Rule 12B of Excise Rules 2002–Aggregate of all clearances exceeding the limit prescribed in the exemption notification was liable to duty – Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2805 (2019) (02) SC
Important Case Laws Cited/relied upon by the parties
Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum and other (1978) 3 SCC 383
East End Dwelling Co. Ltd. vs. Finsbury Borough Council (1952) AC 109, 132 (1951) 2 ALL ER 587
In appeals involved under the instant case were filed under Section 35L of the Central Excise Act, 1944 (the Excise Act) questioning the correctness of the Order passed by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal) rejecting the application of the Revenue seeking rectification of mistake.
The appellant(s) were traders who used to get cotton fabrics and made-ups mentioned in Chapters 52 and 53 of the Central Excise Tariff Act, 1985 (the Tariff Act) manufactured through job workers.
In the year 2003, Rule 12B was inserted in Central Excise Rules, 2002 to deal with “Job work in textiles and textile articles”. The Rule provided that persons getting yarns or fabrics, readymade garments or made up textile articles produced or manufactured either on his own account or on job work, shall obtain registration, maintain accounts, pay duty leviable on such goods and comply with all the relevant provisions of these rules.
Soon thereafter Exemption Notification was issued by the Government of India wherein exemption was granted for clearances upto Rs. 20 lakhs. The said notification was further amended by enhancing the threshold.
Central Board of Excise & Customs issued a circular clarifying the extent of applicability of the Exemption Notifications.
The Appellants had cleared cotton fabrics 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. The Department issued two show cause notices demanding duty from them.
Before the Adjudicating Authority, the Appellants submitted that the job workers were the manufacturers and that no liability could be fixed on the traders. The submission was accepted by the Joint Commissioner of Central Excise. He 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.
However, the Appellate Authority, relying on the CBEC Circular held the Appellants were liable to the duty. The Tribunal also dismissed the appeal of the appellants as no infirmity was found in the order of the Appellate Authority. A Rectification Application was thereafter filed by the Appellants which was also dismissed by the Tribunal.
Hence, the appellants had filed the instant appeal before the Hon’ble Supreme Court.
The Appellants submitted that in terms of the Circular, 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 on the other hand submitted 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 Hon’ble Supreme Court observed that the Appellants had supplied raw material to more than 70 job workers and the total clearances were more than Rs. 1.45 crore. Only one out of said job workers had crossed the limit of Rs. 25 lakhs while the individual clearances of rest of the job workers were less than Rs. 25 lakhs.
The Hon’ble Supreme Court opined that the question that arose was whether the Appellants’ liability was 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?
The Hon’ble Supreme Court noted that in the Exemption Notification the emphasis was on the aggregate value and what was exempted was upto an aggregate value.
The Hon’ble Supreme Court also observed that the CBEC Circular have three illustrations. According to the First illustration, even though the clearances of the job worker qua each of three traders was below the limit but since the aggregate value of clearance was above the threshold, 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 made it clear that the entire clearances of the job worker would become dutiable. The third illustration however striked a slightly different note and said that if a trader got grey fabrics manufactured by three job workers and the clearance value of each of those job workers was below limit, the trader had no obligation and would be out of the scope of the provisions of Rule 12B.
The Hon’ble Supreme Court expressed disagreement with the third illustration that trader would not be liable on the aggregate value.
The Hon’ble Supreme Court opined that Rule 12B introduced 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 Hon’ble Supreme Court pointed out that it is well settled that if a legal fiction is introduced that legal fiction must be taken to the logical end. The Exemption Notification did not put the matter at individual clearances of job workers and what was to be considered was an aggregate value of the clearances.
The Hon’ble Supreme Court opined that the second illustration in the Circular was more appropriate. According to which the moment the clearances go beyond the limit, the liability gets fastened in respect of the aggregate value of clearances.
The Hon’ble Supreme Court pointed out that if the contention of the Appellant was 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 was less than the limit prescribed for individual clearances. In such a case the emphasis in the Rule regarding aggregate clearances would be rendered meaningless.
Accordingly, the Apex Court held that the order of the Appellate Authority and the Tribunal was correct. Consequently, it was not the individual clearance of one single job worker alone exceeding the aggregate limit but the aggregate of all clearances made by the Appellant, was liable to duty.