Central Excise Rules, 2002:
r. 12B – Liability of dealer/trader of textiles and textile articles – To pay duty for the goods manufactured through job workers – Appellants-traders supplied raw material to more than 70 job workers and cleared cotton fabrics and cotton made-ups to the tune of more than Rs. 1.45 crores without paying any duty – Show cause notices demanding duty from the appellants – Stand of appellants that job workers were the manufacturers and hence there was no liability on the traders – Adjudicating authority held that appellants were not liable – However, in appeal, appellate authority as well as appellate Tribunal held that the appellants were liable to pay the duty – In appeal, held: Section 12B introduces a legal fiction that in case conditions stipulated therein are satisfied, the person concerned is to be treated as an assessee – If the person is an assessee, all the clearances by him so long as they come within parameters of r. 12B, would make him liable – The Exemption Notification also does not put the matter at individual clearances of job workers and what is to be considered is an aggregate value of the clearances – Therefore, it was not the individual clearance of one single job worker alone, exceeding the limit of Rs. 25 lakhs, but the aggregate of all clearances made by the appellant-trader, was liable to duty – Central Excise Act, 1944 – Central Excise Tariff Act, 1985 – Chapters 52 and 53.
Dismissing the appeals, the Court
HELD: 1.1. According to Rule 12B of Central Excise Rules, 2002 dealing with “job work in textiles and textiles articles”, any person who gets yarn or fabrics; or readymade garments or made up textile articles falling under Chapters mentioned in Rule 12B produced or manufactured on his account on job work shall obtain registration, maintain accounts and pay duty leviable on such goods as if he is an assessee. If the conditions in Rule 12B are satisfied, the liability on such person gets fixed “as if he is an assessee”. [Para 14][788-G, H]
2. The Exemption Notification dated 30.04.2003 exempts “first clearances for home consumption, upto an aggregate value not exceeding twenty lakh rupees…”. The emphasis is on the aggregate value and what is exempted is, “…upto an aggregate value”. The conditions stipulated in Para 2 of said Exemption Notification, specially clauses (i) and (ii) again emphasize the applicability in respect of “aggregate value of clearances for home consumption and not separately regarding individual clearances”. The extent of limits was raised by subsequent Notification dated 17.05.2003. The language of the exemption Notification as amended, is quite clear. However, certain doubts arose which were clarified by Circular dated 30.10.2003. [Paras 14 and 15][789-A-C]
3. If Rule 12B introduces a premise that if the conditions in said Rule are satisfied, the person concerned is an assessee for all purposes, it does not stand to reason how third illustration in Circular dated 30.10.2003 fits in the scheme of Rule 12B as well as the Exemption Notification. What Rule 12B introduces is nothing but a legal fiction that in case the conditions stipulated therein are satisfied, the person concerned is to be treated as an assessee. If he is an assessee, all the clearances by him so long as they come within the parameters of Rule12B, would make him liable. The Exemption Notification again does not put the matter at individual clearances of job workers and what is to be considered is an aggregate value of the clearances. It is well settled that if a legal fiction is introduced, that legal fiction must be taken to the logical end. [Para 16][789-F-H; 790-A]
4. For the present purposes, second illustration in the Circular dated 30.10.2003 is more appropriate. According to said illustration, the moment the clearances go beyond the limit, the liability gets fastened in respect of the aggregate value of clearances. If the submission made by the Appellant is accepted to be correct, the second illustration would have exempted all the clearances in respect of ‘A’, ‘B’ and ‘C’. Again, if the contention of the Appellant is accepted, a dealer may get the goods referred to in Rule 12B manufactured from several job workers to ensure that the value of the clearances from each job worker is less than the limit prescribed for individual clearances. In such a case the emphasis in the Rule regarding aggregate clearances would be rendered meaningless. [Para 17][790-C-D]
5. The assessment made by the Appellate Authority and the Tribunal was, therefore, correct. Consequently, it was not the individual clearance of one single job worker alone exceeding the limit of Rs.25 lakhs but the aggregate of all clearances made by the Appellant, was liable to duty. [Para 18][790-E] Gurupad Khandappa Magdum v. Hirabai Khandappa
Magdum and others (1978) 3 SCC 383 : [1978] 3 SCR
761 – relied on.
East End Dwelling Co. Ltd. v. Finsbury Borough Council (1952) AC 109, 132 = (1951) 2 ALL ER 587 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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