Excise Duty To Be Demanded From Job Worker, Not From Principal Manufacturer, When Transaction Is On Principal To Principal Basis: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that there has to be excise duty demanded from the job worker and not from the principal manufacturer when transactions between the two are on a principal-to-principal basis.

The bench of Anil Choudhary (Judicial Member) and Hemambika R. Priya, (Technical Member) remanded the matter to the Adjudicating Authority and directed it to calculate the quantum of marble slabs cleared on a job work basis as per the formula prescribed in the tariff.

The respondent is in the business of sawing marble blocks on a job-work basis for various parties. They were maintaining a job work ledger and issuing a job work invoice for it. Raw material suppliers were sending the marble blocks directly to the assessees. It was noted that the assessees did not maintain any kind of record for goods sent or received for job work.

The Show Cause Notice was adjudicated on the contest by the Additional Commissioner, by which the central excise duty liability calculated on the total quantity of marble slab cleared in square meters, along with interest and an equal penalty, was imposed. The demand amount of Rs. 14,03,945 calculated in excess in the Show Cause Notice was dropped. The demand was confirmed.

The assessees filed an appeal before the Commissioner of Appeals. The Commissioner (Appeals) allowed the appeals of the assessees. The Commissioner (Appeals) noted that the assessees had returned all the goods to the principal manufacturer after job work, who further processed them before the sale. The principal manufacturer was not required to file a declaration under Job Work Exemption Notification No. 83/94-CE, as marble blocks are not excisable. Secondly, if the principal manufacturer did not follow the procedure prescribed under Notification No. 83-/94-CE, duty liability lies on them and not on the assessee's job worker. The Commissioner (Appeals) also held that there was an error in the valuation adopted by revenue, as the assessees cleared rough marble slabs, whereas the price adopted for valuation was clear with respect to finished and polished marble slabs.

The department contended that the assessee, as an independent manufacturer, was liable to pay Central Excise Duty on the marble slabs manufactured by him on a job-work basis. The benefit of the small-scale exemption is denied as the value of the clearances exceeded the prescribed limit. The valuation of the goods manufactured by the Appellant on a job work basis was required to be worked out in terms of Rule 10A(ii) of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, on the basis of the sales price prevalent at the principal manufacturer's premises on the date when such slabs were cleared by the Appellant.

The assessee contended that the assessee was a job worker who was working below the exemption limit, so they were not required to pay the duty. Hence, job-related goods were not liable for duty. The principal manufacturers are duty-bound to follow or comply with the notification; thus, liability is on them to pay duty, not on-the-job workers. All the principal manufacturers were working under the Small Scale Exemption Notification; hence, they were not liable to pay duty as they did not cross the exemption limit. The declarations submitted by the 23 principal manufacturers were not considered by the adjudicating authority.

The tribunal noted that the transaction between the job worker and the principal manufacturer is on a principal-to-principal basis. It is not in doubt that the marble slabs or tiles were manufactured by the job worker, and the duty liability as per excise laws is only on the manufacturer. The duty liability can be shifted to the supplier of raw materials or semi-finished goods only if the supplier gives an undertaking in terms of the notification.

"We are of the opinion that this is a substantial condition that cannot be taken as a procedural condition, as it shifts the duty liability from the job worker to the supplier of raw materials or semi-finished goods. Until and unless this condition of giving undertaking is fulfilled, the duty cannot be fastened on the supplier of raw materials or semi-finished goods, as they were not the manufacturers of marble slabs or tiles," the CESTAT said.

Case Title: M/s Commissioner of Central Goods And Service Tax, Excise Customs, Udaipur Versus Sonex Marmo Grani Pvt Ltd

Case No.: Excise Appeal No. 52070 of 2019

Date: 18-05-2023

Counsel For Appellant: O.P. Bisht

Counsel For Respondent: Bipin Garg

Click Here To Read The Order