Whether job workers fabricating electrodes out of the raw materials supplied to them at appellant’s premises liable to discharge excise duty?

PJ/CASE LAW/2015-16/2606

Case:- HINDUSTAN ZINC LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II

Citation:- 2015 (315) E.L.T. 86 (Tri. - Del.)

Brief facts:- Appeal No. E/75/2006-EX(DB) is against the Order-in-Original dated 29-9-2005 passed by the Commissioner in respect of 20 show cause notices by which he has confirmed duty demands totalling of Rs. 2,66,03,536/- against the appellant for the period from 1-5-1988 to 28-2-1995 and besides this, has imposed penalty of Rs. 25 lakhs under Rule 173Q(1) of the Central Excise Rules, 1944. Appeal No. E/94/2006-EX is against the Order-in-Original, dated 29-9-1995 passed by the Commissioner in respect of show cause notice, dated 6-8-1988 by which he has confirmed the duty demand of Rs. 33,30,432/- against the appellant for the period 1-3-1986 to 30-4-1988. Appeal No. E/2648 and 2649/2007-EX are against the order-in-appeal No. 448-449(HKJ) C.E./JPR-II, dated 16-7-2007 passed by the Commissioner of Central Excise (Appeals) by which he has upheld the duty demands of Rs. 6,89,868/- for the period from 1-7-1990 to 30-11-1990 and duty demand of Rs. 9,24,630/- for the period from March, 1993 to June, 1993 and May, 1994 with penalty of Rs. 2 lakh on the appellant. The facts leading to filing of these appeals are, in brief, as under :-
The appellant are manufacturers of zinc, lead and other non-ferrous metals manufactured by electrolysis process by using the Aluminium Cathodes and lead Anodes. The Aluminium Cathodes and Lead Anodes are made out of the Aluminium sheets and lead sheets respectively. These Cathodes and Anodes were got fabricated by the appellant through job workers in their own units out of the raw materials supplied by them. The job workers brought their own machinery, tools and appliances and fabricated the electrodes on job work basis in the premises of the appellant. There is no dispute that these Cathodes and Anodes were used within the factory for manufacture of appellant’s final products. Initially, show cause notices were issued for the period from July, 1990 to November, 1990 for demand of duty on the Electrodes and the same were adjudicated by Asstt. Commissioner vide order, dated 6-7-1992 by which the duty demands were confirmed. This order of the Asstt. Commissioner was upheld by the Commissioner (Appeals) vide order-in-appeal, dated 23-11-1992. However, on appeal being filed to the Tribunal, the Tribunal vide Final Order No. 838/99, dated 20-8-1999 [2000 (115)E.L.T.823 (Tri.-Del.)] decided the matter in favour of the appellant. The Revenue filed an appeal before the Apex Court against the Tribunal’s order and the Apex Court vide judgment, dated 24-3-2004 [2004 (166)E.L.T.145 (S.C.)] held that -
(a) The activity of the conversion of lead and aluminium sheets into electrodes amounts to manufacture; and
(b) The electrodes so manufactured are marketable and same would be liable to duty;
However, the Apex Court remanded the matter to the Tribunal to decide the question as to who is the manufacturer.
The Tribunal vide Final Order No. 17-18/05-B, dated 17-12-2004 remanded the matter to the original adjudicating authority for deciding the above question. The original adjudicating authority vide Order-in-Original, dated 29-9-2005 confirmed the duty demands of Rs. 2,66,03,536/- for the period from 1-5-1988 to 28-2-1995 and imposed penalty of Rs. 25,000,00/- under Rule 173Q(1) of the Central Excise Rules, 1944. By another order, dated 29-9-2005, the Commissioner confirmed the duty demand of Rs. 33,30,432/- for the period from 1-3-1986 to 30-4-1988. The Adjudicating Authority in these orders held that it is the appellant, who has to be treated as manufacturer and would be liable to pay duty and not their job workers. The adjudicating authority also held that the benefit of Notification No. 217/86-C.E., is not admissible. Against these orders of the Commissioner Appeal No. E/75 & 94/2006-EX have been filed.
Similar dispute for the period from July, 1990 to Nov., 1990, March, 1993 to June, 1993 and May, 1994 were decided by the Asstt. Commissioner against the appellant by the separate Order-in-Original by which total duty demands of Rs. 16,14,498/- were confirmed against the appellant and besides this, penalty of Rs. 2 lakh was also imposed. On appeals being filed to the Commissioner (Appeals) against the Orders-in-Original, dated 15-12-2006 and 29-9-2006, the Commissioner (Appeals) by a common order-in-appeal dated 28-6-2007 upheld the Asstt. Commissioner’s order. Against this order of the Commissioner (Appeals), Appeal No. E/2648 and 2649/2007 have been filed.
The issue to be decided in the appeals is as to whether in respect of the Aluminium and lead electrodes fabricated by the job workers out of the raw materials supplied by the appellant, it is the appellant who are to be treated as manufacturer and hence, liable to pay duty and or it is the job workers, who are to be treated as manufacturer and, therefore, liable to pay duty.

Appellant’s contention:-Shri B.L. Narsimhan, Advocate, ld. Counsel for the appellant, pleaded that the appellant’s contracts with their job workers were on principal to principal basis, that the job workers had brought their own machinery and equipments and had employed their own labourers, that just because the job workers had fabricated electrodes out of the raw materials supplied by the appellant and as per designs given by the appellant and under their supervision, the job workers cannot be treated as hired labour of the appellant, that the findings of the Commissioner and the Commissioner (Appeals) that the job workers engaged by the appellant were hired labourers is incorrect, that identical contracts had been entered into by the appellant’s unit at Visakhapattanam with some job workers for fabrication of lead and zinc electrodes on job work basis and in respect of those contracts, the Chennai Bench of the Tribunal vide judgement reported in 2005 (188)E.L.T.331 (Tri.-Ch.), after going through the contracts, held that since the job workers employed their own capital goods and their own work force to manufacture the electrodes, just because the job work was done in the premises of the Hindustan Zinc Ltd. out of the raw materials supplied by them, it cannot be inferred that the job workers were hired labourers, that the ratio of this judgement of the Tribunal is squarely applicable to the facts of this case, that in this judgement, the Chennai Bench of the Tribunal, after observing that only the one who merely provides labour and collects his wages for the same would be hired labour, has held that the contract between the Visakhapattanam Unit of the Hindustan Zinc Ltd. and their job workers, clearly spelt out a principal to principal relation, that the ratio of this judgement is squarely application to the facts of this case, and that in view of the above submissions, the impugned order is not correct.

Respondent’s contention:-Shri Shweta Bector, ld. Departmental Representative defended the impugned orders by reiterating the finding of the Commissioner (Appeals).

Reasoning of judgement:- The appellant had got the zinc and lead electrodes fabricated through job workers in their own premises out of the raw materials and design supplied by them. Though the job worker had brought their own machinery and appliances and their own workers, the job had been done in the appellant’s premises and under the appellant’s supervision. It is seen that in terms of the appellant’s contract with their job workers, the job workers were to pay the minimum wages to the skilled and unskilled labourers as per the Government’s orders and were to comply with the Government’s regulations in this regard. In case of injury to any worker in any accident, it is the job workers, who would be liable to pay compensation to the worker and if any compensation is paid by the appellant, the same would be recoverable from the job workers. In terms of the conditions of the contract, the job workers were to ensure the safety of the labour employed by them as provided under the Factories Act. The Commissioner on the basis of the above clauses of the Contract and also the provision in the contract, requiring the job workers to work round the clock, has inferred that the job workers are merely hired labourers of the appellant. In their view, this conclusion of the Commissioner is totally wrong, as from the above clauses of the contract, it cannot be inferred that the job workers were merely hired labourers of the appellant. Moreover, it is not disputed by the department, that in respect of the identical contracts of the appellant’s Visakhapattanam unit with its job workers for identical work, the Chennai Bench of the Tribunal vide judgement reported in 2005 (188)E.L.T.331 has held that the job workers’ role was much more than mere receiving wages for labour involved in manufacture of Lead and Aluminium Electrodes and, therefore, the job workers cannot be said to be mere hired labourers. Applying the ratio of the Chennai Bench judgement to the facts of this case, they hold that it is the job workers who have to be treated as the manufacturers and, therefore, the duty on Aluminium and lead electrodes got manufactured by them on job work basis cannot be demanded from the appellant by treating them as manufacturers. The impugned orders are set aside. The appeals are allowed.

Decision:- Appeals allowed.

Comment:- The analogy of the case is that if a job worker works in the premises of the principal manufacturer and does processing out of raw materials supplied by the principal manufacturer, and if the process undertaken amounts to manufacture of goods with the fact that contract indicates principal to principal relationship of job worker and principal manufacturer, in such a case, it is the job worker who is to be treated as manufacturer and is liable to discharge excise duty. In the present case, the facts indicated that the job worker was liable if there was a case of injury to any worker in any accident which indicated that the job workers are not simply hired labourers. It was concluded that it is the job workers who have to be treated as the manufacturers and, therefore, the duty on Aluminium and lead electrodes got manufactured by them on job work basis cannot be demanded from the appellant by treating them as manufacturers.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2606

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