By TIOL News Service

NEW DELHI, MAR 01, 2019: THE Appellants are traders who get cotton fabrics and made-ups [Ch. 52 and 53] manufactured through job workers.

Rule 12B was inserted in CER, 2002 by notification 24/2003-CE(NT) dated 25.03.3003 to deal with "Job work in textiles and textile articles".

Thereafter, on 30.04.2003, exemption Notification 35/2003-CE was issued wherein exemption was granted for clearances upto Rs.20 lakhs in respect of processes falling under Chapters 51, 52, 54, 55, 58 or 60.

By further Notification No. 47/2003-CE dated 17.05.2003 the earlier notification dated 30.04.2003 was amended enhancing the clearance values.

Since there were doubts regarding extent of applicability of the aforesaid Exemption Notification(s), a clarification was issued by Circular 759/75/2003-CX dated 30.10.2003.

During the period from April 2003 to January 2004 the Appellants had cleared cotton fabrics to the tune of Rs.1,70,12,745/- and cotton made-ups to the tune of Rs.7,82,635/- without paying any duty as according to them the liability was only on the job workers who were the actual manufacturers and that there was no liability on the trader.

Two SCNs were issued on 07.07.2004 and 14.01.2005 by the Department demanding duty of Rs.12,28,801/- (BED) and Rs.3,07,201/- (AED) vide the first notice and Rs.1,94,828/- (BED) and Rs.48,707/- vide the second notice.

The Appellants submitted before the Adjudicating Authority that the job workers were the manufacturers and that no liability could be fixed on the traders and this submission was accepted by the Joint Commissioner. It was held that in a situation where raw materials were supplied by a unit to the job worker, the duty liability would be on the job worker.

Revenue appeal against this order was successful as the Commissioner(A) by his Order dated 31.01.2008 held the Appellants liable to duty. A penalty of Rs.10,000/- was also imposed. The Commissioner (A) relied on the Board Circular dated 30.10.2003, clause A(e) and illustration under clause A(f), in particular.

The Tribunal upheld this order and dismissed the Appeal (filed by the trader) on 06.02.2018.

A Rectification Application also came to be dismissed by the Tribunal on 15.06.2018.

The appellants have, therefore, filed Civil Appeals before the Supreme Court.

It was submitted that in terms of the Circular dated 30.10.2003, the duty could not be demanded if the value of clearance of job workers was less than Rs.25 lakhs individually and the Revenue could raise demand only in respect of the clearance value of that job worker, where the value was in excess of Rs.25 lakhs.

The Revenue argued that in terms of said Circular, if the clearance value of even one job worker were to be in excess of Rs.25 lakhs, the dealer would be liable in respect of the clearances of all the job workers and aggregate value thereof.

The Supreme Court considered the submissions and while upholding the order of the CESTAT inter alia observed -

+ The question that arises is whether the Appellants' liability is only in respect of the clearance of that job worker whose clearance was greater than the limit of Rs.25 lakhs or in respect of the entire aggregate value of clearances.

+ According to Rule 12B 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 said 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". 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.

+ In our considered view, the language of the exemption Notification as amended, is quite clear.

Adverting to the Board Circular 759/75/2003-CX dated 30.10.2003, the apex Court noted -

++ This Circular (dated 30.10.2003) gives three illustrations. According to the First illustration, even though the clearances of the job worker qua each of three traders was Rs.20 lakhs since the aggregate value of clearance was Rs.60 lakhs, he would not be eligible to claim any benefit and must pay due in respect of entire clearance. According to the second illustration so long as the clearances of the job worker were within the aggregate limit, no liability would get fixed but the moment clearances went beyond the limit, the illustration makes it clear that the entire clearances of the job worker would become dutiable. The third illustration, however, strikes a slightly different note and says that if a trader got grey fabrics manufactured by three job workers and the clearance value of each of those job workers was below Rs.25 lakhs, the trader had no obligation and would be out of the scope of the provisions of Rule 12B.

++ We find it difficult to accept how the emphasis in the Exemption Notification on the aggregate value could be diluted and the trader would not be liable on the aggregate value in the third illustration. 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 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 Rule 12B, 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. [Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum and others (1978) 3 SCC 383 &  East End Dwelling Co. Ltd. vs. Finsbury Borough Council (1952) AC 109, 132 = (1951) 2 ALL ER 587  refers]

++ Be that as it may, 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.

++ 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.

Concluding that the assessment made by the Appellate Authority and the Tribunal was correct, the Tribunal order was upheld and the appeals were dismissed.

(See 2019-TIOL-89-SC-CX)