CX - Denial of SSI benefit on ground that goods were not completely manufactured in rural area - assuming that such activity by job worker in urban area is manufacture, demand should be on them & not assessee: CESTAT
By TIOL News Service
MUMBAI, APRIL 16, 2018: ALL the appellants are availing the benefit of SSI exemption notification 8/2000-C.E. in respect the excisable goods "spanners" manufactured under the brand name "Taparia" owned by M/s Taparia Tools Ltd. by claiming that they (the appellants) are a unit located in the "rural area".
The fact is that the appellants are purchasing unbranded spanner on which they are embossing/engraving the brand "Taparia". Thereafter, it is sent for job work to various job workers. One job work is heat treatment, the second is shot blasting and the third is plating. All these processes are carried out by various job workers. Thereafter, the spanners are brought to the factory of the appellant and the same are packed and sold.
The case of the department is that although the appellant's factories are located in rural area(s) but major process of manufacturing is carried out by the job workers who are not located in rural areas but in urban areas. Therefore, the goods are not completely manufactured in rural area. Inasmuch as, as per the notification, in order to avail the SSI exemption, the branded goods should be manufactured by the assessee who is located in rural area. There being a contravention of the notification 8/2000-C.E., the appellants are not entitled for SSI exemption and are liable to pay CE duty on their clearances.
Accordingly, SCNs were issued and confirmed against the appellants.
Before the CESTAT, the appellant submitted that they have purchased the manufactured spanner and only embossed/engraved the brand name of "Taparia", which embossing process does not amount to manufacture. And, if at all it is assumed that manufacturing process work is carried out by the job worker in respective factories located in urban areas, and if at all duty liability arises, then the same is recoverable from those job workers who are independent manufacturers. Reliance is placed on the decision in Thermax Babcock and Wilcox Ltd. & Thermax Ltd. - 2017-TIOL-4390-CESTAT-MUM-LB.
It is further submitted that even if all the processes are taken together i.e. process carried out by the appellant as well as by the job workers, the activity is not of manufacture as goods purchased are already "spanners" and the process of affixing the brand, heat treatment, shot blasting and plating do not change the form of the product which remains as spanner only. So also, a unit located in the rural area can get the job work done from outside and still be entitled for SSI exemption. Reliance is placed on the apex court decision in Sannihita Electronics Ltd. - 2015-TIOL-33-SC-CX. Insofar as the solitary Revenue appeal is concerned, the demand was rightly dropped on the ground of limitation as there is no suppression of facts involved.
The AR while justifying the revenue appeal, in the matter of the assessees appeals, submitted that since the major process of manufacturing was carried out outside the rural area, the goods are not eligible for exemption notification. Following judgments are relied upon in support - Standard Fireworks Industries - 2002-TIOL-71-SC-CX; Tara Agencies - 2007-TIOL-124-SC-IT; Ace Auto Comp. Ltd. - 2010-TIOL-112-SC-CX.
After considering the submissions, the Bench observed -
+ Appellant is only carrying out affixation of brand on the tools i.e. spanner by embossing/ engraving. This process alone does not amount to manufacture.
+ As regards other processes which are carried out by the job workers, it prima facie appears that the independent process of heat treatment, shot blasting and plating do not amount to manufacture as held in various judgments. However, even if it is held that the activities carried out by the job worker do amount to manufacture, the duty liability arises on such job workers as they are the sole manufacturer even though on job work basis.
Placing reliance on the LB decision in Thermax Babcock and Wilcox Ltd. & Thermax Ltd. (supra), the CESTAT concluded -
"8. …, if at all there is a liability of duty arising, the same is recoverable from job worker. Under this legal position, we find that the appellant cannot be charged to duty even if the exemption notification no. 8/2000 is not admissible to them…"
Only on this ground, the demand was set aside and the appeals of the assessees were allowed. The Revenue appeal was, therefore, dismissed.
(See 2018-TIOL-1203-CESTAT-MUM)
