Whether job worker can be considered as a manufacturer?

PJ/CASE LAW/2014-15/2466

Case:- ACER ENGINEERS PVT. LTD. Versus COMMR. OF C. EX., CUS. & S.T., HYDERABAD-I

Citation:-2014 (309) E.L.T. 257 (Tri. - Bang.)

Brief facts:- The appellant is a manufacturer of mineral water with brand name BIBO'. They also get the goods manufactured from 5 manufacturers who were located in rural areas. Only one of the job-workers is registered and the rest of the manufacturers/job-workers are not registered. The job-workers manufactured the mineral water with the brand name of the appellants and send the finished goods to the godowns of the appellant and sometimes directly to the customers of the appellants. The appellants also provide the performs/ plastic, bottles, caps etc. for filling the water manufactured as job work and the packaged drink with the brand name ‘BIBO' was sold by the appellant. Since the job-workers are located in rural areas, they are not required to discharge duty liability on branded goods but are allowed to include the value of such clearances for calculating the exemption limits. As a result none of them is paying duty.
Entertaining a view that the appellant is the manufacturer since the bottles and all other materials required for manufacture of mineral water are provided by the appellant, the appellant has to be considered as the manufacturer, proceedings were initiated which has culminated in confirmation of duty demand of Rs. 1,87,57,256/- with interest during the period from 2007-08 to 2011-12. Penalty equal to the duty has also been imposed.

Appellant’s contention:-The learned counsel on behalf of the appellants submitted that it is not at all correct to say that the appellant is a manufacturer just because he has supplied the plastic bottles/preforms/caps etc. to the job-workers. The transaction between the appellants and the job-workers is on principal to principal basis and job-workers have arrived at the value of the goods manufactured by them in accordance with law. The appellant has not filed any declaration undertaking to pay duty on the goods manufactured by job-workers. He submits that ownership of the goods or the ownership of the raw-material is not the criteria for discharging taxability or dutiability of the goods manufactured. He submits that the duty demand cannot be sustained at all.

Respondent’s contention:- Learned AR draws our attention to paragraph 20.1 wherein according to him most important part of the finding is available. The same is reproduced below for better appreciation.
“In the instant case, it has been categorically brought out supra that the notice got the impugned goods manufactured as a principal manufacturer, the job workers are not even free to market the goods so manufactured and as such the job-workers are not independent entities. The notice sends empty water bottles/pet preforms, caps, cartons and labels to the franchisee job-worker and they are required to fill the empty bottles with packaged drinking water and seal it, label it and deliver the filled bottles to the company for its marketing. In turn, the noticee were to pay the job-workers only the processing fee at the specified rate(s). In these circumstances, the liability of payment of duty does not get transferred to the job-workers for the mere reason that no undertaking is given by the noticee in terms of Notification No. 214/86-CE dated 25-3-1986.”

Reasoning of judgment:- The Hon’ble Tribunal are unable to appreciate the observations of the learned Commissioner that the appellant has to be considered as a principal manufacturer just because the job-workers are not free to market the goods manufactured by them. They are also unable to agree with the conclusion that because they are not free to market the goods they are not independent entities. In this case, what is being manufactured is packaged mineral water and it is nobody's case that mineral water is manufactured out of raw-material supplied by the appellant. The major input for manufacture of drinking water is not supplied by the appellant. Further even if the job-workers are manufacturing the goods, legally only for the purpose of valuation, the question as to whether a person is a job-worker or not comes into consideration. In such a case, only for valuation purpose, the prices at which the goods are cleared by the principal manufacturer are taken into account. They are not aware of any precedent decision nor was any decision placed before them to support the view that if bottles are supplied or raw-materials are supplied and if the job-worker is not free to market the goods manufactured by him, the principal manufacturer or the supplier of raw-material has to be considered as the manufacturer. To decide as to who is the manufacturer, the question that has to be answered is who converted the raw-material/input into a new product with a distinct name, character and use. In this case undoubtedly it is the job-worker.
Therefore prima facie they find that the appellant has made out a case for complete waiver. Accordingly the requirement of pre-deposit of balance dues is waived and stay against recovery is granted for a period of 180 days from the date of this order.

Decision:- Application allowed.

Comment:- The analogy of the case is that the appellant is supplier of raw material not manufacturer. Appellant supplies raw material plastic bottles/preforms/caps etc. to job worker and job worker convert it into finished goods. Major input for manufacture of drinking water not supplied by appellant. Job worker converting raw material/input into a new product with distinct name, character and use, hence, job worker is manufacturer.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2466

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