In Excise Cross Application No. 50947 of 2019- CESTAT - Job Worker liable for Excise Duty, not Principal Manufacturer in Principal-to-Principal transactions: CESTAT (Delhi)
Members Anil Choudhary (Judicial) & Hemambika R. Priya (Technical) [18-05-2023]

Read Order: Commissioner of Central Goods and Service Tax, v. Sonex Marmo Grani Pvt Ltd

Chahat Varma

New Delhi, May 20, 2023: The Principal bench of the Customs, Excise and Service Tax Appellate Tribunal has held that when the transaction between a job worker and a principal manufacturer is on a principal-to-principal basis, the duty should be demanded from the job worker and not from the principal manufacturer.

Brief facts of the case were that M/s Sonex Marbles Pvt. Ltd. (assessee) were engaged in sawing marble blocks on a job work basis for various parties. Marble blocks were directly sent to the assessees by raw material suppliers. Subsequently, a Show Cause Notice was issued to the assessees, demanding Central Excise duty for the period from 2012 to 2015-16.

The assessee argued that they did not have the necessary capacity and machinery for polishing and other processes in their unit. They contended that they only performed the job work of sawing rough green marble blocks into slabs. The lower court made an error in calculating the duty based on the sale price of the finished marble slabs, which included additional processes such as polishing, edging, repairing, netting, grading, packing, trimming, buffing, coloring, etc. Since the assessee was a job worker operating below the exemption limit, they were not required to pay duty on the job work goods. The liability to pay duty lies with the principal manufacturers who are obligated to comply with the Notification. Therefore, the duty should be borne by the principal manufacturers, not the job worker.

The Commissioner (Appeals) ruled in favor of the assessees based on the findings that the assessees returned all the goods to the principal manufacturer after completing the job work, and it was the principal manufacturer who further processed the goods before sale. If the principal manufacturers did not adhere to the prescribed procedure under Notification No. 83/94-CE, the duty liability fell on them and not on the assesses.

The Tribunal observed that the process carried out by the assessee, which involved sawing marble blocks into marble slabs, constituted manufacturing. The marble slabs, classified under chapter heading 2515, were considered to be a new article that was marketable. Consequently, they were deemed eligible for the imposition of excise duty.

The Tribunal held that as per law, the excise duty was on manufacturing and therefore the duty liability arose only when the goods were manufactured during the job work.

The Tribunal referred to the Supreme Court's ruling in the case of Kartar Rolling Mills v. Commissioner of Central Excise, New Delhi [LQ/SC/2006/214], wherein the Supreme Court held that unless the principal manufacturer provides an undertaking to discharge the duty liability, the job worker was liable to pay duty on the clearances made from their premises.

“It is not in doubt that the marble slabs/tiles were manufactured by the job worker and the duty liability as per excise laws is only on the manufacturer. The duty liability can be shifted to the supplier of raw materials or semi-finished goods only if the supplier gives an undertaking in terms of the notification. We cannot accept the learned counsel’s argument that this is a procedural lapse. We are of the opinion that this is a substantial condition which cannot be taken as a procedural condition, as it shifts the duty liability from the job worker to the supplier of raw materials or semi-finished goods. Until and unless this condition of giving undertaking is fulfilled, the duty cannot be fastened on the supplier of raw materials or semi-finished goods, as they were not the manufacturers of marble slabs/tiles,” said the Tribunal.

Allowing the appeals filed by Revenue by way of remand to the original Adjudicating Authority, the Tribunal directed to calculate the quantum of marble slabs cleared on job work basis as per the formula prescribed in the tariff, to calculate the duty on the job work by taking value of job work goods (including cost of marble blocks) and to recalculate the SSI exemption from the turnover after taking into account the exempt and export turnover.