Bright Steel Mac Fabrics Vs. Collr. of C. Ex. - Court Judgment

Excerpt:
1. in all these appeals, a common issue arises for determination and hence they are all taken up together for disposal as per law.2. the collector (appeals) has disposed all the appeals of the, appellants by a common order in appeal no. 617 to 637/91 & 647/91 (172 to 193-ahd)ce/ahd/collr(a). ...3. out of the appeals disposed of by the collector (appeals), only the above appellant's appeals are taken for disposal.4. the appellants are engaged in the manufacture of parts and components of material handling equipments falling under sub-heading 8431.00, of the schedule to central excise tariff act, 1985 and were also holding central excise licence. they had filed classification lists claiming exemption from payment of duty under notification no.175/86-c.e., dated 1-3-1986 as amended and were also availing modvat facility on inputs. it was later found that they were processing/manufacturing excisable goods on job work basis from the inputs/raw materials supplied by m/s. elecon on payment of duty at the concessional rate of 10%. thus, they were issued with show cause notices asking them to explain as to why benefit of notification no.175/86 should not be denied to them on the ground that the supplier of the raw material (inputs) namely m/s. elecon engineering co. ltd., anand, being a large scale unit were not eligible to this concession and were paying duty at tariff rate. simultaneously demand notice were also issued to m/s. elecon engineering co. ltd. to recover differential duty for past periods.5. the asstt. collector by his orders granted the benefit of concessional rate of duty under notification no. 175/86 only to those goods, which were manufactured by the appellants on their own account from the raw materials procured by them and cleared independently.however, he denied the benefit in respect of the goods manufactured by the appellants on job work basis out of the raw materials received under rule 57f(2) of central excise rules, 1944 from m/s. elecon engn.co. ltd. thus, the classification lists were approved with this modification and the appellants were directed to pay the differential duty between full rate and concessional rate, on the goods manufactured on job work basis on behalf of m/s. elecon engineering co. ltd. from the raw materials received under rule 57f(2) of the said rules.the id. collector (appeals) upheld the findings of the asstt.collector. he has held that the inputs received under rule 57f(2) of central excise rules, 1944; with the permission of collector of central excise, should be returned to the supplier; in this case m/s. elecon engineering after carrying out the required processing, without payment of duty. the ultimate duty payment would be done by m/s. elecon engineering. he has held that the entire scheme of rule 57f(2) does not contemplate payment of any duty by the job worker/processor on such processed inputs, while returning the same to the assessee. he has held that such processed inputs are required to be returned to the supplier under duplicate challan without payment of duty. the id. collector has observed that a similar benefit has been provided under notification no. 214/86-c.e., dated 25-3-1986, which exempts the specified goods manufactured in a factory on job work basis, out of the raw materials or semi-finished goods received from the manufacturer of the finished articles (final product), provided such processed goods are returned to the factory of supplier of raw material for use in or in relation to the manufacture of final products, which are dutiable. under the notification, the supplier of the raw material is required to furnish an undertaking to the asstt. collector having jurisdiction over the factory of the job worker. the id. collector after examining this notification has held that a manufacturer of final dutiable product has the option of sending the inputs/raw materials or semi-finished goods to a job worker outside his factory and return such processed inputs/raw materials to his factory without payment of duty either under rule 57f(2) or under notification no. 214/86. he has held that these two schemes are independent of each other and a manufacturer is free to choose any one of the two, subject to the fulfilment of the condition, as laid down under board's circular no. 41/89 dt. 28-9-1989 which is applicable to both the schemes. therefore, the id. collector held that the job worker is not required to pay any duty, while returning the inputs/raw materials after processing to the supplier, irrespective of whether the supplier is operating under rule 57f(2) or notification no. 214/86. thus he rejected all the appeals of the job workers and confirmed the order passed by the asstt. collector, hence these appeals.6. we have heard shri p.m. dave, id. advocate, for the appellants and shri k.k. dutta, id. jdr for the revenue.7. shri dave submitted that the job workers were doing work on principal to principal basis. the raw materials received from m/s.elecon engineering were subjected to process of manufacture and the intermediate product that emerged was dutiable, as it was clearly covered in the tariff entry and the same was required to suffer excise duty. it is his plea that rule 57f(2) did not lay down any provision for non-payment of duty by the job-worker by availing the concessional rate of duty. rule 57f(2) also did not grant any exemption for the goods manufactured by the job worker. although notification no. 214/86 did provide for availing the benefit of exemption yet in these cases the job workers had not availed the said benefit. it is his plea that the choice of so availing the benefit under notification no. 214/86 or paying duty at the stage of clearing the intermediate goods to the supplier of raw material, was left to the choice of the job worker. he pointed out from the rule 57f(2) mat the rule merely regulated the removal of raw materials from the supplier's factory without payment of duty after receiving necessary permission from the collector of central excise and to receive back the same after getting the various processes. but if the processes resulted in completion of a fully finished marketable goods, which were covered in a tariff entry, then the job worker was found to pay duty as per law and such payment was also subject to the availing of the concessional ssi benefit if available to the unit under notification no. 175/86-c.e., dated 1-3-1986 as amended. the supplier was also entitled to avail modvat credit on the duty paid by the job worker. in so doing there is no revenue loss or gain and hence the procedure adopted by both m/s.elecon engn. co. and the job workers was fully justified in law. the id. advocate further submitted that this issue is fully covered by the ruling of the srb as rendered in the case of facit asia ltd. v.collector of central excise as reported in 1991 (54) e.l.t. 347. the id. advocate further pointed out that the demands confirmed on m/s.elecon engn. co. ltd. has been set aside by gujarat high court in special civil application no. 7222/1991 by their judgment dt.29-10-1991 and that they have approved the findings given by the tribunal in the case of facit asia ltd. id. advocate also referred to rules 13 and 56b to support his arguments inasmuch as to say that in these rules, it has been made obvious that goods removed should be brought back "without payment" of duties. as rule 57f(2) was independent rule, there was no mention of bringing back the goods "without payment" of duty.8. shri k.k. dutta, id. jdr reiterated the findings of the lower authorities.9. we have carefully considered the pleas made by both the sides and have perused the findings of the lower authorities and the citations referred before us. we fully agree with the arguments of the id.advocate. rule 57f(2) does stipulate in sub-rule (2)(a) & (b) about removal of inputs for partial processing during the course of manufacture of final products out of the factory. these sub-rules clearly stipulate that the same could be returned or remove the same "without payment of duty under bond for export" with a further exception in sub-rule (2) (a) & (b) which states in (a) "provided that the waste, if any, arising in the course of such operation is also returned to the factory", in (b) "provided that the waste, if any, arising in the course of manufacture of such intermediate products is also returned to the said factory". "provided that the said waste need not be returned to the said factory if the appropriate duty of excise leviable thereon has been paid" sub-rule (3) of rule 57f(2) also provides for utilising the credit of specified duty allowed in respect of any inputs, towards payment of excise duty.shri dave pointing out to sub-rule (2)(a) & (b) argued that the reference to removal and return of goods "without payment of duty" was in cases where removal is done under bond for export. he also argued that these provisos did not apply to the present case, as the same was not removed under bond for export. he submitted that in any case the proviso to (a) & (b) of sub-rule (2) also specified that even waste need not be returned to factory if appropriate duty had been paid thereon. we also find force in this submission. we clearly notice 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. therefore, the job-workers in these cases, admittedly are independent manufacturers and they are utilising the benefit of ssi exemption under notification no. 175/86-c.e., dated 1-3-1986 as amended. they are, therefore, entitled to enjoy the concessional benefit of the said notification. as rightly held by the gujarat high court in special civil application no. 7222/91, they cannot be compelled to utilise the benefit under notification no.214/86. the finding of the gujarat high court is noted below : "with the consent of the id. advocates, this petition is finally heard today. though various points have been taken in the petition, the id. advocate for the petitioners has for the present put forward only one contention. he submitted that the southern bench of the cegat has, in the case of tacit asia ltd. v. collector of central excise, 1991 (54) e.l.t. 347 (tribunal), taken the view that the job worker cannot be forced to avail of the benefit of notification no. 214/86 and the choice is with him in regard to availment of the benefit of the notification and in view of this decision, the cegat, in all fairness, ought to have granted stay without imposing a condition to deposit rs. 20 lacs in cash and furnishing bank guarantee for another rs. 10 lacs. mr. raval, id. sr. counsel has objected to the entertainment of this petition by this court and submitted that the petitioner should be directed either to approach the supreme court or to apply to the tribunal to make a reference to the high court. he also objected to the quashing of the condition imposed by the tribunal. in our view, the objection raised by mr. raval deserves to be over-rule and the contention raised on behalf of the petitioners deserves to be accepted because today the decision of the cegat is in their favour. if that decision is not upset, then the petitioners' appeal may have to be allowed, depending upon other facts of the case. therefore, this petition deserves to be allowed to that extent only. accordingly, rule is made absolute and that part of the order whereby the tribunal has imposed a condition of depositing rs. 20 lacs in cash and furnishing bank guarantee for another rs. 10 lacs, is quashed and set aside, with the result that the tribunal will have to hear the appeal filed by the petitioners." the finding given by the tribunal in facit asia ltd. at paras 4 & 5 [1991 (54) e.l.t. 347 (tribunal)] is noted below : * * * * * * respectfully following the ratio of the above ruling, these appeals are also allowed.

Judgment:
1. In all these appeals, a common issue arises for determination and hence they are all taken up together for disposal as per law.

2. The Collector (Appeals) has disposed all the appeals of the, appellants by a common order in appeal No. 617 to 637/91 & 647/91 (172 to 193-AHD)CE/AHD/COLLR(A). ...

3. Out of the appeals disposed of by the Collector (Appeals), only the above appellant's appeals are taken for disposal.

4. The appellants are engaged in the manufacture of parts and components of Material Handling Equipments falling under sub-heading 8431.00, of the Schedule to Central Excise Tariff Act, 1985 and were also holding Central Excise Licence. They had filed classification lists claiming exemption from payment of duty under Notification No.175/86-C.E., dated 1-3-1986 as amended and were also availing Modvat facility on inputs. It was later found that they were processing/manufacturing excisable goods on job work basis from the inputs/raw materials supplied by M/s. Elecon on payment of duty at the concessional rate of 10%. Thus, they were issued with show cause notices asking them to explain as to why benefit of Notification No.175/86 should not be denied to them on the ground that the supplier of the raw material (inputs) namely M/s. Elecon Engineering Co. Ltd., Anand, being a large scale unit were not eligible to this concession and were paying duty at tariff rate. Simultaneously demand notice were also issued to M/s. Elecon Engineering Co. Ltd. to recover differential duty for past periods.

5. The Asstt. Collector by his orders granted the benefit of concessional rate of duty under Notification No. 175/86 only to those goods, which were manufactured by the appellants on their own account from the raw materials procured by them and cleared independently.

However, he denied the benefit in respect of the goods manufactured by the appellants on job work basis out of the raw materials received under Rule 57F(2) of Central Excise Rules, 1944 from M/s. Elecon Engn.

Co. Ltd. Thus, the classification lists were approved with this modification and the appellants were directed to pay the differential duty between full rate and concessional rate, on the goods manufactured on job work basis on behalf of M/s. Elecon Engineering Co. Ltd. from the raw materials received under Rule 57F(2) of the said rules.

The Id. Collector (Appeals) upheld the findings of the Asstt.

Collector. He has held that the inputs received under Rule 57F(2) of Central Excise Rules, 1944; with the permission of Collector of Central Excise, should be returned to the supplier; in this case M/s. Elecon Engineering after carrying out the required processing, without payment of duty. The ultimate duty payment would be done by M/s. Elecon Engineering. He has held that the entire scheme of Rule 57F(2) does not contemplate payment of any duty by the job worker/processor on such processed inputs, while returning the same to the assessee. He has held that such processed inputs are required to be returned to the supplier under duplicate challan without payment of duty. The Id. Collector has observed that a similar benefit has been provided under Notification No. 214/86-C.E., dated 25-3-1986, which exempts the specified goods manufactured in a factory on job work basis, out of the raw materials or semi-finished goods received from the manufacturer of the finished articles (final product), provided such processed goods are returned to the factory of supplier of raw material for use in or in relation to the manufacture of final products, which are dutiable. Under the notification, the supplier of the raw material is required to furnish an undertaking to the Asstt. Collector having jurisdiction over the factory of the job worker. The Id. Collector after examining this notification has held that a manufacturer of final dutiable product has the option of sending the inputs/raw materials or semi-finished goods to a job worker outside his factory and return such processed inputs/raw materials to his factory without payment of duty either under Rule 57F(2) or under Notification No. 214/86. He has held that these two schemes are independent of each other and a manufacturer is free to choose any one of the two, subject to the fulfilment of the condition, as laid down under Board's Circular No. 41/89 dt. 28-9-1989 which is applicable to both the schemes. Therefore, the Id. Collector held that the job worker is not required to pay any duty, while returning the inputs/raw materials after processing to the supplier, irrespective of whether the supplier is operating under Rule 57F(2) or Notification No. 214/86. Thus he rejected all the appeals of the job workers and confirmed the order passed by the Asstt. Collector, hence these appeals.

6. We have heard Shri P.M. Dave, Id. Advocate, for the appellants and Shri K.K. Dutta, Id. JDR for the Revenue.

7. Shri Dave submitted that the job workers were doing work on principal to principal basis. The raw materials received from M/s.

Elecon Engineering were subjected to process of manufacture and the intermediate product that emerged was dutiable, as it was clearly covered in the tariff entry and the same was required to suffer excise duty. It is his plea that Rule 57F(2) did not lay down any provision for non-payment of duty by the job-worker by availing the concessional rate of duty. Rule 57F(2) also did not grant any exemption for the goods manufactured by the job worker. Although Notification No. 214/86 did provide for availing the benefit of exemption yet in these cases the job workers had not availed the said benefit. It is his plea that the choice of so availing the benefit under Notification No. 214/86 or paying duty at the stage of clearing the intermediate goods to the supplier of raw material, was left to the choice of the job worker. He pointed out from the Rule 57F(2) mat the rule merely regulated the removal of raw materials from the supplier's factory without payment of duty after receiving necessary permission from the Collector of Central Excise and to receive back the same after getting the various processes. But if the processes resulted in completion of a fully finished marketable goods, which were covered in a tariff entry, then the job worker was found to pay duty as per law and such payment was also subject to the availing of the concessional SSI benefit if available to the unit under Notification No. 175/86-C.E., dated 1-3-1986 as amended. The supplier was also entitled to avail Modvat credit on the duty paid by the job worker. In so doing there is no revenue loss or gain and hence the procedure adopted by both M/s.

Elecon Engn. Co. and the job workers was fully justified in law. The Id. Advocate further submitted that this issue is fully covered by the ruling of the SRB as rendered in the case of Facit Asia Ltd. v.Collector of Central Excise as reported in 1991 (54) E.L.T. 347. The Id. Advocate further pointed out that the demands confirmed on M/s.

Elecon Engn. Co. Ltd. has been set aside by Gujarat High Court in Special Civil Application No. 7222/1991 by their judgment dt.

29-10-1991 and that they have approved the findings given by the Tribunal in the case of Facit Asia Ltd. Id. Advocate also referred to Rules 13 and 56B to support his arguments inasmuch as to say that in these rules, it has been made obvious that goods removed should be brought back "without payment" of duties. As Rule 57F(2) was independent rule, there was no mention of bringing back the goods "without payment" of duty.

8. Shri K.K. Dutta, Id. JDR reiterated the findings of the lower authorities.

9. We have carefully considered the pleas made by both the sides and have perused the findings of the lower authorities and the citations referred before us. We fully agree with the arguments of the Id.

Advocate. Rule 57F(2) does stipulate in Sub-rule (2)(a) & (b) about removal of inputs for partial processing during the course of manufacture of final products out of the factory. These Sub-rules clearly stipulate that the same could be returned or remove the same "without payment of duty under bond for export" with a further exception in Sub-rule (2) (a) & (b) which states in (a) "provided that the waste, if any, arising in the course of such operation is also returned to the factory", in (b) "provided that the waste, if any, arising in the course of manufacture of such intermediate products is also returned to the said factory".

"provided that the said waste need not be returned to the said factory if the appropriate duty of excise leviable thereon has been paid" Sub-rule (3) of Rule 57F(2) also provides for utilising the credit of specified duty allowed in respect of any inputs, towards payment of excise duty.

Shri Dave pointing out to Sub-rule (2)(a) & (b) argued that the reference to removal and return of goods "without payment of duty" was in cases where removal is done under bond for export. He also argued that these provisos did not apply to the present case, as the same was not removed under bond for export. He submitted that in any case the proviso to (a) & (b) of Sub-rule (2) also specified that even waste need not be returned to factory if appropriate duty had been paid thereon. We also find force in this submission. We clearly notice 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. Therefore, the job-workers in these cases, admittedly are independent manufacturers and they are utilising the benefit of SSI exemption under Notification No. 175/86-C.E., dated 1-3-1986 as amended. They are, therefore, entitled to enjoy the concessional benefit of the said notification. As rightly held by the Gujarat High Court in Special Civil Application No. 7222/91, they cannot be compelled to utilise the benefit under Notification No.214/86. The finding of the Gujarat High Court is noted below : "With the consent of the Id. Advocates, this petition is finally heard today.

Though various points have been taken in the petition, the Id.

Advocate for the petitioners has for the present put forward only one contention. He submitted that the Southern Bench of the CEGAT has, in the case of Tacit Asia Ltd. v. Collector of Central Excise, 1991 (54) E.L.T. 347 (Tribunal), taken the view that the job worker cannot be forced to avail of the benefit of Notification No. 214/86 and the choice is with him in regard to availment of the benefit of the Notification and in view of this decision, the CEGAT, in all fairness, ought to have granted stay without imposing a condition to deposit Rs. 20 lacs in cash and furnishing Bank Guarantee for another Rs. 10 lacs.

Mr. Raval, Id. Sr. Counsel has objected to the entertainment of this petition by this Court and submitted that the petitioner should be directed either to approach the Supreme Court or to apply to the Tribunal to make a Reference to the High Court. He also objected to the quashing of the condition imposed by the Tribunal.

In our view, the objection raised by Mr. Raval deserves to be over-rule and the contention raised on behalf of the petitioners deserves to be accepted because today the decision of the CEGAT is in their favour. If that decision is not upset, then the petitioners' appeal may have to be allowed, depending upon other facts of the case. Therefore, this petition deserves to be allowed to that extent only.

Accordingly, Rule is made absolute and that part of the order whereby the Tribunal has imposed a condition of depositing Rs. 20 lacs in cash and furnishing Bank Guarantee for another Rs. 10 lacs, is quashed and set aside, with the result that the Tribunal will have to hear the Appeal filed by the petitioners." The finding given by the Tribunal in Facit Asia Ltd. at paras 4 & 5 [1991 (54) E.L.T. 347 (Tribunal)] is noted below : * * * * * * Respectfully following the ratio of the above ruling, these appeals are also allowed.