Custom, Excise & Service Tax Tribunal
J & S Wirelinks (P) Ltd vs Ce & Cgst Noida on 5 December, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Excise Appeal No.70080 of 2016
(Arising out of Order-in-Original No.15/COMMR./NOIDA-I/2015-16
dated 20/07/2015 passed by Commissioner of Central Excise & Service Tax,
Noida)
M/s J & S Wirelinks (P) Ltd., .....Appellant
(A-27, Sector-59, Noida-201307)
VERSUS
Commissioner of Central Excise, Noida-I ....Respondent
(C-56/42, Renu Tower, Sector 62, Noida-201307)
APPEARANCE:
Shri Atul Gupta, Advocate for the Appellant
Shri Santosh Kumar, Authorised Representative for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70810/2024
DATE OF HEARING : 06 August, 2024
DATE OF PRONOUNCEMENT : 05 December, 2024
SANJIV SRIVASTAVA:
This appeal is directed against Order In Original NO.
15/COMMR./NOIDA/2015-16 dated 20.07.2015 of ,
Commissioner, Central Excise, Noida -I. By the impugned order
following has been held:
ORDER
1. I, hereby, confirm the demand of Central Excise duty of (BED-Rs 6971810/- + Ed. Cess. Rs 139436/-+ SHE Cess Rs 69718/-)= Rs.71,80,964.00 (Rupees Seventy One Lakhs Eighty Thousand Nine Hundred and Sixty Four Only) against M/s J & S Wire links Pvt. Ltd., D-253., Sector-10., Excise Appeal No.70080 of 2016 2 Noida under Section 11A(10) of the Central Excise Act, 1944.
2. I order the recovery of interest as prescribed rate on the above amount on Rs. 71,80,964.00 .(Rupees Seventy One Lakhs Eighty Thousand Nine Hundred Sixty Four Only) under Section 11AA/11AB of the Central Excise Act , 1944 as applicable
3. I also impose penalty of Rs.71,80,964.00 (Rupees Seventy One Lakhs Eighty Thousand Nine Hundred Sixty Four Only) on them under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules 2002 for contravention of various provisions of Central Excise Act, 1944 and Central Excise Rules made there under, as discussed, supra 2.1 Appellant is engaged in the manufacture of Wire Harness, Automobile and wire Harness Electrical, falling under Tariff item No.85443000, 85369090 to the first schedule of Central Excise Tariff Act, 1985 on job work basis for M/s Nippon Audiotronix Ltd, are registered with Central Excise under Registration No.AAABCJ7521MEM003.
2.2 To undertake the job-work they utilized some inputs purchased by them and others supplied free of cost by the prime manufacturer. The central excise duty is being paid on the value on the final product arose by adding/ using their own inputs. The value of inputs supplied free of cost by the manufacturer are not being included for paying central excise duty at job-workers end, while this should be included in the assessable value for payment of Central Excise duty in terms of Rule 6 of Central Excise Valuation (Determination Of Price Of Excisable Goods) Rules, 2000.
2.3 Appellant was audited for the period 11/2009 to 03/2012 and on scrutiny of Job Work Register it was noticed that the party were receiving inputs free of cost for job work on Challans under Rule 4(5) of the Cenvat Credit Rules, for manufacture of the Final Product and by clearing the Final Product by Excise Appeal No.70080 of 2016 3 adding/using their own input (returning to the supplier) on payment of Central Excise Duty but in their invoice, they were not including the value of the inputs received free of cost on job work Challans. Since, in the case where transaction between the job worker and principal manufacture is "sale but not "transfer" of goods, with the principal manufacturer supplying some of the material free of cost to the job worker then the value has to be arrived based on the transaction value plus the value of the material supplied free of cost by the principal manufacture (Ref:
Rule 6 of the Valuation Rules). Therefore, the party were required to add the value of the material supplied free of cost by the principal manufacturer while assessing the value of the final product and pay the differential Central Excise Duty along with interest 2.4 Appellant was asked to submit the copy of challans under Rule 4(5) under which free of ost inputs were received for job work along-with he value of free of cost material received but the party failed to do the same even after several reminders.
Hence, the party were summoned vide C. No. 20/Audit/J & S Wire/IV/N-1/19/2013/73 dt. 31.03.14 for providing year wise details along with job work challans and value of the goods received free of cost from M/s Nippon Audiotronix Ltd. for job work. On the basis of the information/ challans provided by the Appellant for the period from April-2009 to March-2014 vide their letter dated 04.04.14, duty short paid has been computed as in table below:
YEAR Assessable Rate of BED Ed. Sh.Ed.Cess TOTAL Value Duty % Cess 2009- 23500540 8.24 1880043 37601 18800 1936444 10 2010- 18996289 10.3 1899629 37993 18996 1956618 11 2011- 14461589 10.3 1446159 28923 14462 1489544 12 Excise Appeal No.70080 of 2016 4 2012- 12564687 12.36 1507762 30155 15078 1552995 13 2013- 1985136 12.36 238216 4764 2382 245363 14 TOTAL 6971810 139436 69718 71,80,964 2.5 A Show cause notice dated 30.04.2014 was issued to appellant asking them to show cause as to why:
1. Central Excise duty of Rs. 71, 80, 964.00 (Rupess Seventy One Lakh Eighty Thousand Nine Handred Sixty Four only) should not he not be recoversd from them under the provisions of Section 11A (4) of the Central xcise Act 1944 for the period 2009-2014.
2. Interest on the above amount should not be demanded from them under Section 11 AA/11 AB of the Central excise Act, 1944
3. Penalty under rule 25 of Central Excise Rules, 2002 read with section 11AC of the Central Excise Act, ibid should not be imposed on them 2.6 Show Cause Notice has been adjudicated as per the impugned order referred in para 1 above.
2.7 Aggrieved appellant has filed this appeal.
3.1 We have heard Shri Atul Gupta with Usmeet Kaur Monga, Advocate for the appellants and Shri santosh Kumar Authorized representative for the revenue.
3.2 Arguing for the appellant learned counsels submit:
Appellant is not liable to pay duty on the raw material suuplied by the principal manufacturer. Goods supplied by the principal manufacturer under Rule 4(5)(a), hence, no duty liability on the job worker. The rule clearly states that the manufacturer is not required to reverse the Cenvat credit in case goods are received back in 180 days of heir being sent to a job-worker. As the goods were sent by the principal manufacturer without the reversing the Cenvat Excise Appeal No.70080 of 2016 5 Credit. Therefore, the appellant has not availed the Cenvat Credit and accordingly at the time of clearance of the intermediate goods the value of such inputs/ goods was not included in the value of the intermediate goods for the purpose of assessment of duty. So, once this working under this rule is established then invoking applicability of Rule 6 and Rule 10A of Valuation Rules is not required The rule 4(5)(a) is pari-materia to Rule 57F(4) and in respect of both Rule 4(5)(a) and Rule 57 (4), it has been held that these rules are to be interpreted in a manner to further the spirit of credit scheme and in such cases the demand of duty may not be made from the intermediate goods manufacturer, if the duty is paid on the final/ finished goods by the principal manufacturer. Reliance is placed on following decision o Essar Steel Ltd. [2016 (341) ELT 145 (Tr- Del.)] o Dhana Singh Synthetics Pvt. Ltd. [2015 (326) E.L.T. 609 (Tri. - Ahmd.)] o M. Tex & D.K. Processors (P) Ltd. [2001 (136) E.L.T. 73 (Tri. -_Del.)] further maintained in Supreme Court o Mukesh Industries Ltd. [2009 (248) E.L.T. 203 (Tri. -
Ahmd.)] o Sterlite Industries (I) Ltd. [2005 (183) E.L.T. 353 (Tri. - Lb)] o Eveready Industries Ltd. [2005 (186) E.L.T. 570 (Tri.
- Bang)] o OPG Metals Pvt. Ltd. [2016 (343) E.L.T. 230 (Tri. -
Chennai)] o Svizera Labs Pvt. Ltd. [2020 (374) E.L.T. 595 (Tri. -
Mumbai)] The intermediate goods which are cleared by the appellant will be used by the principal manufacturer to produce the final product which are cleared on payment of duty. Therefore, the removal of intermediate goods under Rule Excise Appeal No.70080 of 2016 6 4(5)(a) of the Cenvat Credit Rules, 2002 is legal and correct. Reliance is placed on following case laws:
o Vandana Dying Pvt.Ltd.[2014(307) E.L.T. 528 (Tr- Mumbai)] o Maharashtra Aldehydes & Chemicals Ltd. [2017 (348) E.L.T. 713 (Tri. - Mumbai)] o P.R. Rolling Mills Pvt. Ltd. [2010 (249) ELT 232 (Tri- Bang)] o Haldia Petrochemicals Limited [2023 (6) TMI- 1192 -
CESTAT Kolkata] o Lawkim Ltd. [2007 (218) ELT 142 (Tr- Mumbai)] o Zetadel Technologies Private Limited [2023(9) TMI 804- CESTAT Kolkata] The benefit under Notification 214/ 86-CE was alternatively available. It is the responsibility of the principal manufacturer to provide undertaking to the Assistant/ Deputy Commissioner of the Central Excise. In case of failure in executing its responsibility, the job worker may not be denied the benefit of the notification 214/84- CE. Reliance is placed on following decisions:
o Fabkraft Industries [2023 (5) TMI 931 - Cestat Mumbai] o Saravana colour Match Works [2024 (3) TMI 1225- CESTAT Chennai] o Bharat Aluminium Co. Ltd. [2021 (375) ELT 379 (Tri- Del)] Without prejudice the arguments presented in the preceding paragraph and assuming, solely for the sake of argument, the appellant was required to include value of goods supplied by the principal manufacturer when calculating duty on goods cleared to the principal manufacturer, it is submitted that entire exercise would be revenue neutral. The sppellant relies on the following decisions wherein it has been held that duty cannot be demanded from an assessee in a revenue neutral situation:
Excise Appeal No.70080 of 2016 7 o Nirlon Ltd. [2015 (320) ELT 22 (SC)] o Goa Industrial Products [2005 (181) ELT 222 (Tri. Mum)] On conjoint reading of section 2(d) of the Excise Act and Section 2(f) of the act it becomes evident that for the purpose of levy of excise duty on any goods mentioned in Tariff Act, the following two conditions have to be cumulatively satisfied:
o The process by which the goods are obtained should amount to manufacture, and o The goods should be marketable, i.e., the goods should be capable of being bought and sold in the market or should have a known market.
The goods which were being cleared by the appellant were intermediate goods as already made clarified by the appellant, hence the same were not excisable at all, and no duty was liable to be paid. Reliance is placed on the following case laws:
o Alumeco India Extrusion Ltd. [2010 (249) ELT 577 (Tri- Bang)] o Bata India Itd. [2010 (252) ELT 492 (S.C.)] o Hitkari Hitech Fibres Pvt. Ltd. [2014 (306) E.L.T. 362 (Bom)] The show cause notice was issued by invoking extended period of 23. limitation under Section 11A (4) of the Excise Act. The substantial part of the demand amounting to Rs. 69,35,610/ - is related to the period from April 2009 to March 2013, which is beyond the period of one year. Although the provision Section 11A which is related to the time limit was amended w.e.f. 08.04.2011, however in both the cases the time limit is same i.e., one year. Therefore, the demand relating to the period from April 2009 to March 2013 is beyond the period of one year of limitation, hence barred by limitation The appellant was of the bonafide belief that it was not required to pay duty on the value of inputs received under Rule 4(5)(a).
Excise Appeal No.70080 of 2016 8 Once the appellant has not paid duty under a bonafide belief then the extended period of limitation is not invokable. Reliance is placed on:
o Vandana Dying Pvt.Ltd. [2014(307) E.L.T. 528 (Tr- Mumbai)] o Maharashtra Aldehydes & Chemicals Ltd. [2017 (348) E.L.T. 713 (Tri. - Mumbai)] o P.R. Rolling Mills Pvt. Ltd. [2010 (249) ELT 232 (Tri- Bang)] o Haldia Petrochemicals Limited [2023 (6) TMI- 1192 -
CESTAT Kolkata] o Lawkim Ltd. 2007 (218) ELT 142 (Tr- Mumbai)] o Zetadel Technologies Private Limited [2023(9) TMI 804- CESTAT Kolkata] The unit has been audited in the past, but no objection was raised in the earlier audit- All facts were in the knowledge of the department The department had conducted audit of the appellant's records for the financial year 2006-2007,2007-2008, and 2008-2009 in the month of November , 2009. The appellant has been following the procedures of clearing the goods to the principal manufacturer by paying the duty on the value of its own inputs and job work charges from the year 2006- 2007. Hence, the department was in knowledge of the working of the appellant from the year 2009 when the first audit was conducted Reliance is placed on the Gannon Dunkerley & Co. Ltd [2021 (47) G.S.T.L. 35 (Tri. - Del.)] where it was concluded that extended period cannot be invoked when the department was aware of all the facts.
The Department has failed to show any positive act on the part of the Appellant to suppress information. The Impugned Order does not disclose any evidence of any positive act of fraud, suppression, or wilful misstatement, with the intention to evade payment of duty on the part of the Appellant. The SCN read with the Impugned Order, only make bald allegations without any strong evidence Excise Appeal No.70080 of 2016 9 about the intention of the Appellant Reliance is placed on the following decisions:
o PVR Ltd. [2021 (55) G.S.T.L. 435 (Tri- Del.)] o Anand Nishikawa Co.Ltd.[2005 (188) E.L.T. 149 (S.C.)] o Ajay Mishra [2023 (386) E.L.T. 310 (Tri- Del.)] o Continental Foundation JT. Venture [2007 (216) E.L.T. 177 (SC)] o Arya Logistics [2024 (80) G.S.T.L. 108 (Tri- Ahmd.)] The present demand is pursuant to the audit objection raised by the audit team, all the details and documents were verified by the audit team. It is submitted that in case demand is based on the audit objection, there cannot be any suppression on the part of the appellant as has been held in case of:
o Accurate Chemicals Industries [2014 (300) ELT 451 (Tri. -Del) affirmed by the Hon'ble Allahabad High Court as reported at [2014 (310) ELT 441 (All.)]. o Devraj Luxury Hotels Pvt.Ltd.[2022 (67) G.ST.L. 76 (Tri- Del)] Section 11A (4) of the Excise Act, being an exception, has to be construed strictly. In the context of the erstwhile proviso to Section 11A (1), which also was an exception to the main provision of Section 11A (1) providing one year for the issue of show cause notice, the Hon'ble Supreme Court held in Pushpam Pharmaceuticals Company v. CCE, 1995 (78) ELT 401 (SC) that the proviso being an exception to the main section, it has to be construed strictly. Reliance is also placed on o Tamil Nadu Housing Board [1994 (74) ELT 9 (SC)] o Laminates Pvt. Ltd., [2006 (202) ELT 578 (SC)]. o H.M.M. Limited [1995 (76) E.L.T. 497 (S.C.)] The appellant was regularly filing ER-1 excise return and the relevant information which was required to be Excise Appeal No.70080 of 2016 10 provided under the return was provided. Reliance is placed on:
o Meghmani Dyes & Intermediates Ltd. [2013 (288) E.L.T. 514 (Guj.)] o LG Electronics India Pvt.Ltd. [2024 (4) TMI 533] As the appellant has not paid the duty under a bonafide belief without having any malafide intention to evade the duty, therefore, no penalty is imposable. The impugned order is vague and has been passed eyond the scope of the show cause notice. It is submitted that the Show Cause Notice was issued on the basis that the party had contravened Rule 6 & Rule 10A of the Central Excise valuation (Determination of Price of Excisable Goods) Rules, 2000. However, the Ld. Commissioner in the impugned order, has relied on Rule 8 and Rule 11 in order to calculate the assessable value. This a situation is not sustainable as it is simply beyond the scope of show cause notice, hence the impugned order is liable to set aside on this ground only. Reliance is placed on:
o Brindavan Beverages (P) Ltd. & Ors. [(2007) 5 SCC 388] o SACI Allied Products Ltd. [2005 (183) ELT 225 (SC)] o Ramlala [2023 SCC Online ALL 2479] o Inox Leisure Ltd. [2022 (60) G.S.T.L. 326 (Tri. -
Hyd.)], affirmed by the Supreme Court as reported at [2022 (61) G.S.T.L. 342 (S.C.)] o Ballarpur Industries Ltd., [(2007) 8 SCC 89] o Suresh Synthetics, [(2021) 19 SCC 599] o Toyo Engg. India Ltd., [(2006) 7 SCC 592 o Hindustan Polymers Co. Ltd. [(1997) 11 SCC 302] o Jitendra Kumar [2023 SCC OnLine All 2837] The show cause notice has just vaguely tried to impose Rule 10A, without even specifying under which sub-rule the case of appellant lies. It is important for the appellant Excise Appeal No.70080 of 2016 11 to know the exact nature of the allegation in order to prepare for an appropriate reply. Reliance is placed on o Amrit Foods [2005 (190) ELT 433 (S.C.)] o Balaji Enterprises [2020 (3) TMI 17] o Swapnil Asnodkar [2018(10) GSTL 479 (Tri. - Mumbai)] They also relied upon the following decisions:
o International Auto Ltd. [2005 (183) ELT 239 (SC)] o Kailash Auto Builders Ltd. [2004 (178) ELT 786 (T-Bang)] o Ghatge Patil Industries Ltd. [2015 (320) ELT 646 (T- Mumbai) affirmed by Hon'ble Supreme Court as reported at [2015 (322) ELT A 261 (SC)] o Menon & Menon Ltd [2006 (195) ELT 38 (SC)] affirmed by Hon'ble Supreme Court as reported at [2015 (325) ELT 10 (SC)] o Vako Seal Pvt Ltd. [2013 (290) ELT 420 (T-Mum)] 3.3 Authorized representative re-iterates the findings recorded in the impugned order 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments
4.2 Impugned order records findings as follows:
Discussion & Findings:-
"I have carefully gone through the show cause notice, written submissions vide their letter reference no. nil dated 01/8/2014 and vide reference no nil dated 24.06.2015 submitted by the party, record of personal hearing and other case records.
In this regard, I would like to discuss following provisions of Rule 6 and rule 10 A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 before arising to the conclusion.
Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 provides that;
Excise Appeal No.70080 of 2016 12 "where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee"
Explanation I - For removal of doubts, it is hereby clarified hat the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely:-
i) value of materials, components, parts and similar items relatable to such goods;
ii) value of tools. dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods.
iii) value of material consumed, including packaging materials, in the production of such goods
iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods Rule 10A - Where the excisable goods are produced or manufactured by a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then.
(i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of Excise Appeal No.70080 of 2016 13 goods from the factory of job- worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer;
(ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and. where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job- worker;
(iii) In a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods;
Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods.
Explanation- For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him.
A plain reading of Rule-6 shows that the value of the goods referred to in the Rule shall be deemed to be the aggregate Excise Appeal No.70080 of 2016 14 of the transaction value and the amount of money value of any additional consideration that may flow directly or indirectly from the buyer to the assessee.
Clause (i) of Rule 6 as well as Rule 10A above clearly covers the case wherein the party are receiving main inputs from original manufacturer free of cost for job work vide challans under Rule 4(5) of Cenvat Credit Rules' 2004, and during process of manufacturing they are also using some of their own inputs. While clearing the product so made, Central excise duty is being paid by the party on the cost of their own inputs used and job charges and the value of the inputs supplied free of cost by the original manufacturer is not being included in the assessable value for the payment of duty. The transaction between the party and the original manufacturer has been alleged to be sale and so it has been stated that the value of the goods sold has to be arrived based on the transaction value plus the value of the material supplied free of cost by the principal manufacturer. So the party were required to add the value of material supplied free of cost by the principal manufacturer while assessing the value of the final product and pay differential central excise duty along with interest.
Further Board's Circular No.643/34/2002-CX.dated 1st July, 2002 issued vide F. No 6/39/2000 - CX Government of India, Ministry Of Finance, Department Of Revenue Central Board of Excise & Customs clearly clarifies the doubts under the new Valuation Rules made effective from 1/7/2000 and as per point 13 of the Circular it is described that "how will valuation of samples be done which are distributed free, as part of marketing strategy, or as gifts or donations?" in a manner specified as.
Since the goods are not sold section 4(1)(a) will not apply and recourse will have to be taken to the Valuation Rules. No specific rule covers such a contingency. Except rule 8 all the other rules cover contingencies where sale is involved in Excise Appeal No.70080 of 2016 15 some form or the other. Therefore, the residuary rule 11 will have to be adopted along with the spirit of rule 8. In other words, the assessable value would be 115% of the 'cost of production or manufacture' of the goods.
Further, at point no. 3 of the said Circular it has been clarified that "How will valuation be done in case of Job- work?" and for the sake of simplicity it has been clarified that "Refer to Board's Circular No 619/10/2002-CX dt. 19/2/2002. Cost of transporting the raw materials/inputs to the premises of the job-worker will also be added to determine the cost of the raw material/input.[1997(071)ECR 381(TRIB)].
Further, vide Circular No. 619/10/2002-CX dt. 19.02.02, it has been rectified/clarified that "in respect of the goods manufactured on job-work basis, assessable value would be the job charges (including the profit of the job-worker if already not included in the job- charges) plus the cost of the materials used in the manufacture of the item (including the cost of the materials supplied free of cost to the job- worker). The assessable value in such cases will not include the profit of the expenses (like advertisement and publicity overheads etc.) incurred by the buyer (or the supplier of the raw materials), where the dealing between the two are on principal to principal to basis. The mere fact that the buyer is supplying some raw materials free of cost to the job- worker, will not be sufficient ground to contend that the dealings between the two are not at arms length. Goods manufactured on job-work were earlier assessed under the residuary Rule 7 of the erstwhile valuation Rules of 1975 read with rule 6(b) with the Apex Court decisions referred to above" i.e. in the case of Ujagar Prints Ltd. [1989(039)ELT0493(SC)] and the case of Pawan Biscuits Co Pvt. Ltd. [2002(120)ELT0024(SC)] In the light of aforesaid discussion, I observed that the Board clearly states in the Board's Circular No. Excise Appeal No.70080 of 2016 16 619/10/2002-CX dt. 19.02.02 that wherein goods manufactured on job-work basis, assessable value would be the job charges (including the profit of the job- worker if already not included in the job-charges) plus the cost of the materials used in the manufacture of the item (including the cost of the materials supplied free of cost to the job- worker Iin the instant case, the party intentionally has not included the cost of materials supplied free of cost by the principal manufacturer in their assessable value. Accordingly, hold that the cost of the materials supplied free of cost by the principal manufacturer to the job-worker is includable in the their assessable value and the party is liable to pay the Central Excise duty leviable thereon under Section 3 of the Central Excise Act 1944 read with Rule 6 and Rule 10 A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000.
Further, I find that the party failed to submit the required information/challans as asked by the Range Officer through various letters whereas the requisite documents were submitted only after issuance of Summon dated 31.03.2014.
In view of above, the party has clearly contravened the provision of Rule 6 & Rule 10A of Central Excise valuation the (Determination of Price of Excisable Goods) Rules, 2000 in as much as they did not assess the transaction value in a proper manner by not including value of materials, components, parts and similar items that were being received from the principal manufacturer and used in the manufacture of goods on job work basis for discharging the duty liability. They have also not disclosed these facts to the department and liable themselves for penal action. In the light of facts narrated above, it is clear that the party has intentionally suppressed the vital/material facts from the department with intent to evade payment of Central Excise Duty. Thus I hold that the extended time limit has Excise Appeal No.70080 of 2016 17 been rightly invoked under the provisions of Section 11A (4) of the Central Excise Act, 1944.
In the light of aforementioned observation, I hold that that the value of goods received from the principal manufacturer amount of Rs. 7,15,08,241/- or Job Work during the period April 2009 to March 2014 is includable in assessable value on which Central Excise duty amounting to Rs. Rs.71,80,964.00 (Rupees Seventy One Lakhs Eighty Thousand Nine Hundred Sixty Four Only) f BED-Rs 6971810/-+ Ed. Cess Rs 139436/- + SHE Cess Rs 69718/-) is recoverable from the party under the provisions of Section 11 A of the Central Excise Act 1944 as amended Further, in respect of the issue of demand of interest, I find that this issue stands settled as per various case laws on the similar issue. It has been held time and again in various judicial pronouncements that the payment of interest becomes due immediately, if the due payment of duty is not made by the specified date. Reliance is placed here on the cases of M/s CEAT Vs CCE Mumbai-l as reported in 2012(275) ELT 433(Tri Mumbai,) CCE Bangalore-Ill Vs Presscom Products as reported in 2011(268) ELT 344(Karnataka) and Neptune Spin Fab Pvt. Ltd. Vs CCE Ahmadabad as reported in 2009(241) ELT 467(Tri Ahmd.). Once the issue about the correctness of the demand notice is concluded as above, the payment of interest thereon in terms of Section 11AA/11AB of Central Excise Act 1944 respectively becomes inevitable. Here I find that the party has taken undue and unlawful benefits as they intentionally did not pay duty at appropriate rate. Therefore hold that the interest at appropriate rates is recoverable from the party on the amounts of dues confirmed as above amounting to Rs 71,80,964.00/- under Section 11 AA / AB of the Act ibid.
Excise Appeal No.70080 of 2016 18 As regards the imposition of penalty, I would like to reproduce the relevant provisions of Section 11AC of the Central Excise Act 1944, as under:
Section 11AC- Penalty for short levy or non levy of duty in certain cases - Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there-under with intent to evade payment of duty, the person who is liable to pay duty as determined under sub section (2) of Section 11A, shall also be liable to pay a penalty equal to the duty so determined.
From above, I find that the imposition of penalty under Section 11AC has rightly been proposed in the impugned show cause notice as the party intentionally did not include parts of inputs supplied free of cost on the value on the final product which should be included in the assessable value for payment of Central Excise duty in terms of Rule 6 of Central Excise Valuation (Determination Of Price Of Excisable Goods) Rules, 2000 inasmuch as they did not assess the transaction value in a proper manner by not including value of materials, components, parts and similar items that were being received from the principal manufacturer and used in the manufacture of goods on job work basis for discharging the duty liability. They have also not disclosed these facts to the department and intentionally suppressed the vital/material facts with intent to evade payment of Central Excise Duty. As such they themselves are liable for penal action. Thus, 1 hold that penalty has rightly been imposed upon them under section 11AC of the Central Excise Act, 1944 for contravention of various provisions of Central Excise Act, 1944 and Central Excise Rules made there under.
Excise Appeal No.70080 of 2016 19 The party has submitted various case law in their support in their written submissions vide dated reference no. nil dated 01/8/2014 and vide reference no nil dated 24.06.2015 and during personal hearing held on 26.06.2015. I have gone carefully and observed that the case laws cited by the party in their defence are not applicable in the instant case because the facts and circumstances of the cited case laws are different from the instant case."
4.3 Before we take up the issue for discussion we find that the appellant has vide the additional submissions filed on 6th August 2024 have stated that the show cause notice and order in original is vague and have relied upon certain decisions wherein the demand has been set aside for that reason. We do not find that appellant had at any time taken the ground of vagueness in the show cause notice before the adjudicating authority nor have made any submission to that effect in the appeal. If the show cause notice as stated by the appellant was vague, then they should have pointed the vagueness to the adjudicating authority and sought clarification from him. In absence of any such submission before the adjudicating authority or in appeal we are not inclined to accept the argument of the appellant stating that impugned order and the show cause notice vague. Further if the same was vague how have appellant filed appeal and argued the case on merits. Further the concept of vagueness and relevance of pleadings have been explained by Hon'ble Supreme Court in case of Bachhaj Nahar Vs. Nilima Mandal & Anr. [2008 (17) SCC 491] observing as follow:
9. The object and purpose of pleadings and issues is to ensure that the litigants come to trial with all issues clearly defined and to prevent cases being expanded or grounds being shifted during trial. Its object is also to ensure that each side is fully alive to the questions that are likely to be raised or considered so that they may have an opportunity of placing the relevant evidence appropriate to the issues before the court for its consideration. This Court has Excise Appeal No.70080 of 2016 20 repeatedly held that the pleadings are meant to give to each side intimation of the case of the other so that it may be met, to enable courts to determine what is really at issue between the parties, and to prevent any deviation from the course which litigation on particular causes must take.
10. The object of issues is to identify from the pleadings the questions or points required to be decided by the courts so as to enable parties to let in evidence thereon. When the facts necessary to make out a particular claim, or to seek a particular relief, are not found in the plaint, the court cannot focus the attention of the parties, or its own attention on that claim or relief, by framing an appropriate issue. As a result the defendant does not get an opportunity to place the facts and contentions necessary to repudiate or challenge such a claim or relief. Therefore, the court cannot, on finding that the plaintiff has not made out the case put forth by him, grant some other relief. The question before a court is not whether there is some material on the basis of which some relief can be granted. The question is whether any relief can be granted, when the defendant had no opportunity to show that the relief proposed by the court could not be granted. When there is no prayer for a particular relief and no pleadings to support such a relief, and when defendant has no opportunity to resist or oppose such a relief, if the court considers and grants such a relief, it will lead to miscarriage of justice. Thus it is said that no amount of evidence, on a plea that is not put forward in the pleadings, can be looked into to grant any relief.
11. The High Court has ignored the aforesaid principles relating to the object and necessity of pleadings. Even though right of easement was not pleaded or claimed by the 8 plaintiffs, and even though parties were at issue only in regard to title and possession, it made out for the first time in second appeal, a case of easement and granted relief based on an easementary right. For this purpose, it relied Excise Appeal No.70080 of 2016 21 upon the following observations of this Court in Nedunuri Kameswaramma v. Sampati Subba Rao [AIR 1963 SC 884]:
"No doubt, no issue was framed, and the one, which was framed, could have been more elaborate, but since the parties went to trial fully knowing the rival case and led all the evidence not only in support of their contentions but in refutation of those of the other side, it cannot be said that the absence of an issue was fatal to the case, or that there was that mistrial which vitiates proceedings. We are, therefore, of opinion that the suit could not be dismissed on this narrow ground, and also that there is no need for a remit, as the evidence which has been led in the case is sufficient to reach the right conclusion."
But the said observations were made in the context of absence of an issue, and not absence of pleadings. The relevant principle relating to circumstances in which the deficiency in, or absence of, pleadings could be ignored, was stated by a Constitution Bench of this Court in Bhagwati Prasad vs. Shri Chandramaul - AIR 1966 SC 735 :
"If a plea is not specifically made and yet it is covered by an issue by implication, and the parties knew that the said plea was involved in the trial, then the mere fact that the plea was not expressly taken in the pleadings would not necessarily disentitle a party from relying upon if it is satisfactorily proved by evidence. The general rule no doubt is that the relief should be founded on pleadings made by the parties. But where the substantial matter relating to the title of both parties to the suit was touched, tough indirectly or even obscurely in the issues, and evidence has been led about them then the argument that a particular matter was not expressly taken in the pleadings would be purely formal and technical and cannot succeed in every case. What the Court has to consider in dealing with such an objection is : did the parties know that the matter in question was involved in Excise Appeal No.70080 of 2016 22 the trial, and did they lead evidence about it? If it appears that the parties did not know that the matter was in issue at the trial and one of them has had no opportunity to lead evidence in respect of it, that undoubtedly would be a different matter. To allow one party to rely upon a matter in respect of which the other party did not lead evidence and has had no opportunity to lead evidence, would introduce considerations of prejudice, and in doing justice to one party, the Court cannot do injustice to another." (emphasis supplied) The principle was reiterated by this Court in Ram Sarup Gupta (dead) by LRs., vs. Bishun Narain Inter College [AIR 1987 SC 1242]:
"It is well settled that in the absence of pleading, evidence, if any, produced by the parties cannot be considered. It is also equally settled that no party should be permitted to travel beyond its pleading and that all necessary and material facts should be pleaded by the party in support of the case set up by it. The object and purpose of pleading is to enable the adversary party to know the case it has to meet. In order to have a fair trial it is imperative that the party should state the essential material facts so that other party may not be taken by surprise. The pleadings however should receive a liberal construction, no pedantic approach should be adopted to defeat justice on hair splitting technicalities. Sometimes, pleadings are expressed in words which may not expressly make out a case in accordance with strict interpretation of law, in such a case it is the duty of the court to ascertain the substance if the pleadings to determine the question. It is not desirable to place undue emphasis on form, instead the substance of the pleadings should be considered. Whenever the question about lack of pleading is raised the enquiry should not be so much about the form of pleadings, instead the court must find Excise Appeal No.70080 of 2016 23 out whether in substance the parties knew the case and the issues upon which they went to trial. Once it is found that in spite of deficiency in the pleadings, parties knew the case and they proceeded to trial on those issue by producing evidence, in that event it would not be open to a party to raise the question of absence of pleadings in appeal." [emphasis supplied]
12. It is thus clear that a case not specifically pleaded can be considered by the court only where the pleadings in substance, though not in specific terms, contains the necessary averments to make out a particular case and the issues framed also generally cover the question involved and the parties proceed on the basis that such case was at issue and had led evidence thereon. As the very requirements indicate, this should be only in exceptional cases where the court is fully satisfied that the pleadings and issues generally cover the case subsequently put forward and that the parties being conscious of the issue, had led evidence on such issue. But where the court is not satisfied that such case was at issue, the question of resorting to the exception to the general rule does not arise. The principles laid down in Bhagwati Prasad and Ram Sarup Gupta (supra) referred to above and several other decisions of this Court following the same cannot be construed as diluting the well settled principle that without pleadings and issues, evidence cannot be considered to make out a new case which is not pleaded. Another aspect to be noticed, is that the court can consider such a case not specifically pleaded, only when one of the parties raises the same at the stage of arguments by contending that the pleadings and issues are sufficient to make out a particular case and that the parties proceeded on that basis and had led evidence on that case. Where neither party puts forth such a contention, the court cannot obviously make out such a case not pleaded, suo moto."
Excise Appeal No.70080 of 2016 24 4.4 The case has been clearly spelt out against the appellant in the show cause notice, and it has been stated specifically and clearly that appellant were not including the value of free supply material from prime manufacturer, while clearing the job worked goods on payment of duty. Thus they were determining the assessable value contrary to the provisions of Rule 6 and Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Even the impugned order is very specifically deciding the case after considering the submissions made, recording specific findings on the issues raised in the show cause notice and the submissions (pleadings) made by the appellant before the Commissioner. As we do not find anything vague in the impugned order or show cause notice, the submissions made by the appellant in this regards are rejected and the decisions relied upon for this purpose.
4.5 We do not find any merits in the submissions made by the appellant to the effect that the value of free supply material should not have been included in the value of the jobwork. Impugned order has referred to the decision of the Hon'ble Apex Court in the case of Ujjagar Prints [1989 (38) ELT 535 (SC)] wherein a Five judges bench of Hon'ble Supreme Court has held as follows:
"27. The processors contend that, the assessable-value could only be the job-work charges received by them for the processing of „Grey-fabric‟ and cannot be the selling-price at which the customer who entrusts the Grey-fabric for processing ultimately sells ft in the market. Such a sale- price, it is said, would, quite plainly, include the value of the Grey-fabric, the processing-charges and also the selling- profits of the customer. Even in regard to the price of the Grey-fabric itself which comes to the processing-houses in fully manufactured condition would again depend upon how many hands it has changed before reaching the particular customer who brings them for processing. The determination of assessable-value at the actual or Excise Appeal No.70080 of 2016 25 hypothetical selling-price of goods of like nature and quality in the wholesale market would include the post- manufacturing profits of the trader which cannot legitimately be regarded as part of the assessable-value.
28. This contention was considered in detail in Empire Industries case [1985 (1) Supp. SCR 293 at 327] wherein it was held:
"When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processes, whether on their own account or on job charges basis, the value of the purposes of assessment under Section 4 of the Central Excise Act will not be the processing charges alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given proforma credit to the independent processors to be utilised for the payment on the processed fabrics in accordance with the Rules 56A or 96 D of the Central Excise Rules, as the case may be."
Even the Referring Bench did not doubt the correctness of the inclusion in the assessable-value the cost of the Grey- fabric and the processing charges. The Referring Bench held:
"We cannot accept the contention of the learned counsel on behalf of the petitioners and the appellants that the value of the grey cloth which is processed by the processor should not be included in the assessable value of the processed fabric...."
29. In the argument, as presented, that the assessable- value would include what is referred to as the "post- manufacturing profits", there is an obvious fallacy. In Atic Excise Appeal No.70080 of 2016 26 Industries Ltd. v. H.H. Dave, Asstt. Collector of Central Excise and Others [1975 (3) SCR p. 563] Bhagwati J. speaking for the Court said:
„The value of the goods for the purpose of excise must take into account only the manufacuring cost and the manufacturing profit and it must not be loaded with post- manufacturing cost or profit arising from post- manufacturing operation...."
".....It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of whosesale transactions...."
".....If excise were levied on the basis of second of subsequent wholesale price, it would load the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly conty to the true nature of excise as explained in the Voltas‟ case (supra). Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise...."
"There can, therefore, be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise...."
Explaining what really is the idea of "post-manufacturing profit" referred to in Atic‟s case this court in Union of India & Others etc. etc. v. Bombay Tyre International Ltd. etc. etc. [1984 (1) SCR, p. 347 at 375] said:
Excise Appeal No.70080 of 2016 27 ".....When it refers to post-manufacturing expenses and post-manufacturing profit arising from post- manufacturing operations, it clearly intends to refer not to the expenses and profits pertaining to the sale transactions effected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buyers in favour of other dealers." (Emphasis Supplied) The principles for the determination of assessable-value are laid down under Section 4 of the Act. Section 4 of the „Central Excise Act‟ envisages that the value of an article for the purposes of duty shall be deemed to be; (a) The wholesale cash price for which an article of the like kind and quality was sold or was capable of being sold at the time of removal of the article from the factory or premises of manufacture for delivery at the place of manufacture or; (b) Where such price was not ascertainable, the price at which an article of the like kind and quality was sold or capable of being sold at the time of removal of the article chargeable with duty.
The nature of the excise duty is not to be confused with, or tested with reference to, the measure by which the tax is assessed. The standard adopted as the measure of assessment may throw light on the nature of the levy but is not determinative of it. When a statutory measure for assessment of the tax is contemplated, it "need not contour along the lines which spell out the levy itself.", and "a broader based standard of reference may be adopted for the purposes of determining the measure of the levy." Any statutory standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the tax.
30. In the case of processing-houses, they become liable to pay excise duty not because they are the owners of the goods but because they cause the „manufacture‟ of the Excise Appeal No.70080 of 2016 28 goods. The dimensions of the Section 4(1) (a) and (b) are fully explored in a number of decisions of this Court. Reference may be made to the case of Bombay Tyres International.
Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed under Section 37 of the Act, it cannot be said that the assessable-value of the processed fabric should comprise only of the processing- charges. This extreme contention if accepted, would lead to and create more problems than it is supposed to solve; and produce situations which could only be characterised as anomolous. The incedence of the levy should be uniform, uniformed by fortuitous considerations. The method of determination of the assessable value suggested by the processors would lead as to the untenable position that while in one class of Grey-fabric processed by the same processor on bailment, the assessable-value would have to be determined differently dependent upon the consideration that the processing-house had carried out the processing operations on job-work basis, in the other class of cases, as it not unoften happens, the goods would have to be valued differently only for the reason the same processing-house has itself purchased the Grey-fabric and carried out the processing operations on its own.
It is to solve the problem arising out of the circumstance that goods owned by one person are "manufactured" by another that at a certain stage under Rule 174A, a notification was issued by the Central Government exempting from the operation of the Rule 174A "...... every manufacturer who gets his goods manufactured on his account from any other person, subject to the conditions that the said manufacturer authorises the person, who actually manufactures or fabricates the said goods to comply with all procedural formalities under the Central Excises and Salt Act, 1944 Excise Appeal No.70080 of 2016 29 (1 of 1944) and the rules made thereunder, in respect of the goods manufactured on behalf of the said manufacturer and, in order to enable the determination of value of the said goods under Section 4 of the said Act, to furnish information relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all liabilities under the said Act and the rules made thereunder."
31. On a consideration of the matter, the view taken in the matter in the Empire Industries case does not call for reconsideration. Contention (e) is also held and answered against the petitioner.
4.6 In case of Pawan Biscuits Co. (Pvt.) Ltd [2000 (120) E.L.T 24 (S.C.)], Hon'ble Supreme Court re-iterated the above principles and held as follows:
16. The present case is similar to Ujagar Print‟s case. In Ujagar Prints‟ case, it was the grey cloth which was given to the processor whereas in the present case it was the raw material for the manufacture of biscuits given to the appellant. After the biscuits are made, they are given back to or are delivered under the instructions of Britannia. The appellant was entitled to receive processing charges which include its expenses plus profits for the purpose of determining the excise value. However, the cost of the raw material supplied by Britannia will have to be included in addition to the appellant‟s manufacturing costs and profit.
What cannot be included on the ratio of Ujagar Prints‟ case is any profit of Britannia or expenses which are incurred after the manufacture of the biscuits by the appellant. Despite repeated attempts made by the learned counsel for the respondent, we are unable to distinguish this case from the ratio laid down by this Court in the aforesaid two decisions of Ujagar Prints‟case.
4.7 In case of S. Kumars Ltd [2005 (190) E.L.T. 145 (S.C.)], Hon'ble Supreme Court again observed as follow:
Excise Appeal No.70080 of 2016 30 "18. The actual wholesale price was jettisoned in favour of a deemed sale price by the processor to the merchant manufacturer.
19. The decision in M/s. Ujagar Prints III was construed and followed subsequently by this Court in Pawan Biscuits Company Private Limited v. Collector of Central Excise -
(2000) 120 E.L.T. 24 = (2000) 6 SCC 489 (briefly referred to as Pawan Biscuits). In that case, it was alleged that the assessee was really an agent of M/s. Britannia Industries Limited and, therefore the price at which M/s. Britannia Industries Limited was selling the manufactured goods in the wholesale market was to be taken as the assessable value. The Tribunal‟s decision was reversed by this Court. It was found that the agreement between the parties indicated that the relationship was one of principal to principal and not principal and agent and also that the assessee could manufacture biscuits of other brands and sell the same. It was observed that the assessee had been established much prior to its agreement with Britannia Industries Limited. In the circumstances it was held that the decision in M/s. Ujagar Prints II and others could not be factually distinguished. The Court proceeded on the basis that the last three lines of the explanatory order in M/s. Ujagar Prints III (which we have quoted earlier) contained the ratio of the decision of both M/s. Ujagar Prints II and III.
20. In M/s. Ujagar Prints II and III, the assessees were independent processors and the Court proceeded on that factual basis. The appellant‟s contention therefore is that as the processor (the respondent No.1 in this case) is not independent of the merchant manufacturer or trader, the ratio of M/s. Ujagar Prints III would not apply. In Pawan Biscuits although no conclusion from the facts has been recorded, it is clear that it was the facts which induced the Court to come to the conclusion that the relationship between the assessee and M/s. Britannia Industries Limited Excise Appeal No.70080 of 2016 31 was that of an independent processor and a merchant manufacturer and that M/s. Ujagar Prints II and III were factually on all fours. The decision therefore does not take us nearer to a solution of the dispute raised by the appellant.
21. The contention of the respondents is that neither the show cause notice nor the Commissioner in his order proceeded on the basis that Section 4(1)(a) of the Act applied but that they had applied Section 4(1)(b) and the Valuation Rules. It is their submission that the concept of deemed sale at the processors factory introduced by M/s. Ujagar Prints III, does not strictly fall within Valuation Rules 4 or 5. They urged, and the Tribunals view was, that M/s. Ujagar Prints III applied the procedure prescribed in Rule 6(b)(ii). As we have seen Rule 6(b) deals with excisable goods which are not sold by assessee but "are used" or "consumed" by him or on his behalf in the production or manufacture of "other" articles. In such case, the value of the excisable goods is to be based either (i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee, or if that is not possible under (ii) on the cost of production or manufacture, including profits, if any, which the assessee would have normally earned on the sale of such goods.
22. We do not agree that if Section 4(1)(b) is invoked Rules 4 and 5 do not apply. We have already held that Rule 3 does not make any distinction between the rules which may be invoked even when Section 4(1)(b) is invoked. If none of the rules i.e. 4, 5 or 6, in terms apply, then Rule 7 would. In other words, the sale which is referred to in Rules 4, 5 and 6 may in the circumstances reflect a notional sale and provide a guideline for applying analogous principles mutatis mutandis under Rule 7.
23. Rule 6(b) relied on by the respondent does not in terms apply. As we have noted, Rule 6(b)(ii) envisages a Excise Appeal No.70080 of 2016 32 situation where a manufacturer consumes the manufactured commodity himself for making other excisable articles. But assuming it does in terms apply it is noteworthy that Rule 6(b)(ii) speaks of the excisable value being the cost of manufacture including the profits "normally" earned. Thus, it would still be open to the Revenue to say that the cost of grey fabrics as well as the processed charges were depressed because the parties were related persons. Indeed, the underlying principle of all the Rules as well as Section 4 is that different considerations would apply if the transactions concerned are not at arms length. Neither Section 4(1)(b) nor Rule 6(b)(ii) have done away with the concept of "related person".
24. We therefore do not agree that Ujagar Prints III would apply even to a processor who is not independent and, as is alleged in this case, the merchant manufacturers and the purchasing traders are merely extensions of the processor. In the latter case, the processor is not a mere processor but also a merchant manufacturer who purchases/manufactures the raw material, processes it and sells it himself in the wholesale market. In such a situation, the profit is not of a processor but of a merchant manufacturer and a trader. If the transaction is between related persons, the profit would not be "normally earned" within the meaning of Rule 6(b)(ii). If it is established that the dealings were with related persons of the manufacturer the sale of the processed fabrics would not be limited to the formula prescribed by Ujagar Prints III but would be subject to excise duty under the principles enunciated in Empire Industries as affirmed in Ujagar Prints II, incorporating the arms length principle."
4.8 The entire gamut of arguments as advanced by the appellant were considered by the larger bench in case of THERMAX BABCOCK & WILCOX LTD. [2018 (364) E.L.T. 945 (Tri.
- LB)]. Larger bench of tribunal held as follows:
Excise Appeal No.70080 of 2016 33
7. The fact that M/s. Thermax Babcock was principal manufacturer who removed inputs to M/s. Thermax (job worker) for manufacturing of intermediate goods i.e. boiler parts which were to be used by the principal manufacturer in the manufacture of final product remained undisputed.
M/s. Thermax as a job worker manufactured boiler parts for M/s. Thermax Babcock using the inputs supplied to it and cleared the same back to M/s. Thermax Babcock who used such intermediate goods in manufacture of final products but did not pay any duty on clearance of such final products.
7.1 The term „manufacture‟ is defined under Section 2(f) of the Central Excise Act which includes any process -
(i) Incidental or ancillary to the completion of a manufactured product; and
(ii) Which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or
(iii) Which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labeling or re-labelling of containers including the declaration 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; [Emphasis supplied] The definition of the manufacturer says that any person who is engaged in any of the activity specified in clauses (i) to
(iii) of Section 2(f) of the Act would be called as manufacturer. It is the „manufacturer‟ who under Central Excise Act and Rules is liable to pay duty unless otherwise Excise Appeal No.70080 of 2016 34 exempted. The ownership of the goods is immaterial. Any person who undertakes the above activities being manufacturer, a job worker engaged in any of the said activity is a manufacturer and is thus liable to pay duty on the goods manufactured by him unless otherwise exempted.
7.2 Exemption from payment of Excise duty has been provided by Notification issued under Section 5A of the Central Excise Act. The relevant exmption Notification No. 214/86-C.E., dated 25-3-1986 as amended was subject matter of consideration in the adjudication. That was issued by the Government in terms of Rule 8(1) of Central Excise Rules, 1944. By virtue of Section 5A(4) the legislature has provided that the exemption provided under Rule 8(1) shall continue to remain in force. The relevant Section 5A(4) as was in force during the material period reads as under :
SECTION [5A. Power to grant exemption from duty of excise. - (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon :
Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured -
(i) in a [free trade zone [or a special economic zone]] and brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and (ii) [brought to any place in India].
Explanation. - In this proviso, ["free trade zone", ["special economic zone"]] and hundred per cent export-oriented Excise Appeal No.70080 of 2016 35 undertaking" shall have the same meanings as in Explanation 2 to sub-section (1) of Section 3.
[(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods.] [(2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment of duty of excise, under circumstances of an exceptional nature to be stated in such order, any excisable goods on which duty of excise is leviable.] [(2A) The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.] (3) An exemption under sub-section (1) or sub-section (2) in respect of any excisable goods from any part of the duty of excise leviable thereon (the duty of excise leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-section shall have effect subject to the condition that the duty of Excise Appeal No.70080 of 2016 36 excise chargeable on such goods shall in no case exceed the statutory duty.
Explanation. - "Form or method", in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable : [Emphasis supplied] (4) Every notification issued under sub-rule (1), and every order made under sub-rule (2), of Rule 8 of the Central Excise Rules, 1944, and in force immediately before the commencement of the Customs and Central Excises Laws (Amendment) Act, 1988 (29 of 1988) shall be deemed to have been issued or made under the provisions of this section and shall continue to have the same force and effect after such commencement until it is amended, varied, rescinded or superseded under the provisions of this section.] (5) Every notification issued under sub-section (1) or sub- section (2A) shall, unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette.] 7.3 Cenvat Credit Rules, 2000 and 2002 Rules were framed under Section 37 of the Central Excise Act and Finance Act, 1994. That does not vest any power to grant exemption from payment of duty. Thus the applicability of Rules 4(5) and (6) to grant exemption to the assessee i.e. job worker from payment of duty is inconceivable.
7.4 An exemption to job worker is provided only in terms of Notification No. 214/86, dated 25-3-1986 issued under Rule 8(1) of Central Excise Rules, 1944 in terms of Section 5A. The Notification No. 214/86-C.E., dated 25-3-1986 which provides exemption to the job worker from payment of duty on goods received from principal manufacturer reads as under :
Excise Appeal No.70080 of 2016 37 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 (1) of the Table hereto annexed (hereinafter referred to as the said goods) manufactured in a factory as a job work and :-
(a) used in relation to the manufacture of final products, specified in column (2) of the said Table,
(i) on which duty of excise is leviable in whole or in part;
or
(ii) for removal to a unit in a free trade zone or to a hundred per cent. export-oriented undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Parks or for supply to the United Nations or an international organisation for their official use or for supply to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 108/95-Central Excises, dated the 28th August, 1995, or
(iii) for removal under bond for export, or
(b) cleared as such from the factory of the supplier of raw materials or semi-finished goods -
(i) on payment of duty for home consumption (on which duty of excise is leviable whether in whole or in part); or
(ii) without payment of duty under bond for export; or
(iii) without payment of duty to a unit in a free trade zone or to a hundred per cent. export-oriented undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Parks or supplied to the United Nations or an international organisation for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue), Excise Appeal No.70080 of 2016 38 No. 108/95-Central Excises, dated the 28th August, 1995"], 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) (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 material or semi-finished goods gives an undertaking to the [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] having jurisdiction over the factory of the job worker that the said goods shall be -
(a) used in or in relation to the manufacture of the final products in his factory; or (b) removed from his factory without payment of duty (i) under bond for export; or - (ii) to a unit in a free trade zone or to a hundred per
cent. export-oriented undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Parks or supplied to the United Nations or an international organisation for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 108/95-Central Excises, dated the 28th August, 1995; or".
(c) removed on payment of duty for home consumption from his factory, or
(d) used in the manufacture of goods of the description specified in column (1) of the table hereto annexed by another job worker for further used in any of the manner provided in clause (a), (b) and (c) as above.
(ii) the said supplier produces evidence that the said goods have been used or removed in the manner prescribed above; and Excise Appeal No.70080 of 2016 39
(iii) the said supplier undertakes the responsibilities of discharging the liabilities in respect of Central Excise Duty leviable on the final products.
Explanation I. - 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.
Explanation II shall be omitted. (vide Notification No. 33/2000-C.E., dated 31-3-2000) TABLE Description of Inputs Description of final products (1) (2) All goods falling under the All goods falling under the First First Schedule to the Central Schedule to the Central Excise Tariff Excise Tariff Act, 1985 (5 of Act, 1985 (5 of 1986), other than the 1986), other than high speed following, namely :-
diesel oil and motor spirit,
(i) matches;
commonly known as petrol.
(ii) fabrics of cotton or man-made fibres falling under Chapter 52, Chapter 54 or Chapter 55 of the First Schedule to the said Act;
(iii) fabrics of cotton or man-made fibres falling under Heading Nos. 58.01, 58.02, 58.06 (other than goods falling under sub-heading No. 5806.20), 60.01 or 60.02 (other than goods falling under sub-heading No. 6002.10) of the First Schedule to the said Act."
In terms of the above notification, it transpires that it is only in respect of goods covered by Para (1) and Para (2) of the Notification, manufactured by the job worker, are exempted only if the same are used by the principal manufacturer in relation to the manufacture of final products on which duty of Excise is leviable or which are cleared as such from the factory of supplier of raw material or semi finished goods either without payment of duty under bond for export or on payment of duty for home consumption. Such exemption is applicable only to those goods in respect of which the Excise Appeal No.70080 of 2016 40 supplier gives undertaking to the Assistant Commissioner of Central Excise having jurisdiction over the factory of job worker. The facts of the case under reference are entirely different from the situations envisaged by the Notification (supra) under which the job worker is exempted from payment of duty on goods manufactured by him on job work basis. In the case under reference, the principal manufacturer sent the inputs to the job worker under Rule 4(5)(a) of Cenvat Credit Rules, 2001 and 2002 Rules. Appellants plea was and their contention is that the job worked goods were exempted from duty on the clearance thereof at the job worker‟s end, by virtue of Rule 4(5)(a) of Cenvat Credit Rules, 2001 and 2002 relying upon Rule 4(6) of the said Rules, appellant claimed that the principal manufacturer can also remove the goods from the job worker premises either on payment of duty or for export, under Bond. The Rule 4(5)(a) and Rule 4(6) of Cenvat Credit Rules, 2001 and 2002 relied upon by the Appellant in support of their contention read as under :
Rule 4(5)(a) - The CENVAT credit on inputs shall be allowed even if any inputs as such or after being partially processed are sent to a job worker for further processing, testing, repairing, re-conditioning or any other purpose, and it is established from the records, challans or memos or any other document produced by the assessee taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days, the manufacturer shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer can take the CENVAT credit again when the inputs or capital goods are received back in his factory"
Rule 4(6) - The Commissioner of Central Excise having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed Excise Appeal No.70080 of 2016 41 inputs outside his factory to a job worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job worker.
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 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.
7.5 Similarly Rule 4(6) is concerned with the condition under which the finished goods, manufactured from the inputs on which Cenvat credit has been availed, can be cleared by the principal manufacturer from the premises of job worker on payment of duty or for export under Bond subject to approval of the jurisdictional Commissioner of the principal manufacturer. This rule is applicable only when principal manufacturer discharges the Excise duty on finished goods which is manufactured by the job worker. This Rule does not allow the job worker to remove finished goods without payment of duty. Such a situation arises in case where the Cenvated inputs are sent for job work and finished goods manufactured therefrom is cleared from the job work premises. It is a facility to avoid the return of the Excise Appeal No.70080 of 2016 42 finished goods to the factory of principal manufacturer and also to save the logistic cost. Thus Rule 4(5) and Rule 4(6) have been issued under Cenvat Credit Rules, 2001 and 2002 Rules as the conditions under which Cenvat credit can be allowed to a principal manufacturer and it is not a statutory provision to grant exemption from payment of duty to the manufacturer and in the present case, the job worker.
7.6 The job worker being the manufacturer of goods is liable to pay duty on goods manufactured by him albeit on job work. The ownership of the goods is immaterial for the purpose of levy of duty and thus any person who has undertaken the activity of manufacture is liable to pay duty. In order to save the job worker from payment of duty the principal manufacturer has to own the liability to pay such duty. It is only by virtue of the Notification No. 214/86-C.E., dated 25-3-1986 that the liability of the job worker to pay duty is transferred to the principal manufacturer who undertakes to pay duty.
7.7 The intention of enactment of Notification (supra) was to shift the liability of payment of duty from job worker to the principal manufacturer under certain conditions as provided in the said notification. There is no blanket machinery provisions in the Central Excise law under which the liability to pay duty is transferred from the job work manufacturer to another person i.e. principal manufacturer. However when the principal manufacturer does not own up the liability to pay duty on finished goods, the provision of Notification No. 214/86-C.E., dated 25-3-1986 does not apply. In that case, it is the ultimate manufacturer i.e. the job worker who has to pay the duty. Following the procedure and conditions of the Notification (supra) only by the principal manufacturer, the job worker would be saved from payment of duty on goods manufactured by him.
Excise Appeal No.70080 of 2016 43 7.8 In the case under reference, the facts of non-payment of duty on final products by the principal manufacturer is not disputed. The goods received from the job worker were not used in the manufacture of dutiable final products but in goods on which no duty was paid. In such case when the principal manufacturer did not intend to pay duty on the final products, the job worker who is manufacturer of intermediate goods is liable to pay duty. Non-compliance of Notification No. 214/86-C.E., dated 25-3-1986 by the principal manufacturer has resulted into duty liability upon the job worker. Moreover, it is admitted by the appellant (job worker) that the inputs were not sent by the principal manufacturer under Notification No. 214/86-C.E. If the contention of the appellant is accepted it would lead to the situation where neither the principal manufacturer nor the job worker would pay duty, which has not been legislated.
7.9 The appellant has relied upon the Tribunal‟s order in case of M/s. M. Tex & D.K. Processors P. Ltd. v. CCE, Jaipur
- 2001 (136) E.L.T. 73 (Tri.-Del.) to support their views. However the facts are entirely different as the principal manufacturer was sending goods to the job worker in that case under Rule 57F(4) which reads as under :
"57F(4) - The inputs can also be removed as such or after they have been partially processed by the manufacturer of the final products to a place outside his factory under the cover of a challan specified in this behalf by the Central Board of Excise and Customs, for the purposes of test, repair, refining, re-conditioning or carrying out any other operation necessary for the manufacture of final products or for manufacture of intermediate products necessary for the manufacture of final products and return the same to his factory within a period of sixty days or such extended period as the Assistant Commissioner of Central Excise may allow in this behalf, for -
(i) further use in the manufacture of the final product; or Excise Appeal No.70080 of 2016 44
(ii) removing after payment of duty for home consumption; or
(iii) removing the same without payment of duty under bond for export."
Since the rule provided for exemption where the principal manufacturer pays duty on finished goods and therefore it was held that no duty is liable to be paid by the job worker. The job worker was exempted from payment of duty in case where the goods arising out of job work were to be used by the principal manufacturer either in the manufacture of goods on which duty was paid by him or were to be cleared as such on payment of duty. The said situation given in Rule (supra) cannot be equated with the present situation as Rule 4(5)(a) not being concerned with payment of duty but only limited to sending of cenvated inputs to the job worker.
7.10 In the present case the fact remains is that neither the goods after job work were cleared as such on payment of duty nor were used in manufacture of dutiable final products by the principal manufacturer. Hence the duty liability would be on the real manufacturer of goods i.e. the job worker. Since the principal manufacturer pays the duty on the product arising out of manufacture even at the job worker‟s end, he is eligible to avail credit. The Rule 4(5)(a) thus is a facility to the principal manufacturer to send goods for job work on which Cenvat has been availed. It is nothing to do with the duty payment of goods.
7.11 Rule 4(6) is a facility to the principal manufacturer to clear the goods directly from the premises of job worker after payment of duty. Notably it is not the case of the appellant that the principal manufacturer paid duty at anytime as the goods manufactured by him were exempted from duty. Thus the liability for payment of duty on such intermediate goods manufactured by the job worker is on job worker only.
Excise Appeal No.70080 of 2016 45 7.12 The Tribunal order in case of Vandana Dyeing Pvt. Ltd. v. CCE, Mumbai - 2014 (307) E.L.T. 528 (Tri.) and Mukesh industries Ltd. v. CCE, Ahmedabad - 2009 (248) E.L.T. 203 (Tri.) were rendered considering Rule 4(5)(a) of Cenvat Credit Rules, 2001 and 2002 Rules as pari materia to 57F(4) of erstwhile Central Excise Rules, 1944. However in our considered view Rule 57F(4) provided for payment of duty by the principal manufacturer whereas Rule 4(5)(a) only provides sending of Cenvat availed inputs for job work and return of same to the principal manufacturer implying that the principal manufacturer shall pay duty on the same. Accordingly those judgments are of no help to the appellant.
7.13 Even the Tribunal‟s order in case of Dhana Singh Synthetics Pvt. Ltd. v. Commissioner, Vapi - 2015 (326) E.L.T. 609 (Tri. - Ahmd.), is to the effect that the goods were received under Rule 57F(4) which itself stipulates the payment of duty by the principal manufacturer and therefore no duty payment was required to be made. Since the principal manufacturer was paying duty, the job work was exempted from duty. Even the Tribunal‟s order relied upon by the appellant in case of Essar Steel Ltd. v. CCE, Raipur - 2016 (341) E.L.T. 145 (Tri.) also says that the job worker is not liable to pay duty if the principal manufacturer is paying duty on the job work on returned goods at the time of clearance as such from the factory of the principal manufacturer or at the time of removal of final products in which such job work returned goods are used. The Para 6 of the decision dealing with the findings of the Tribunal is as under :
"6. It is thus, obvious that as far as the duty liability of a job worker in terms of Rule 57F(4) of Central Excise Rules, 1944 is concerned, it is settled upto the level of Supreme Court that the job worker was not required to pay duty. We have reproduced above the provisions of Rule 57F(4) of Central Excise Rules, 1944 and the provisions of Rule Excise Appeal No.70080 of 2016 46 4(5)(a) of the Cenvat Credit Rules, 2004 and have carefully perused the same. The language in both these Rules gives no scope to infer that if the job worker was not required to pay duty in terms of Rule 57F(4) it could be required to pay duty in terms of Rule 4(5)(a) because the conditions of Rule 57F(4) of Central Excise Rules, 1944 were stringent compared to the conditions of Rule 4(5)(a) of the Cenvat Credit Rules inasmuch as Rule 57F(4) categorically required the principal manufacturer to use the goods received from the job worker for further use in the manufacture of the final product or removing after payment of duty for home consumption or removing the same without payment of duty for export while Rule 4(5)(a) does not say so expressly though it is implicit therein. Thus, we are of the view that for the purpose of dutibility at the hands of the job worker, the provisions of Rule 57F(4) of Central Excise Rules, 1944 are essentially pari materia the provisions of Rule 4(5)(a) of the Cenvat Credit Rules. Indeed vide judgments in the case Mukesh Industries Ltd. v. CCE (supra) CESTAT essentially held as under :
"Duty liability - Job worker - Respondents receiving grey MMF and knitted or crocheted fabrics from principal manufacturer under the cover of challans issued under Rule 4(5)(a) of Cenvat Credit Rules, 2001 and after completion of job work the goods stand returned to the principal manufacturer - Rule 57F(3) of erstwhile Central Excise Rules, 1944 and Rule 4(5)(a) ibid being independent provisions, fact that goods were not specified in the Notification No. 214/86-C.E. will not make a difference - No duty liability can be fastened upon the job worker - Section 3 of Central Excise Act, 1944. [para 4]."
Similarly in the case of Dhana Singh Synthetics Pvt. Ltd. v. CCE, (supra) it was held as under :
"Demand - Job worker - Fabric received by job worker accompanied with Challans issued under Rule 57F(5) of Excise Appeal No.70080 of 2016 47 erstwhile Central Excise Rules, 1944 corresponding to Rule 4(5)(a) of Cenvat Credit Rules, 2002/2004, which returned after processing to principal manufacturer under said Challans without payment of excise duty - Demand raised as processed fabric not exempt under Notification No. 214/86-C.E. - HELD : Inputs received under Central Excise Challans and not under Notification No. 214/86-C.E. - As per C.B.E. & C. Circular No. 306/22/97-CX, dated 30-3- 1997 for job work undertaken in terms of Rule 57F(4) ibid, duty liability to be discharged by principal manufacturer and not by job worker - No dispute that principal manufacturer cleared finished goods on payment of duty - Case of revenue neutral as any payment of duty by job worker will enable principal manufacturer to avail Cenvat credit - Order passed by adjudicating authority dropping proceedings against job worker upheld - Impugned order set aside - Section 11A of Central Excise Act, 1944. [paras 2, 3]".
The order of Tribunal in case of Mukesh Industries v. Commissioner - 2009 (248) E.L.T. 203 (Tri.), Vandana Dyeing Pvt. Ltd. v. CCE, Mumbai-III - 2014 (307) E.L.T. 528 (Tri.), are also on the same views and thus not applicable in the present set of facts.
7.14 The appellant also relied upon the judgment of Hon‟ble Apex Court in case of M/s. International Auto Ltd. v. CCE, Bihar - 2005 (183) E.L.T. 293 (S.C.). In the said case the dispute related to valuation of goods for the purpose of levy of duty at the job worker‟s end. The controversy was not related to liability of duty of job worker. It is undisputed in the present case that the principal manufacturer was not paying duty on removal of final products and had also not opted to avail the benefit of Notification No. 214/86-C.E. Hence the liability is on the manufacturer of intermediate product, i.e. job worker in the present case.
7.15 The reliance placed upon the Circular No. 306/22/97/-CX, dated 20-3-1997 is also misplaced since Excise Appeal No.70080 of 2016 48 the circular was with reference to the situation upon eligibility of the job worker to claim credit where no duty was paid by them. However the facts of the present case are different as it deals with the situation as to who should be liable to pay duty when the principal manufacturer is not discharging duty either on job work goods or on final products in which such job work goods are consumed. In such case the responsibility lies to the job worker who is the ultimate manufacturer of the goods to discharge the excise duty.
7.16 Revenue has placed reliance upon the Tribunal judgment in case of M/s. Facit Asia Ltd. v. CCE - 1991 (54) E.L.T. 347 (Tri.). Tribunal was seized of the question as to whether the duty paid by the job worker is available to the principal manufacturer when the job worker could have availed exemption under Notification No. 214/86-C.E. The Tribunal rightly held that if the job worker has paid duty even though he was eligible to avail exemption under the Notification, the principal manufacturer was eligible for the credit thereof as he was liable to pay duty on clearance of the final goods. Tribunal held that had the Notification No. 214/86 not issued, even under Rule 57F(2) the job worker had to pay duty. Thus it follows that it is only by virtue of notification (supra) the goods manufactured at job workers end are exempted only if the same or the final product in which such intermediate goods are used are liable for duty at the end of the principal manufacturer which is absent in the present reference.
7.17 In case of Collector v. Bright Steel Mac Fabrics - 1994 (69) E.L.T. 276 (Tribunal) as upheld by the Hon‟ble Apex Court in case of CCE v. Bright Steel Mac Fabrics - 1997 (94) E.L.T. A145 (S.C.), the Tribunal has rightly held that Rule 57F(2) does not envisage return of inputs after completion of processing resulting in a semi-finished goods or intermediate goods without payment of duty.
Excise Appeal No.70080 of 2016 49 7.18 In case of Desh Rolling Mills v. CCE, Delhi - 2000 (122) E.L.T. 481 (Tri.), the Appellate Tribunal confirmed duty demand upon the job worker as the job work activity was not undertaken in terms of Notification No. 214/86-C.E. The Tribunal held as under :
"Notification No. 214/86 provides exemption to the goods manufactured in a factory as a job work and used in or in relation to the manufacture of final product on which duty of excise is leviable whether in whole or in part subject to the condition that supplier of the 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 the final products in his factory; the said supplier produces evidence that the goods have been so used and he undertakes the responsibilities of discharging the liabilities in respect of duty leviable on the finished products. We find that no evidence has been brought on record by the Appellants to prove that the supplier of the raw-material had supplied the materials to them under the provisions of Notification No. 214/86. In view of 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. The copies of challans brought on record by the Appellants only refer to the movement of excisable goods under Rule 57F(2). In view of this, the reliance placed by the Appellants on the observation of the Tribunal in respect of Notification No. 214/86 in the remand order is not tenable. We also observe that the Tribunal directed the Adjudicating Authority to decide the matter in the light of the observations and also according to the law. 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. Para 2 of the Notification No. 214/86 speaks of the liability of the supplier for discharging the duty leviable on the finished products and not on the Excise Appeal No.70080 of 2016 50 goods manufactured on job work basis. The Adjudicating authority has rightly relied upon the decision in the case of Jina Bakul Forge Pvt. Ltd. (supra). Accordingly, we uphold the demand of Central Excise Duty as confirmed by the Commissioner (Appeals) in the impugned Orders."
7.19 The Hon‟ble Apex Court in case of M/s. Kartar Rolling Mills v. Commissioner of Central Excise, New Delhi - 2006 (197) E.L.T. 151 (S.C.) held that the assessee job worker i.e. the appellant failed to bring any evidence on record to prove that the supplier of raw material had supplied the materials to them under the provisions of Notification No. 214/86 and thus the duty demand against the assessee undertaking job work was upheld. The ratio laid down in the said judgment is squarely applicable to the present reference.
7.20 In case of Commissioner v. Span Heat Transfer Equip. Mfrs. P. Ltd. - 2001 (135) E.L.T. 861 Tribunal held that the Notification No. 214/86-C.E. envisages the duty payment by the supplier of the goods for job work if he undertakes to pay the same. In the normal course of business, it is the job worker being manufacturer is liable to pay duty. We are in agreement with such views of the Tribunal as in absence of undertaking by the principal manufacturer to discharge duty liability on the job worked goods, it is the manufacturer of goods i.e. job worker who is liable to pay duty. The order of Tribunal in case of M/s. Jinabakul Forge Pvt. Ltd. v. Commissioner - 1997 (93) E.L.T. 373 (Tri.) relied upon by the Revenue is also on the identical issue. Same views has been taken by the Tribunal in case of M/s. International Engg & Mfg. Serv. P. Ltd. v. Commissioner - 2001 (135) E.L.T. 551 (Tri.).
7.21 Revenue has also relied upon the judgment of the Apex Court in case of M/s. Empire Industries Ltd. v. UOI - 1985 (20) E.L.T. 197 (S.C.) holding that neither hardship nor loss of benefit is criteria in fiscal statutes as the job Excise Appeal No.70080 of 2016 51 worker is liable to pay duty. Further, that the job worker being manufacturer of intermediate goods is liable for duty as has been held in case of Britannia Biscuit Co. Ltd. v. CCE, Madras - 1997 (89) E.L.T. 22 (S.C.). Therefore it is settled position of law that the job worker as the manufacturer of goods, unless otherwise exempted, is liable to pay duty. In the present reference, the undisputed fact being that the principal manufacturer did not pay duty and did not follow the procedure and conditions of Notification No. 214/86-C.E. supra, the job worker as a manufacturer is liable to duty on the job worked goods.
8. As per above discussion, we hold that the job worker M/s. Thermax being manufacturer of excisable goods is liable to pay duty on the intermediate goods manufactured by him on job work basis which supplied to their principal M/s. Thermax Babcock. The question referred to this larger bench is answered accordingly. Registry is directed to place the appeals before the referral bench for appropriate orders."
4.9 However we find that Hon'ble Supreme Court has in case of International Auto [2005 (183) E.L.T. 239 (S.C.)] stated as follows:
"5. Before us learned Counsel appearing on behalf of the appellant has submitted that the entire transaction between the TELCO and the appellant was covered by Rule 57F(2)(b) of the Central Excise Rules, 1944. Under these Rules the assessee is the manufacturer of the final product, in this case, excavators. The manufacturer of the final product is permitted to remove inputs to a place outside the factory for the purpose of manufacture of intermediate products so that they are returned to the factory for further use in the manufacture of final products. In Excise Appeal No.70080 of 2016 52 such a case the credit is taken by the manufacturer of the final products on the inputs purchased by it which are made available to the intermediate product produces. Modvat credit is taken by the manufacturer of the final product on the inputs supplied by it to the manufacturer of the intermediate products which credit is reversed ultimately when the final product is removed from such manufacturers‟ factory. As far as the appellant, (the intermediate purchaser) is concerned, it is not liable to pay duty on the inputs supplied by TELCO since it had not taken the credit for the Modvat in respect of inputs. It is submitted that it cannot be called upon to pay the duty in respect of those inputs nor can the value of the inputs be added to the excisable value of the assemblies.
6. We are of the view that the submission of the appellant is correct. The Tribunal appears to have been confused between the manufacture of the final product, namely, excavators and the manufacture of the intermediate product, namely, the floor plate assemblies. The scheme of Modvat permits the person who clears the ultimate final product to take the benefit of the Modvat scheme at the time of clearance of such final product. The manufacturer of the final product, in this case TELCO, would therefore, be entitled not only to adjust the credit on the inputs supplied by it to the intermediate purchaser such as the appellant but also to the credit for the duty paid by the intermediate purchaser on its products. The reliance on the decision in Burn Standard Company Ltd. (supra) by the Tribunal was misplaced. That case has no doubt held that the value of the free inputs were to be included in the final product. In that case, the final product was wagons and Excise Appeal No.70080 of 2016 53 the question was whether the items which were supplied free by the Railway Board to the assessee could be included in the value of the wagons. This Court came to the conclusion that it could. The first distinguishable feature is that this Court in that case was neither concerned with the Modvat scheme, nor with the provisions of Rule 57F(2)(b). Furthermore, the Court was not considering a situation where the question was of the liability of an intermediate product being subjected to excise duty. What was in consideration was the final product, namely, wagons.
7. In this appeal as we have already noted, the final product was the excavator. According to the Modvat scheme, it is the Modvat of such final product which would have to include the cost of the inputs and in respect of which Modvat credit could be taken at the time of clearance of the final product. The Tribunal having misconstrued the provisions of Rule 57F(2)(b), its decision cannot stand. The decision of the Tribunal is accordingly set aside and the appeal is allowed."
4.10 As per Section 2 (h) of the Central Excise Act, 1944 "sale and purchase" has been defined stating as follows:
"(h) "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;"
4.11 Rule 10 A was inserted vide Notification No 9/2007-CE (NT) dated 01.03.2007 with effect from 01.04.2007 in Central Excise Valuation (Determination of Price Excisable Goods) Rules, 2007, to provide definiteness to the manner of valuation of the goods manufactured and cleared by the job worker. The entire scheme of valuation of the goods manufactured on "job work"
Excise Appeal No.70080 of 2016 54 was introduced. The said rule was not under consideration of the Hon'ble Supreme Court in the case of Intrernational Auto. As per sub-clause (iii) the valuation of the goods manufactured on job work basis which were not sold as such by the prime manufacturer from the premise of job worker or his premises, i.e. (i) and (ii) of the said rules than the value of said goods for valuation of the said goods will be by application of the valuation rules mutatis mutandis.
4.12 Rule 16A was also inserted in Central Excise Rules, 2002 by Notification No 17/2003-CE (NT) dated 13.03.2003 with effect 01.04.2003 from to provide as under:
RULE 16A Removal of goods for job work, etc.. --
Any inputs received in a factory may be removed as such or after being partially processed to a job worker for further processing, testing, repair, re-conditioning or any other purpose subject to the fulfilment of conditions specified in this behalf by the Principal Commissioner of Central Excise or Commissioner of Central Excise, as the case may be]having jurisdiction.
4.13 Rule 4 (5) (a) of the CENVAT Credit Rules, 2004 (5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the Excise Appeal No.70080 of 2016 55 CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service.
4.14 From the above rule it is evident that the said rule is enabling rule and procedure for clearance of the goods by the person who avails the CENVAT Credit for processing of the said goods and procedure for maintenance of records and the return of said goods. This Rule was interpreted by the tribunal in case of Federal Mogul Goetze India Ltd. [2015 (318) E.L.T. 340 (Tri.
- Bang.)] explaining the concepts of jobwork and various notifications and provisions of CENVAT Credit Rules, 2004 observed a s follows:
8.1 It would be appropriate to recall the concept of job work and the legal implications under the Excise law.
8.2 The practice of getting certain processes done by job worker and getting goods manufactured on job work basis is a widely prevalent practice in the manufacturing sector. A person who is sending material to a job worker is being referred to "as principal manufacturer" and the person who undertakes the processes or manufacture the product for job charges is treated as a "job worker". The activities/processes undertaken by the job worker may amount to manufacture as per Central Excise Law or it may not. The job worker, in addition to using the material supplied by the principal manufacturer, may use his own material for undertaking the job work and the job charges collected by him will, obviously, include the cost of his own material used by him for the job work. In other words, "in respect of job-worked item" the raw materials are contributed partly by the principal manufacturer and the rest by the job worker. Labour is contributed by the job worker. When the job worked items are received back by the principal manufacturer, the same may be used for further manufacture or may be sold as such. When the final products are sold by the principal manufacturer obviously Excise Appeal No.70080 of 2016 56 the value of job charges also become part of the cost of the materials so sold.
8.3 When the processes/activities undertaken by the job worker amounts to manufacture, the job worker is construed as the manufacturer and, therefore, the job worker becomes liable to pay excise duty. However, by Notification No. 214/86-C.E., dated 25-3-1986, it has been provided that instead of the job worker, the liability can be discharged by the principal manufacturer subject to the conditions mentioned in the said notification.
8.4 Cenvat Credit Rules provide for taking credit by the principal manufacturer and sending the material without reversing the credit for the purpose of job work. It also provides for taking credit on any input or input service used in the manufacture of intermediate product by the job worker. This is evident from Rule 3 of the Cenvat Credit Rules the relevant portion of which read as under :
„„Rule 3 - Cenvat credit. - A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of ...... including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86-Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547(E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004."
8.5 There are also provisions in law and case law relating to valuation of goods manufactured on job work basis and the same need not be narrated in the present proceedings.
8.6 It suffices to say that the tax liability and Cenvat credit availability in respect of goods manufactured on job work Excise Appeal No.70080 of 2016 57 basis are sought to be treated to be same as those applicable to the goods manufactured by the principal manufacturer.
9.1 Undisputedly the manufacturer-appellant has procured duty paid piston rings in coil form and taken Cenvat credit of the duty paid on the said piston rings. The said raw material has been sent to the job worker-appellant under material movement challans for the purpose of chrome plating. We agree with the findings of the Commissioner that the activities of chrome plating does not amount to manufacture in the hands of the job worker-appellant and, therefore, the chrome plated piston rings are not „excisable goods‟.
9.2 It is not in dispute that the manufacturer-appellant having taken Cenvat credit can send the materials in terms of Rule 4(5)(a) of the Cenvat Credit Rules for the purpose of undertaking certain processes whether such processes amount to manufacture or not. Therefore, the job worker-
appellant could have undertaken the job work of chrome plating and returned the job-worked material to the manufacturer-appellant without payment of duty in terms of Rule 4(5)(a) of the Cenvat Credit Rules.
9.3 Once chrome plated piston rings are not treated as „excisable goods‟ at the hands of job worker-appellant, the question of availing any exemption at his end does not arise and therefore, the said goods cannot be treated as exempted goods.
9.4 Rule 4(5)(a) of the Cenvat Credit Rules reads as under
:
"The Cenvat credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, (or for the manufacture of intermediate goods necessary for the manufacture of final products) or any other purpose, and it is established from the records, Excise Appeal No.70080 of 2016 58 challans or memos or any other document produced by the manufacturer or provider of output service taking the Cenvat credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the Cenvat credit attributable to the inputs or capital goods by debiting the Cenvat credit or otherwise, but the manufacturer or provider of output service can take the Cenvat credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service."
9.5 From the above, it could be seen that removal of the goods by manufacturer-appellant under Rule 4(5)(a) of the Cenvat Credit Rules is not restricted for the purpose of manufacture of excisable goods and it can also be for the purpose of undertaking any process which may not amount to manufacture.
9.6 Rule 4(5)(a) of the Cenvat Credit Rules is a self contained rule envisaging that a manufacturer who was eligible to take credit, having taken the credit, can send the material to a job worker "for further processing, testing, repair, reconditioning or for the purpose of manufacture of intermediate goods necessary for the manufacture of final products or for any other purpose". The material could be sent without the manufacturer-appellant reversing the credit taken on the inputs. The processing undertaken by the job worker may or may not amount to manufacture. When the activities of job worker does not amount to manufacture, the return of the job-worked goods back to the manufacturer-appellant completes the obligation on the part of the job worker. If the activities of the job worker amount to manufacture, then the liability to duty is on the job worker who is the manufacturer. Even in such a situation, Excise Appeal No.70080 of 2016 59 the job worker is permitted to remove without payment of duty provided the raw material supplier (in this case manufacturer-appellant) undertakes to pay the duty involved. To enable such clearance without payment of duty Notification 214/86 comes to the rescue of the job worker.
9.7 The job worker is also entitled to take credit of duty paid on inputs and service tax paid on input services utilized in undertaking the job work activities. This is permissible in the light of decision of the Larger Bench of the Tribunal in the case of Sterlite Industries (I) Ltd. v. CCE, Pune - 2005 (183) E.L.T. 353 (Tri.-LB). In the said decision, the Tribunal considered the interplay of Rule 57F and Rule 57C of the erstwhile Central Excise Rules. In the said case, the principal manufacturer who has taken credit on inputs has sent the inputs under 57F to the job worker for certain processes and the job worker who has used inputs received by him in the activities of job work was held to be eligible for credit on such inputs even though the job-worked goods were returned to the principal manufacturer without payment of duty by the said job worker. The relevant portion of the said decision is as under :
"Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilization in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honour‟ble Supreme Court, we would hold in favour of assessee."
4.15 We find that assessable value of the goods for the purpose of payment of duty is to be determined as per section 4 of the Central Excise Act, 1944 read along with the Central Excise (Determination of Price of Excisable Goods) Valuation Rules, 2000. Rule 6 of the valuation rules has been reproduced in the impugned order which clearly provide for addition of any Excise Appeal No.70080 of 2016 60 additional consideration received by the appellant in any form to the transaction value for arriving at the assessable value. In terms of the decision of the Hon'ble Supreme Court in case of Ujjagar Prints & Pawan Biscuits and similar other decisions the value of raw material supplied for job work should have been added to arrive at the assessable value. The determination of assessable value made under the Section matter, is not subjected to admissibility of CENVAT credit to the appellant in respect of free supply material. The provisions contained in Section 2 (h) of Central Excise Act, 1944 and Rule 10A and Rule 6 of the Valuation Rules,2000 were not before the Hon'ble Supreme Court in the case of International Auto. Thus in our view the ratio of the said decision will not apply to the facts of the present case which is for the period post introduction Rule 10A of the Valuation Rules, 2000.
4.16 In para 4.14 we have referred the provisions of Rule 4 (5) of the CENVAT Credit Rules, 2004 and found that the said rule is enabling provision for the person receiving the goods to take credit in respect of the goods which are cleared by him for further processing. This rule cannot be interpreted in any manner to have provided for any exemption in respect of the processed goods. The said exemption is available as per the Notification No 214/86-CE subject to following the conditions laid down in the said exemption notification. Apparently the prime manufacturer who has provided the goods to the appellant fro job work has not followed the procedure as prescribed by the said notification. Hon'ble Supreme Court has in case of Dilip Kumar & Company [2018 (361) E.L.T. 577 (S.C.)] specifically held as follows:
"27. Now coming to the other aspect, as we presently discuss, even with regard to exemption clauses or exemption notifications issued under a taxing statute, this Court in some cases has taken the view that the ambiguity in an exemption notification should be construed in favour of the subject. In subsequent cases, this Court diluted the Excise Appeal No.70080 of 2016 61 principle saying that mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such exemption notification can be condoned if there is sufficient compliance with the main requirements. This, however, did not in any manner tinker with the view that an ambiguous exemption clause should be interpreted favouring the revenue. Here again this Court applied different tests when considering the ambiguity of the exemption notification which requires strict construction and after doing so at the stage of applying the notification, it came to the conclusion that one has to consider liberally.
37. This Court while accepting the interpretation provided by the appellant, observed on the aspect of strict construction of a provision concerning exemptions as follows :
"... There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other unexempted class of taxpayers and should be construed against the subject in case of ambiguity. It is an equally well-known principle that a person who claims an exemption has to establish his case.
... The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256 = 1990 SCC (Tax) 422 = JT (1991) SC 151]."
Three important aspects which comes out of the discussion are the recognition of horizontal equity by this Court as a consideration for application of strict interpretation, Excise Appeal No.70080 of 2016 62 subjugation of strict interpretation to the plain meaning rule and interpretation in favour of exclusion in light of ambiguity.
38. We will now consider another Constitution Bench decision in Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal, (2011) 1 SCC 236 = 2010 (260) E.L.T. 3 (S.C.) [hereinafter referred as „Hari Chand case‟ for brevity]. We need not refer to the facts of the case which gave rise to the questions for consideration before the Constitutional Bench. K.S. Radhakrishnan, J., who wrote the unanimous opinion for the Constitution Bench, framed the question, viz., whether manufacturer of a specified final product falling under Schedule to the Central Excise Tariff Act, 1985 is eligible to get the benefit of exemption of remission of Excise duty on specified intermediate goods as per the Central Government Notification dated 11-8-1994, if captively consumed for the manufacture of final product on the ground that the records kept by it at the recipient end would indicate its "intended use" and "substantial compliance" with procedure set out in Chapter 10 of the Central Excise Rules, 1944, for consideration? The Constitution Bench answering the said question concluded that a manufacturer qualified to seek exemption was required to comply with the preconditions for claiming exemption and therefore is not exempt or absolved from following the statutory requirements as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas case (supra), to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows -
Excise Appeal No.70080 of 2016 63 "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, thought at times, some latitude can be shown, if there is 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."
39. The Constitution Bench then considered the doctrine of substantial compliance and "intended use". The relevant portions of the observations in paras 31 to 34 are in the following terms -
"31. Of course, some of the provisions of an exemption notification may be directory in nature and some are mandatory in nature. A distinction between the provisions of a statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in there nature, on the other, must be kept clearly distinguished...
Doctrine of substantial compliance and "intended use"
32. The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably be expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the "essence" or the "substance" of the requirements. Like the concept of "reasonableness", the acceptance or otherwise of Excise Appeal No.70080 of 2016 64 a plea of "substantial compliance" depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the pre-requisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleased if a clear statutory pre-requisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means "actual compliance in respect to the substance essential to every reasonable objective of the statute" and the Court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed.
33. A fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non-compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted.
Excise Appeal No.70080 of 2016 65
34. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the "substance" or "essence" of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance with those factors which are considered as essential."
41. After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State.
42. In Govind Saran Ganga Saran v. Commissioner of Sales Tax, 1985 Supp (SCC) 205, this Court pointed out three components of a taxing statute, namely subject of the tax; person liable to pay tax; and the rate at which the tax is to be levied. If there is any ambiguity in understanding any of the components, no tax can be levied till the ambiguity or defect is removed by the legislature [See Mathuram Agrawal v. State of Madhya Pradesh, (1999) 8 SCC 667; Indian Banks‟ Association v. Devkala Consultancy Service, (2004) 4 JT 587 = AIR 2004 SC 2615; and Excise Appeal No.70080 of 2016 66 Consumer Online Foundation v. Union of India, (2011) 5 SCC 360.].
43. There is abundant jurisprudential justification for this. In the Governance of rule of law by a written Constitution, there is no implied power of taxation. The tax power must be specifically conferred and it should be strictly in accordance with the power so endowed by the Constitution itself. It is for this reason that the Courts insist upon strict compliance before a State demands and extracts money from its citizens towards various taxes. Any ambiguity in a taxation provision, therefore, is interpreted in favour of the subject/assessee. The statement of law that ambiguity in a taxation statute should be interpreted strictly and in the event of ambiguity the benefit should go to the subject/assessee may warrant visualizing different situations. For instance, if there is ambiguity in the subject of tax, that is to say, who are the persons or things liable to pay tax, and whether the revenue has established conditions before raising and justifying a demand. Similar is the case in roping all persons within the tax net, in which event the State is to prove the liability of the persons, as may arise within the strict language of the law. There cannot be any implied concept either in identifying the subject of the tax or person liable to pay tax. That is why it is often said that subject is not to be taxed, unless the words of the statute unambiguously impose a tax on him, that one has to look merely at the words clearly stated and that there is no room for any intendment nor presumption as to tax. It is only the letter of the law and not the spirit of the law to guide the interpreter to decide the liability to tax ignoring any amount of hardship and eschewing equity in taxation. Thus, we may emphatically reiterate that if in the event of ambiguity in a taxation liability statute, the benefit should go to the subject/assessee. But, in a situation where the tax exemption has to be interpreted, the benefit of doubt should go in favour of the revenue, the aforesaid Excise Appeal No.70080 of 2016 67 conclusions are expounded only as a prelude to better understand jurisprudential basis for our conclusion. We may now consider the decisions which support our view.
44. In Hansraj Gordhandas case (supra), the Constitutional Bench unanimously pointed out that an exemption from taxation is to be allowed based wholly by the language of the notification and exemption cannot be gathered by necessary implication or by construction of words; in other words, one has to look to the language alone and the object and purpose for granting exemption is irrelevant and immaterial.
45. In Parle Exports case (supra), a Bench of two-Judges of this Court considered the question whether non-alcoholic beverage base like Gold spot base, Limca base and Thumps Up base, were exempted from payment of duty under the Central Government notification of March, 1975. While considering the issue, this Court pointed out the strict interpretation to be followed in interpretation of a notification for exemption. These observations are made in para 17 of the judgment, which read as follows :
"How then should the Courts proceed? The expressions in the Schedule and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur. The words used in the provision, imposing taxes or granting exemption should be understood in the same way in which these are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them. It is, however, necessary to bear in mind certain principles. The notification in this case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act. The notification must be read as a whole in the context of the other relevant provisions. When a notification is issued in accordance with power conferred by the statute, it has statutory force and validity and, therefore, the exemption Excise Appeal No.70080 of 2016 68 under the notification is as if it were contained in the Act itself. See in this connection the observations of this Court in Orient Weaving Mills (P) Ltd. v. Union of India, 1962 Supp 3 SCR 481 = AIR 1963 SC 98. See also Kailash Nath v. State of U.P., AIR 1957 SC 790. The principle is well- settled that when two views of a notification are possible, it should be construed in favour of the subject as notification is part of a fiscal enactment. But in this connection, it is well to remember the observations of the Judicial Committee in Coroline M. Armytage v. Frederick Wilkinson, (1878) 3 AC 355, that it is only, however, in the event of there being a real difficulty in ascertaining the meaning of a particular enactment that the question of strictness or of liberality of construction arises. The Judicial Committee reiterated in the said decision at page 369 of the report that in a taxing Act provisions enacting an exception to the general rule of taxation are to be construed strictly against those who invoke its benefit. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided."
In the above passage, no doubt this Court observed that "when two views of a notification are possible, it should be construed in favour of the subject as notification is part of fiscal document". This observation may appear to support the view that ambiguity in a notification for exemption must be interpreted to benefit the subject/assessee. A careful reading of the entire para, as extracted hereinabove would, however, suggest that an exception to the general rule of tax has to be construed strictly against those who invoke for their benefit. This was explained in a subsequent decision in Wood Papers Ltd. case (supra). In para 6, it was observed as follows :
Excise Appeal No.70080 of 2016 69 "... In Collector of Central Excise v. Parle Exports (P) Ltd., (1989) 1 SCC 345, this Court while accepting that exemption clause should be construed liberally applied rigorous test for determining if expensive items like Gold Spot base or Limca base of Thums Up base were covered in the expression food products and food preparations used in Item No. 68 of First Schedule of Central Excises and Salt Act and held „that it should not be in consonance with spirit and the reason of law to give exemption for non-alcoholic beverage basis under the notification in question‟. Rationale or ratio is same. Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed construe it liberally. Since the respondent did not fall in the first clause of the notification there was no question of giving the clause a liberal construction and hold that production of goods by respondent mentioned in the notification were entitled to benefit."
46. The above decision, which is also a decision of two- Judge Bench of this Court, for the first time took a view that liberal and strict construction of exemption provisions are to be invoked at different stages of interpreting it. The question whether a subject falls in the notification or in the exemption clause, has to be strictly construed. When once the ambiguity or doubt is resolved by interpreting the applicability of exemption clause strictly, the Court may construe the notification by giving full play bestowing wider and liberal construction. The ratio of Parle Exports case (supra) deduced as follows :
"Do not extend or widen the ambit at stage of applicability. But once that hurdle is crossed, construe it liberally".
47. We do not find any strong and compelling reasons to differ, taking a contra view, from this. We respectfully record our concurrence to this view which has been subsequently, elaborated by the Constitution Bench in Hari Chand case (supra).
Excise Appeal No.70080 of 2016 70
48. The next authority, which needs to be referred is the case in Mangalore Chemicals (supra). As we have already made reference to the same earlier, repetition of the same is not necessary. From the above decisions, the following position of law would, therefore, clear. Exemptions from taxation have tendency to increase the burden on the other unexempted class of taxpayers. A person claiming exemption, therefore, has to establish that his case squarely falls within the exemption notification, and while doing so, a notification should be construed against the subject in case of ambiguity.
49. The ratio in Mangalore Chemicals case (supra) was approved by a three-Judge Bench in Novopan India Ltd. v. Collector of Central Excise and Customs, 1994 Supp (3) SCC 606 = 1994 (73) E.L.T. 769 (S.C.). In this case, probably for the first time, the question was posed as to whether the benefit of an exemption notification should go to the subject/assessee when there is ambiguity. The three-Judge Bench, in the background of English and Indian cases, in para 16, unanimously held as follows :
"We are, however, of the opinion that, on principle, the decision of this Court in Mangalore Chemicals - and in Union of India v. Wood Papers, referred to therein - represents the correct view of law. The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee - assuming that the said principle is good and sound - does not apply to the construction of an exception or an exempting provision, they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State...."
50. In Tata Iron & Steel Co. Ltd. v. State of Jharkhand, (2005) 4 SCC 272, which is another two-Judge Bench decision, this Court laid down that eligibility clause in Excise Appeal No.70080 of 2016 71 relation to exemption notification must be given strict meaning and in para 44, it was further held -
"The principle that in the event a provision of fiscal statute is obscure such construction which favours the assessee may be adopted, would have no application to construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of exemption (See Novopan India Ltd. v. CCE and Customs)."
51. In Hari Chand case (supra), as already discussed, the question was whether a person claiming exemption is required to comply with the procedure strictly to avail the benefit. The question posed and decided was indeed different. The said decision, which we have already discussed supra, however, indicates that while construing an exemption notification, the Court has to distinguish the conditions which require strict compliance, the non- compliance of which would render the assessee ineligible to claim exemption and those which require substantial compliance to be entitled for exemption. We are pointing out this aspect to dispel any doubt about the legal position as explored in this decision. As already concluded in para 50 above, we may reiterate that we are only concerned in this case with a situation where there is ambiguity in an exemption notification or exemption clause, in which event the benefit of such ambiguity cannot be extended to the subject/assessee by applying the principle that an obscure and/or ambiguity or doubtful fiscal statute must receive a construction favouring the assessee. Both the situations are different and while considering an exemption notification, the distinction cannot be ignored.
52. To sum up, we answer the reference holding as under
-
(1) Exemption notification should be interpreted strictly;
the burden of proving applicability would be on the assessee Excise Appeal No.70080 of 2016 72 to show that his case comes within the parameters of the exemption clause or exemption notification.
..."
Thus in absence of any specific compliance with the conditions and procedure laid down as per the Notification 214/86-CE, the benefit of same cannot be allowed as claimed by the appellant.
4.17 CENVAT Credit rules, 2004 made in terms of Section 37 (2) of the Central Excise Act, 1944 are not over-riding the provisions of Section 2(h), Section 4 read with Central Excise Valuation (determination of Price of Excisable Goods) Rules, 2000. They provide a procedure for payment of duty due on finished goods by utilization of the credit of inputs, capital goods and input service admissible and available with the manufacturer or provider of output services. The interpretation sought to be canvassed by the counsel for appellant is in nature of writing the law of valuation of the excisable goods contrary to the expressed provisions of law. We do not find any merits in the said submission. Even otherwise it is settled position in law that "when a statute provides a manner of doing a thing the same should be done in that manner or not at all". In case of Mahendra Singh [2022 SCC OnLine SC 909] Hon'ble Supreme Court has observed as follows:
14. ....... It is well settled that if a particular procedure in filling up the application form is prescribed, the application form should be filled up following that procedure alone. This was enunciated by Privy Council in the Nazir Ahmad v.
KingEmperor [1936 SCC OnLine PC 41] , wherein it was held that "that where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden."
15. A three Judge Bench of this Court in a judgment reported as Chandra Kishore Jha v. Mahavir Prasad & Ors.[ (1999) 8 SCC 266], held as under:
Excise Appeal No.70080 of 2016 73 "17....................It is a well-settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner. (See with advantage: Nazir Ahmad v. King Emperor , Rao Shiv Bahadur Singh v. State of V.P. [AIR 1954 SC 322 : 1954 SCR 1098] , State of U.P. v.
Singhara Singh [AIR 1964 SC 358 : (1964) 1 SCWR 57] .) An election petition under the rules could only have been presented in the open court up to 16-5- 1995 till 4.15 p.m. (working hours of the Court) in the manner prescribed by Rule 6 (supra) either to the Judge or the Bench as the case may be to save the period of limitation. That, however, was not done................"
16. The said principle has been followed by this Court in Cherukuri Mani v. Chief Secretary, Government of Andhra Pradesh & Ors. [(2015) 13 SCC 722] wherein this Court held as under:
"14. Where the law prescribes a thing to be done in a particular manner following a particular procedure, it shall be done in the same manner following the provisions of law, without deviating from the prescribed procedure............."
17. Similarly, this Court in Municipal Corporation of Greater Mumbai (MCGM) v. Abhilash Lal & Ors. [(2020) 13 SCC 234] and OPTO Circuit India Limited v. Axis Bank & Ors. [(2021) 6 SCC 707] has followed the said principle...."
4.18 Appellant in the present case have determined the value of job worked material by excluding the value of the material supplied to them for job work by the prime manufacturer. The have determined the value on the basis of the value of the material procured by them on their own account and the job charges. The manner in which the value has been determined goes contrary to the decision of Hon'ble Apex Court in case of Ujaggar Prints and other similar decisions read with the provision Excise Appeal No.70080 of 2016 74 of rule 6 & Rule 10A of Central Excise valuation (Determination of Price of Excisable Goods) Rules, 2000.
4.19 Thus they have suppressed the value of the goods cleared in as much as they did not assess the value by not including value of materials, components, parts and similar items that were being received from the principal manufacturer and used in the manufacture of goods on job work basis for discharging the duty liability. They have also not disclosed these facts to the department. Thus the party suppressed the material facts from the department with intent to evade payment of Central Excise Duty. Hence, the extended time limit is invokable under the provisions of Section 11A (4) of the Central Excise Act, 1944.
4.20 The entire arguments which have been advanced are in nature of supporting the case of tax evasion by the appellant in garb of tax avoidance. Such arguments need to rejected with clarity in mind that such schemes devised by the tax legal pundits are designed to burden the honest tax payer and protect the evaders. We would refer to the decision of Hon'ble Supreme Court in case of Mc Dowell & Company Limited [1985 (3) SCC 230] wherein Hon'ble Supreme Court observed as follows:
"The shortest definition of tax avoidance that I have come across is "the art of dodging tax without breaking the law."
Much legal sophistry and judicial exposition have gone into the attempt to differentiate the concepts of tax evasion and tax avoidance and to disc0ver the invisible line supposed to exist which distinguishes one from the other. Tax avoidance, it seems, is legal: tax evasion is illegal.
Though initially the law was, and I suppose the law still is, "there is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be. implied'', during the period between the two world wars, the theory came to he propounded and developed that it was perfectly open for persons to evade (avoid) income tax if they could do so legally. For some time it looked as if tax avoidance was even viewed with affection. Lord Sumner in inland Excise Appeal No.70080 of 2016 75 Revenue Commissioners v. Fishers Executors [[1926] A.C. 39S] said:
"My Lords the highest authorities have always recognized that the subject Is entitled so to arrange his affairs as not to attract taxes imposed by the Crown so far as he can do so within the law, and that be may legitimately claim the advantage of any expressed term or of any emotions that be can find in his favour in taxing Acts. In so doing he neither comes under liability nor incurs blame."
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The march of the law against tax avoidance schemes continued and came a significant departure from the West- minister and the Fisher Executors principle. In W. l. Ramsay v. Inland Revenue Commissioners [(1982] AB 300], the House of Lords had to consider a scheme of tax avoidance which consisted of a series or a combination of transactions each of which was individually genuine but the result of all of which was· an avoidance of tax. Lord Wilberforce, with great force, observed, "Given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance. This is the well-known principle of Inland Revenue Commissioners v. Duke of . Westminister. This is a cardinal principle but it must not be overstated or overextended. While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded : to do so is not to prefer form to substance, or substance to form. ft is the task of the court to ascertain the legal nature of any Excise Appeal No.70080 of 2016 76 transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded. For this there is authority in the law relating to income tax and capital gains tax : See Chinn v. Hochstrasser [1981] A.C. 533 and Inland Revenue Commissioners v. Plummer (1980] A.C. 896."
"For the commissioners considering a particular case it is wrong and an unnecessary self limitation, to regard themselves as precluded by their own finding that documents or transactions are not "shams", from considering what, as evidenced by the documents themselves or by the manifested intentions of the parties, the relevant transaction is. They are not, under the Wes/minister doctrine or any other authority, bound to consider individually each separate step in a composite transaction intended to be carried through as a whole."
Later again he observed, "··· ... For the taxpayers it was said that to accept the revenue's wide contention involved a rejection of accepted· and established canons and that, if so general an attack upon schemes for tax avoidance as the revenue suggest is· to be validated, that is a matter for Parliament. The function of the courts is to apply strictly and correctly the legislation which Parliament has enacted: if the taxpayer escapes the charge, it is for Parliament, if it disapproves of the result, to close the gap. General principles against' tax avoidance are, it was claimed, for Parliament to lay down. We were referred, at our request, in this connec-· tion to the various enactments by which Parliament bas from time to time tried to 9ounter ta~ avoidance by some general prescription. The most extensive of these is Income and Corporation Taxes Act 1970, sections 460 et seq. We Excise Appeal No.70080 of 2016 77 were referred also to well known sections in Australia and New Zealand (Australia, Income Tax Assessment Act 1936-51, section 260; New Zealand, Income Tax. Act 1976, section 99, replacing earlier legislation). Further it was pointed out that the capital gains tax legislation (starting with the Finance Act 1965) does not contain any provision corresponding to section 460. The intention should be deduced therefore, it was said, to leave capital gains tax · to be dealt with by "hole and plug" methods :
that such schemes as the present could be so dealt with has been confirmed by later legislation as to "value shifting": Capital Gains Tax Act 1979, section 25 et seq. These arguments merit serious consideration. In substance they appealed to Barwick C.J. in the recent case of Federal Commisslo· nerofTaxation v. Westraders Pty. Ltd. [1980] 30 A.L.R. 353, 354-355."
"I have a full respect for the principles which have been stated but I do not consider that they should exclude the approach for which the Crown contends. That does not introduce a new principle: it would be to apply to new and sophisticated legal devices the undoubted power and duty of the courts to determine their nature in law and to relate them to existing legislation. While the techniques of tax avoidance progress and are technically improved, the courts are not obliged to stand still. ·Such immobility must result either in loss of tax, to the prejudice of other taxpayers or to Parliamentary congestion or (mo.it likely) to both. To force the courts to adopt, in relation to closely integrated situations, a step by step, dissecting, approach which the par· ties themselves may have negated, would be a denial rather than an affirmation of the true judicial process. In each case the facts must be established, and a iegal analysis made': legislation cannot be required or even be desirable to enable the courts to arrive at a conclusion which corresponds with the parties' own intentions."
Excise Appeal No.70080 of 2016 78 "The capital gains tax was created to operate in the real world, not that of make-belief"
The significance of Ramsay as a turning point in the interpretation of tax laws in England and the departure from the, strings of G Westminister were explained in Inland ·Revenue Commissioners v. Burmah Oil Company Ltd.,[[1982JiS.T.C. 30)] where Lord Dip lock said, "It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax-avoidance schemes to assume, that Ramsay's case did not mark a significant change in the approach adopted by this House in its judicial role to a pre-ordained series of transactions (whether or not they include the achievement of a legitimate commercial end) into which there are inserted steps that have no commercial purpose apart from the avoidance of a liabi!Hy to tax which in the absence of those particular steps would have been payable. The difference is in approach. It does not necessitate the overruling of any earlier decisions of this House ; but it does involve recognising that Lord Hamlin's oft-quoted dictum in !RC v. Duke of West minister(') "Every man is entitk:d if he can to order his affairs so as that the tax attaching under the appropriate Acts h less then it otherwise would be", tell us Ii/Ile or nothing as to what methods of ordering one's affairs will be recognised by the courts as effective to lesson the tax what would attach to them if business transactions were conducted in a straight-forward way."
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I have referred to the English cases at some length, only to show that in the very country of its birth, the principle of Westminister has been given a decent burial and in that very country where the phrase 'tax avoidance' originated the judicial attitude towards tax avoidance has changed and the smile, cynical or even affectionate though it might have Excise Appeal No.70080 of 2016 79 been at one time, has now frozen into a deep frown. The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it.
Some years ago, a diverting attempt was made by a Correspondent to the London 'Times' to defend tax avoidance. He said, "The taxpayer is morally bound to obey the law, but is not bound beyond the law, for apart from the law taxation would be blackmail or racketeering. There is not behind taxing laws, as there is behind laws against crime, an in dependent moral obligation. When therefore the tax-payer has obeyed the law, he had done all that morality requires" He had further said, "It is said that by avoiding a tax he throws a load on to some other taxpayer. But this is not quite accurate, for - the deficiency might be met by reducing expenditure.. is it not a good thing that there should be this last lawful remedy against oppressive taxation by a majority, that human ingenuity can always find a way by which the minority can escape from tyrannical imposts."
The correspondent was answered by another's correspondent who described the former's defence of tax avoidance as 'an amusing attempt to raise the art of tax avoidance to the moral level of political martyrdom and to make Hampdens of our modern tax dodgers'. Nor, may we say, are our tax dodgers Gandhiji is on the Dandi March to protest against the Salt Tax.
In Commissioner of Income tax, Gujarat v. A. Raman & Co.,[[1968]1 S.C.R 10.] JC Shah, JJ. speaking for himself and Sikri and Ramaswami, JJ repeating almost verbatim the observations in Westminister and Fishers Executors observed:
Excise Appeal No.70080 of 2016 80 "Avoidance of tax liability by 80 arranging commercial affairs that charge of tax is distributed is not prohibited.A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the Legislative injunction in taking statutes may not, except on period of penalty, be violated, but it may lawfully be cumvented."
The same Judge, speaking for himself, Ramaswami and Grover JJ in Commissioner of income tax, Gujarat v. Kharwar [72 ITR 603] expressely followed Westminister and observed:
"The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it Is open to the taking authorities to unravel the device and to determine the true character of relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction".
We think that time has come for us to depart from the Westminister principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare state like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of blackmoney, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Sheatcraft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful, advisers on the other side. Then Excise Appeal No.70080 of 2016 81 again there is the 'sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it'. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless good citizens from those of the 'artful dodgers'. It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr. Justice Holmes, who said, "Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civilization." But, surely, it is high time for tho judiciary in India too to part its ways from the principle of Westminister and the alluring logic of tax avoidance. We now live In a welfare state whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that It stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taking statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally, or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it.A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. v. Bengal Hotels Limited [40 Company Cases, 597] where the learned judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax.
It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is upto the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be Excise Appeal No.70080 of 2016 82 related to the existing legislation with the aid of 'emerging' techniques of interpretation as was done in Ramsay, Burma Oil and Dawson, to expose the devices for what they really are and to refuse to give judicial benediction.‟ 4.21 As we uphold the demand of central excise duty demand for interest will follow as natural consequence (as per decisions referred in impugned order) and the penalties imposed under section 11AC of the Central Excise are justified in view of the decision of Hon'ble Supreme Court in case of Rajasthan Spinning and Weaving Mill [2009 (238) ELT 3 (SC)] wherein following has been observed:
"17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced.
18. One cannot fail to notice that both the proviso to sub- section 1 of Section 11A and Section 11AC use the same expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Excise Appeal No.70080 of 2016 83 Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.
19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section."
4.22 We have considered all the decisions referred by the appellant in their appeal and arguments. We do not find that decisions will support the case of the appellants as they were rendered in the facts of those case and the facts of present case have been analyzed and interpreted in terms of the provisions of the law as they existed at relevant time. We do not find any merits in this appeal.
5.1 Appeal is dismissed.
(Pronounced in open court on-05 December, 2024) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp