Full Judgment
The garments traded by the appellants are classifiable under Chapter Heading No. 6201.00 of the Central Excise Tariff and prior to 01.03.2001, the tariff rate on the goods was "Nil" by the Finance Bills of 2001. This rate was amended to 16% advalorem.
2. Consequent to the Finance Bill effective from 01.03.2001, Officers of Central Excise visited the godown of these traders in the Bombay Market. They undertook a detailed inventory of the finished ready to market garments lying there. These garments were found to be liable for duty by the officers, since they were bearing a registered brand name as this duty was amended to 16% advalorem from NIL prior to 01.03.2001 by Finance Bill 2001 and would be applicable to this stock, since these premises i.e. the godown of the Owner of the registered Brand Name, the appellants, was the point of clearance and Central Excise duty is leviable on the goods cleared from Warehouse. Against this proposal, the appellants moved to Hon'ble Bombay High Court by way of Writ Petition No. 1080 of 2001, where an order dated 04.05.2001 was passed to the effect that - i) Goods may be permitted to be cleared on the petitioners furnishing a Bank Guarantee for two thirds of the amount of duty on provisional assessment and upon cash deposit of one third of the duty provisionally assessed. This will be, of course, provisional and subject to the rights and contentions of the petitioners during the adjudication proceedings.
ii) The respondents shall immediately start the adjudication proceedings after issuing show cause notices to the petitioners.
3. The show cause notice was consequently issued and adjudicated by the Commissioner who vide the impugned order found and held as under: a) As per Rule 4 of Central Excise Rule 2001, the manufacturer or person who store the excisable goods in a Warehouse shall be liable to pay duty. Although the goods were manufactured by various Job Workers, but the assessee was one with registered Brand Name and the garments stored in their Warehouse and cleared from there. He was the manufacturer by virtue of above Rule as the goods were cleared finally from the premises of the assessee.
b) The judgment of the Hon'ble Supreme Court in the case of M/s.
Vazir Sultan Tobacco Co. Ltd. as relied upon by the appellants was distinguishable since in that case the Court was dealing with the goods manufactured prior to introduction of relevant tariff entry.
In the present case readymade garment falling under chapter 62 and as per the assessee's own argument were leviable to 'NIL' rate of duty as on 28.02.2001. The readymade garments being always excisable, therefore the change made by the Finance Bill 2001 was only to raise the duty on readymade garments falling under chapter 62 from 'NIL' rate of duty to 16% and relying upon the case M/s.
Wallace Flour Mills Company Ltd. {1989 (44) ELT 598} and M/s.
Kohinoor Mills {1995 (77) ELT 42, it has to be held that all goods exempt from duty but removed from the factory were liable to pay duty. Therefore, these judgments squarely applied and duty was liable to be paid.
c) The argument of the assessee that they were not manufacturer but only Traders and the Job Worker were the manufacturer cannot be accepted, in view of the provision of Rule 4 of the Central Excise Rule 2001.
d) The Trade Notice No. 48/2001 dated 09.07.2001 does not in any way help the assessee. Therefore the duty demand of Rs. 23,79,462/- was confirmed under the provisions of Section 11A of the Central Excise Act, 1944 and penalty of Rs. 2,00,000/- was imposed under Rule 25 of the Central Excise Rules 2002 and the duty paid as per the order of the Hon'ble High Court was appropriated and the Bank Guarantees furnished was enforced.
4. After hearing both sides and considering the material on record, it is found: a) It is well-settled by the decision of the Constitutional Bench of the Hon'ble Supreme Court in the case of Ujagar Prints v. UOI {1998 (38) ELT 535 SC} and {1989 (39) ELT 493 SC} which is applicable even in this case. It is the Job Workers who is and manufacturer and the assessee. They were liable to pay the duty levied on excisable goods under the Central Excise Act at the time of removal of the garments fully manufactured from their factory on valuation arrived at of all costs up to the factory gate as per the formula classified by the Constitutional Bench of the Supreme Court in Ujagar Prints case (Supra). This liability for levy and discharge of the same under the Central Excise Act cannot be shifted to the Trader i.e. the appellant on removals prior to 01.03.2001 from Job Worker's premises.
b) There is no material that removals have not been effected by the Job Workers prior to 00.00 hours of 01.03.2001. The garments found in stock in appellant's godown are appropriate 'NIL' duty paid stocks. No further duty can now be determined on such garments.
c) When a Trader, the appellant herein is not a manufacturer of Excisable Goods made on job-work basis, as per the law laid down by the Supreme Court and the Central Excise Rules have been amended only with effect from 01.05.2001 bringing in the liability to pay duty on Traders owing the Brand Name. Then this appellant cannot be held liable for any Central Excise Duty discharge on 01.03.2001.
d) Once the demands of duties cannot be upheld there is no cause for invoking the penal clause as arrived at by the Ld. Commissioner in the order impugned before us. The penalty is also required to be set aside.
5. In view of the findings, this appeal is allowed after setting aside the demands of duty and penalty. Ordered accordingly.
1. The period involved in the present case is prior to 8th Feb 2001.
The goods in question, however, were cleared during July 2001 to Jan 2002. Meanwhile, Finance Bill of 2001 was introduced which has raised the duty on readymade garments falling under Chapter No. 62 (nil) rate of duty to (16%). Rule 4 of Central Excise (No. 2) Rules 2001 provides as under- "Duly payable on removal- (1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in Rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided: Provided that the goods falling under Chapter 62 of the First Schedule to Central Excise Tarrif Act, 1985 (5 of 1986) produced or manufactured by a job worker may be removed without payment of duty leviable thereon and the duty of excise leviable on such goods shall be paid by the person referred to in Sub-rule (3), as if such goods have been produced or manufactured by him, on the date of removal of such goods from his premises registered under Rule 9: Explanation- It is hereby clarified that where such person has authorised the job worker to pay the duty leviable on such goods under Sub-rule (3), such duty shall be paid by the job worker on the dale of removal of such goods from his registered premises.
(2) Notwithstanding anything contained in Sub-rule (1), where molasses are produced in a khandsari sugar factory, the person who procures such molasses, whether directly from such factory or otherwise, for use in the manufacture of any commodity, whether or not excisable, shall pay the duty leviable on such molasses, in the same manner as if such molasses have been produced by the procurer." 2. The Hon'ble Apex Court in the case of M/s Wallace Flour Mills Company Ltd., 1989 (44) ELT 598 and M/s Kohinoor Mills 1995 (77) ELT 42 have inter alia held that all goods manufactured during the period when they were exempt from duty, but the removal from the factory when the exemption stood withdrawn were liable to pay duty. In other words excisable goods even when manufactured prior to the date from which the exemption was withdrawn were liable to pay duty. The ratio of the said decisions is squarely applicable to the facts of the present case. The readymade garments, however, even if these were manufactured before 1.3.2001 are liable to pay Central Excise duty @ 16%. The duty on readymade garment was imposed not by introduction of new entry in the Tariff but by raising the duty from 'NIL' to 16% as per the Finance Bill 2001.
3. I am, therefore, of the opinion that appeal filed by appellant is liable to be dismissed.
The matters were heard on 12.01.2004 and the orders prepared and referred to learned Member (Judicial) for consideration on 20.1.2004.
File along with the proposed order has been received back to day. From the order enclosed at page 06, it appears that mere is a difference of opinion and the question of the difference has not been framed by the learned Member (Judicial). The same may kindly be framed and send at an early date.
1. File received on 8.04.2004 on my return from leave. As desired the following question is formulated for reference to Third Member by the Hon'ble President:- "Whether in view of the facts and circumstance of the case the appellants are liable to pay duty on readymade garments at the rate of 16% as per Finance Bill of 2001 and the Apex Court's decision in the case of M/s Wallace Flour Mills Co. Ltd., 1989 (44) ELT 598 and M/s Kohinoor Mills 1995 (77) ELT 42." The facts of the case have already been set out in the referring order and are hence not repeated here. There is no dispute that the job workers effected clearance of the goods at 'Nil' rate of duty which is also appropriate duty, prior to 1.3.2001. The liability to pay duty was cast upon the traders owning the brand name only with effect from 1.5.01 by amendment of the Central Excise Rules. The proviso to Rule 4 of the Central Excise Rules 2001 provides that "the goods falling under Chapter 62(ready made garments in the present case are covered by Chapter 62) produced or manufactured by the job worker may be removed without payment of duty leviable thereon and the duty of excise leviable on such goods shall be paid by the person referred to in Sub-rule (3) as if such goods have been produced or manufactured by him, on the date of removal of such goods from his premises registered under Rule 9." Sub-rule (3) provides that "notwithstanding anything contained in Sub-rule (1), every person who gets the goods, falling under Chapter 62 .......... produced or manufactured on his account on job work, shall pay the duty leviable on such goods, at such time ...." Proviso to Sub-rule (3) provides that "such person may authorize the job worker to pay the duty leviable on such goods on his behalf. From the language of the above Rule under which duty liability has been fastened upon the appellants in the present case, it is seen that excise duty on goods falling under Rule 62 is payable by the person who gets the goods produced or manufactured on his account on job work, if the goods are removed by the job worker without payment of duty. In other words, the Rule does not give room by itself to be interpreted at even if the job workers has removed the goods falling under Chapter 62 on payment of duty, even then, the raw material supplier is liable to pay duty once again, even though the Rule provides that the registered premises of the raw material supplier is the place of removal. In this case, there is no dispute that the goods were cleared on payment of duty by the job worker. Therefore, the raw material supplier (appellants) cannot be saddled with the duty liability to pay Central Excise Duty or with penalty. I, therefore, agree with the order proposed by the ld.Member(Technical). The file is now returned to the original bench for passing majority order.
In view of the order given by the Learned Member (Judicial) Mrs Jyoti Balasundaram, the appeal is allowed after setting aside the demands of duty and penalty.