or several processes."
11. The ratio thereof is explained in paragraph 24 in the following words :
"24. It is important to understand the correct ratio of the judgment in the J.G. Glass case. This judgment does not hold that merely by application of the second test without more manufacture comes into being. The Court was at pains to point out that a twofold test had emerged for deciding whether the process is that of manufacture. The first test is extremely important - that by a process, a Page 28 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 different commercial commodity must come into existence as a result of the identity of the original commodity ceasing to exist. The second test, namely that the commodity which was already in existence will serve no purpose but for a certain process must be understood in its true perspective. It is only when a different and/or finished product comes into existence as a result of a process which makes the said product commercially usable that the second test laid down in the judgment leads to manufacture....."
12. This Court emphasised that there has first to be a transformation in the original article and this transformation should bring out a distinctive or different use in the article, in order to cover the process under the definition of 'manufacture'."
In the instance case, the above tests stand satisfied and the goods manufactured by the appellant amounts to manufacture.
6. The second issue to be decided is who is liable to pay duty? Whether the supplier of raw materials or the job-worker (appellant). It is the contention of the appellant that the duty liability is on the supplier of the raw materials who is the principal manufacturer as per Notification No.214/86-CE dated 25.03.1986 and No.83/1994-CE dated 11.04.1994. The Commissioner in the impugned order dated 30.04.2014 has observed that M/s. Design and Assemblies Inc. (Suppliers of raw materials) is a division of M/s. Smile Electronics Limited (Appellant) who undertakes assembly of components on PCBs supplied by customers on collection of job-chargers. The populated PCBs are manufactured at the premises of the appellant independently and clears the same to the suppliers of raw materials. These facts are not disputed. Therefore, the liability to pay duty rests on the appellant. This fact is also emphasized by the Board vide Circular No.56/56/94- CX dated 14.09.1994 where it was clarified that where the relationship between the raw materials supplier and job-worker is on principal-to- principal basis, the job-worker will be the actual manufacturer. The plea taken by the appellant is that if the Principal Manufacturer has not Page 29 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 authorized the appellant, then the liability will be on the Principal Manufacturer to pay duty as held by the Hon'ble Tribunal in the case of Suvikram Plastex (P) Ltd. (supra). Another plea taken by the appellant is non-compliance of the conditions of the job work Notifications are not mandatory, hence, even in the absence such non- compliance it has to be construed as items received only for the purpose of job work and the supplier of the raw materials is liable to pay duty. The relevant Notifications are reproduced below:
[Notification No. 214/86-C.E., dated 25-3-1986] Specified goods manufactured in a factory as a job work and used in the manufacture of final products In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods specified in column (2) of the Table hereto annexed (hereinafter referred to as the said goods) manufactured in a factory as a job work and used in or in relation to the manufacture of final products (on which duty of excise is leviable whether in whole or in part) specified in column (3) of the said Table, from the whole of the duty of excise leviable thereon, which is specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).
Explanation. --For the purposes of this notification, the expression "job work"
means processing or working upon of 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.
2. The exemption contained in this notification shall be applicable only to the said goods in respect of which, -
(i) the supplier of the raw materials or semi-finished goods avails of the credit of duty paid on inputs under rule 57A of the said Rules, and gives an undertaking to the Assistant Collector of Central Excise having jurisdiction over the factory of the Page 30 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 job worker that the said goods will be used in or in relation to the manufacture of the final products;
(ii) the said supplier produces evidence that the said goods have been so used;
and
(iii) the said supplier undertakes the responsibilities of discharging the liabilities in respect of Central Excise duty leviable on the finished products.
THE TABLE
Sl. Description of the said goods Description of final
No. products
(1) (2) (3)
1. Goods classifiable under any Goods classifiable under any
headings of Chapters 28, 29, 30, headings of Chapters 28, 29,
32, 33, 34, 35, 36, 37, 38, 39, 40, 30, 32, 33, 34, 35, 36, 37, 38,
48, 70, 72, 73, 74, 75, 76, 78, 79, 39, 40, 70, 72, 73, 74, 75, 76,
80, 81, 82, 83, 84, 85, 86, 87, 88, 78, 79, 80, 81, 82, 83, 84, 85,
89, 90, 91, 92, 93, 94, 95 or 96 86, 87, 88, 89, 90, 91, 92, 93,
(other than those falling under 94, 95 or 96 (other than those
Heading Nos. 36.03 or 37.05) of falling under Heading Nos.
the Schedule to the Central Excise 36.03 or 37.05) of the Schedule
Tariff Act, 1985 (5 of 1986). to the Central Excise Tariff Act,
1985 (5 of 1986).
[Notification No. 83/94-C.E., dated 11-4-1994] 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 Page 31 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 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 As seen from the above Notifications, there are certain conditions to be satisfied by the supplier of the raw materials in order to avail the benefit of the Notifications. Admittedly, none of these conditions have been satisfied and therefore, the Commissioner considering the clearances made were on principal-to-principal basis has rightly demanded duty from the job worker. Whether non- compliance of these conditions is only procedural as claimed by the appellant needs to be examined. The Supreme Court of India in the Page 32 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 case of Commissioner of C. Ex., New Delhi vs. Hari Chand Shri Gopal: 2010 (260) E.L.T. 3 (S.C.) observed as follows:
"22. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. In Novopan Indian Ltd. (supra), this Court held that a person, invoking an exception or exemption provisions, to relieve him of tax liability must establish clearly that he is covered by the said provisions and, in case of doubt or ambiguity, the benefit of it must go to the State. A Constitution Bench of this Court in Hansraj Gordhandas v.
H.H. Dave - (1996) 2 SCR 253, held that such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e., by the plain terms of the exemption".
6.2 Similarly in the case of the Supreme Court of India Commissioner of Cus. (Import), Mumbai Versus Dilip Kumar & Company 2018 (361) E.L.T. 577 (S.C.) held that:
"(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue."Page 33 of 37
E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 6.3 In view of the above, since the conditions laid down in the above Notifications are substantive in nature which have not been complied with the question of extending the benefit of the same is ruled out. The reliance placed by the appellant on Suvikram Plastex (P) Ltd. (supra) is also not relevant because the Tribunal therein had observed 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". However, in the present case no Delivery Challans were filed by the appellant nor any intimation was given to the department on their job worked goods especially when they themselves were clearing the same goods as manufactured by them on payment of duty.
7. With regard to limitation, the Commissioner has held that the appellant has not brought the fact of manufacture/process of PPCBs under job-work and nowhere they have claimed that duties not to be paid on job-worked goods. Being aware of the fact that they were themselves clearing PPCBs on payment of duty, they should have cleared the job-worked PPCBs also on payment of duty. However, the appellant claims in the year 2009 audit was conducted and the audit officer vide letter dated 05.10.2009 had written to the appellant seeking clarification regarding non-payment of duty on job-work undertaken for non-manufacturers. The appellant vide letter dated 07.01.2010 replied stating that the duty amount is not applicable for this service utilized and the matter needs to be discussed with the legal consultant. Thereafter, detailed investigation was conducted by the Preventive Officers. The Commissioner in the impugned order dated 30.04.2014 observed that "the contention of the appellant that the department was aware of the job-work activity undertaken by them through the EA-2000 Audit is devoid of merit, since, if the irregularity is not noticed by the department at an earlier date, the Page 34 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 same will not absorb the assessee from their liability to discharge appropriate duties legitimately due to the exchequer". This observation of the Commissioner has no relevance because as seen above, the department was aware of the fact that the appellant had cleared the job work goods without payment of duty in the year 2009 itself. However, the notice was issued only on 07.03.2013 after more than 3 years. Therefore, having known that the appellant was clearing the PPCBs without payment of duty in 2009 itself, the delay of issuing notice after 3 years cannot be justified to invoke suppression on the part of the appellant. Hence, the demand cannot be sustained beyond the normal period for the show-cause notice dated 07.03.2013, Since all other show-cause notices are for the normal period only.
8. The appellant in his reply to the show-cause notice dated 06.11.2013 vide para 10 has submitted that the raw materials suppliers were either 100% EOU or STPI Units who were eligible for the benefit of Notification No.22/2003 dated 31.03.2003. It was also submitted that some of the suppliers were availing SSI Notification and hence, not liable to duty. Further, clearances were also made to SEZ Unit or Defence Unit where liability does not arise; hence, there was no question of payment of duty. The appellant has also placed on record detailed differential duty calculation category-wise which was placed before the authorities vide their reply dated 30.08.2014. The appellant has also admitted duty liability of Rs.24,95,797/- in first appeal and Rs.17,90,736/- in the second appeal.
9. The appellant further submits that investigations were conducted on the suppliers of the raw materials also and the suppliers vide various letters have in turn communicated to the department that ultimately the goods were not liable to duty because either they were 100% EOU, or supplied the goods for the purpose of defence or they were enjoying the benefit of SSI notification or have cleared the same on payment of duty. None of these documents which were placed on Page 35 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 record were not considered by the Commissioner in the impugned order. For instance, letter dated 10.12.2011 from M/s. Micro Pack Limited it is clearly stated that "we have sent the components and PCBs to M/s. Design and Assemblies Inc. for the component assembly with work order as per the details. We have delivered the PCBs to our end customers by paying Excise duty for the PCBs as components. This may be verified by the records which are enclosed herewith". There is another letter dated 27.12.2011 addressed to the Additional Commissioner of Central Excise (Preventive) by M/s. Versebyte Data Systems Private Limited wherein they have stated that the final products are cleared under exemption vide notification No. 10/97 meant for defence purpose. Similarly, M/s. Centum has also vide letter dated 13.12.2012 informed the department that the goods received from the appellant were used for the manufacture of dutiable of goods which was subsequently exported by them. M/s. Ananth Technologies Ltd; vide letter 05.01.2013 informed the department the job-work goods received from the appellant were cleared for defence purposes and hence, exempted. The appellant has placed on record enormous documents along with the letters of the suppliers to prove the fact that ultimately the goods were cleared under exemption. The appellant has also admitted as recorded in the impugned order No. 22,23 and 24/2014 dated 30.04.2014 that they may be liable to pay duty amount of Rs.38,93,659/- where the clearance is made to others, on which exemption is not applicable.
10. The appellant has produced a similar document for the relevant periods which have not been considered by the Commissioner in the impugned orders but only on the ground that required procedures are not being followed. However, the fact remains that even if the appellant is liable to pay duty there cannot be duty liability on the appellant in the event the supplier of raw materials has cleared the goods either on payment of duty or under various exemptions as claimed by the appellant. Since, documents have been produced to Page 36 of 37 E/22225, 22236, 22237, 22238/2014 E/20636, 20637/2016, E/20921/2017 & E/20699/2019 substantiate their claim these documents need to be verified and to that extent the duty liability on the appellant gets reduced. Therefore, the matter needs to be remanded for verification of the documents produced by the appellant for substantiating their claim that either the goods are exempted or they have cleared on payment of duty. Needless to say, an opportunity of hearing needs to be given to the appellant to put forth their evidences and submissions regarding the above claims. Since, the matter is pending from 2008 onwards we emphasise that the appellant needs to co-operate in consolidating all the documents and to provide details for the relevant periods in evidence that the goods have been cleared under various exemptions and are not liable to duty.
11. In view of the above detailed discussions, the demands are confirmed only for the normal period. The penalties under Section 11AC and Rule 25 are set aside. Appeal Nos. E/22225, 22236, 22237/2014; E/20636, 20637/2016; E/20921/2017; E20699/2019 are remanded for re-quantification of demand based on our observations. Appeal No.22238/2014 is allowed.
12. All the appeals are disposed of in above terms.
(Order pronounced in Open Court on 03.09.2024.) (D.M. MISRA) MEMBER (JUDICIAL) (R BHAGYA DEVI) MEMBER (TECHNICAL) RV Page 37 of 37