DINESH TEXTILES versus COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, CALICUT on 28 February 2019

1. These appeals filed under Section 35L of the Central ExciseAct, 1944 (hereinafter referred to as “the Excise Act”) question thecorrectness of the Final Order dated 06.02.2018 passed by the Customs,BExcise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore(hereinafter referred to as “the Tribunal) in Central Excise Appeal No.E/370/2008-DB and Misc. Order No.20697 of 2018 dated 15.06.2018passed by the Tribunal rejecting application seeking rectification ofmistake.

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2. The Appellants are traders who get cotton fabrics and made-ups mentioned in Chapters 52 and 53 of the Central Excise Tariff Act,1985 (the ‘Tariff Act’, for short) manufactured through job workers.

3. On 25.03.2003 Rule 12B was inserted in Central Excise Rules,2002 to deal with “Job work in textiles and textile articles”. The relevantDportion of Rule 12B is as under:

“RULE [1][12B. Job work in textiles and textile articles. –(1) Notwithstanding any thing contained in these rules, every person(not being an export-oriented unit or a unit located in specialeconomic zone) who gets [2][yarns or fabrics falling under ChapterE50, 51, 52, 53, 54, 55, 58 or 60, readymade garments falling underChapter 61 or 62 or made up textile articles falling under Chapter63 of First Schedule to the Tariff Act] produced or manufacturedon his account, on job work (herein after referred to as “the saidperson”) shall obtain registration, maintain accounts, pay dutyleviable on such goods and comply with all the relevant provisionsFof these rules, as if he is an assessee :

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Provided that the job worker may, at his option, agree to obtainregistration, maintain accounts, pay the duty leviable on such goods,prepare the invoice and comply with the other provisions of these G

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1 Inserted by M.F. & C.A. (D.R.) Notification No.24/2003-C.E. (N.T.), dated 25-03-2003

2 Substituted by M.F. & C.A. (D.R.) Notification No.27/2003-C.E. (N.T.),dated 1-4-2003.

rules. In such a case the provisions of these rules shall not applyto the said person. The job worker, may, at his option, authorizethe said person to, on his behalf as his agent, maintain accounts,pay duty, prepare invoice and comply with any of the provisionsof these rule except that of rule 9 :

Provided further that the job worker may make an option toundertake the activities mentioned in this sub-rule as an agent orperson authorized by the said person and in such a case, the saidjob worker shall be deemed to be the said person……….”

4. Soon thereafter Exemption Notification was issued by theGovernment of India on 30.04.2003 wherein exemption was granted forclearances upto Rs.20 lakhs in respect of processes falling under Chapters51, 52, 54, 55, 58 or 60 of the First Schedule to the Tariff Act. Thesubstantive part of the Notification was as under:

“In exercise of the powers conferred by sub-section (1) of section5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goodsof Special Importance) Act, 1957 (58 of 1957), the CentralGovernment, being satisfied that it is necessary in the public interestso to do, hereby exempts first clearances for home consumption,upto an aggregate value not exceeding twenty lakh rupees madeon or after the 1[st] day of April in any financial year, of fabrics, notsubjected to any process falling under Chapter 51, 52, 54, 55, 58or 60 of the First Schedule to the Central Excise Tariff Act, 1985(5 of 1986) (herein after referred to as the specified goods), fromthe whole of the duty of excise specified thereon in the FirstSchedule to the said Central Excise Tariff Act and the FirstSchedule to the said Additional Duties of Excise (Goods of SpecialImportance) Act :

Provided that during the financial year 2003-2004, the exemptioncontained in this notification shall apply to the first clearances forhome consumption of the specified goods, upto an aggregate valuenot exceeding twenty lakh rupees made on or after the 30[th] dayof April 2003.

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2. The exemption contained in this notification shall apply subjectto the following conditions, namely,-

(i) where a manufacturer clears the specified goods from oneor more factories, the exemption in his case shall apply to the saidaggregate value of clearances for home consumption and notseparately for each factory;

(ii) where the specified goods are cleared by one or moremanufacturers from a factory, the exemption shall apply to thesaid aggregate value of clearances for home consumption andnot separately for each manufacturer;

(iii) the aggregate value of clearances for home consumption ofspecified goods, by the said manufacturer from one or morefactories, or from a factory by one or more manufacturers, doesnot exceed twenty five lakh rupees in a financial year :

Provided that in the financial year 2003-2004, the exemptionshall apply only if the aggregate value of clearances of specifiedgoods, by a manufacturer from one or more factories, or from afactory by one or more manufacturers, does not exceed twentyfive lakh rupees during the period beginning from the 30[th] day ofApril, 2003:

Provided further that in any financial year, if the aggregate valueof clearances for home consumption of specified goods exceedstwenty five lakh rupees, or as the case may be, in the financialyear 2003-2004, if the aggregate value of clearances for homeconsumption of specified goods during the period beginning fromthe 30[th] day of April, 2003 exceeds twenty five lakh rupees, thesaid manufacture shall pay the amount of duty as payable, on thesaid first clearances of the specified goods of twenty lakh rupees,but for the exemption contained in this notification, within thirtydays of the day when such clearance exceeds the said twentyfive lakh rupees;

(iv) the manufacturer shall keep all documents relating to purchaseof yarns;”

5. By further Notification No.47/2003-CE dated 17.05.2003 theearlier notification dated 30.04.2003 was amended as under:

DINESH TEXTILES v. COMMR. OF CENTRAL EXCISE,CUSTOMS & SERVICE TAX, CALICUT [UDAY UMESH LALIT, J.]

S .N o tif ic atio n A m e n d m en tsAN o . N o . an d d ate ( 1 )( 2 )(3)1 . 3 4 /2 0 0 3 -I n th e sa id n o tif ica tio n , - C e n tral ( i) fo r th e w o r d s “th irty E x c ise, d ated la k h r u p e es ” w h er ev e r th e 3 0[th]th e y o c cu r , th e w o r d s A p r il, 2 0 0 3 “ fo r ty lak h ru p e es” sh all Bb e su b s titu te d ; ( ii) fo r th e w o rd s “tw en ty f iv e lak h ru p ee s ” w h e rev e r th ey o c cu r , th e w o rd s “ th irty la k h r u p ee s ” s h all b e s u b stitu ted .C2 .3 5 /2 0 0 3 -I n th e said n o tificatio n –C e n tral ( i) fo r th e w o rd s “tw en ty E x c ise, d ated f iv e lak h ru p ee s ” th e 3 0[th]w h e rev e r th ey o c cu r , th e A p ril, 2 0 0 3 w o rd s “th irty fiv e la k h r u p ee s ” s h all b e s u b stitu te d ; D( ii) fo r th e w o rd s “tw en ty la k h r u p e es ” w h er ev e r th e y o c cu r , th e w o r d s “ tw e n ty fiv e la k h r u p ee s ” s h all b e s u b stitu ted . 3 . 3 6 /2 0 0 3 -I n th e sa id n o tif ica tio n , - EC e n tral ( a) in th e o p en in g p ar a g ra p h , E x c ise, d ated a fte r item n u m b er (iv ) , th e th e 3 0[th]f o llo w in g sh a ll b e in ser ted A p r il, 2 0 0 3 n am ely .- “ (v ) ter r y to w els f allin g u n d er C h ap te r 6 3 ; v i) w o o le n b lan k ets , o f y a rn o f Fsh o d d y , f allin g un d e r C h ap ter 6 3 ”; b ) in p ar ag r a p h 2 , fo r th e w o rd s “th ir ty la k h r u p ees ” w h er ev e r th ey o c c u r, th e w o r d s “ th ir ty fiv e la k h r up e e s” sh all b e su b s titu te d .

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6. Since there were doubts regarding extent of applicability of theaforesaid Exemption Notifications, a Clarification was issued by theGovernment of India, Ministry of Finance, Department of Revenue,Central Board of Excise & Customs, New Delhi vide circular dated30.10.2003. The relevant portion of the Circular dated 30.10.2003 statingthree illustrations is as under:

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“(f) the following illustrations are given to explain the above, - · Three traders A, B and C get grey fabrics manufactured fromjob worker ‘X’. The value (raw material cost + job charges) ofthe goods made on job work for each of the trader is Rs.20 lakhs.Since total clearance value of the job worker is Rs.60 lakhs, he isnot eligible to claim any benefit under Notification 35/2003-C.E.Duty is payable on his entire clearance.

· Three traders A, B and C get grey fabrics manufactured fromjob worker ‘X’. In addition, X also clears grey fabrics manufacturedby him as independent weaver. His clearance as independentweaver is Rs.15 lakhs. Thereafter, he undertakes job work for A,B and C in a sequential manner. The value of clearances for A is,say, Rs.5 lakhs, that for B is, 7 lakhs and for C is, Rs.7 lakhs. Forclearances made as independent weaver and on job work for ‘A’,there is no duty as the total clearance till then is below Rs.25lakhs. The first clearances of Rs.5 lakhs for ‘B’ are alsoexempted. Thus, till then, ‘B’ need not follow Rule 12B procedure.However, the balance Rs.2 lakhs clearances for ‘B’ becomedutiable, as the total clearances of ‘X’ have now crossed the limitof Rs.25 lakhs. Thus, now ‘B’ has to take registration and payduty on clearances of Rs.2 lakhs. As for ‘C’ his entire clearancesof Rs.7 lakhs are dutiable and he has to follow Rule 12B procedure for his entire clearances. It may be mentioned that in case theclearances value for ‘C’ increases beyond Rs.8 lakhs, the totalclearance value of ‘X’ exceeds Rs.35 lakhs eligibility limit.Consequently, the entire clearance of ‘X’ would become dutiableand duty demand would arise against all i.e. ‘A’, ‘B’, ‘C’ and ‘X’

on their respective clearances.

· A trader ‘A’ gets grey fabrics manufactured by job workers ‘X’,‘Y’ and ‘Z’ and the total clearance value of each of these jobworkers is below Rs.25 lakhs. All the clearances from the jobworkers are within the exemption limit for individual units. Thetrader has no obligation to register himself or pay duty in terms ofRule 12B. In other words, he is out of the scope of the provisionsof Rule 12B.”

7. During the period from April 2003 to January 2004 theAppellants 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 whowere the actual manufacturers and that there was no liability on thetrader. Two show cause notices were issued on 07.07.2004 and14.01.2005 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.

8. The Appellants submitted before the Adjudicating Authoritythat the job workers were the manufacturers and that no liability couldbe fixed on the traders. The submission was accepted by the JointCommissioner of Central Excise at Calicut vide Order dated 28.11.2005.It was held that in a situation where raw materials were supplied by aunit to the job worker, the duty liability would be on the job worker.

9. The Revenue filed appeal before the Appellate Authority. Afterconsidering rival contentions, the Appellate Authority by Order dated31.01.2008 held the Appellants liable. Relying on the Circular dated30.10.2003, it was observed,

“As per clarification under clause A(e) and the Illustrations underclause A(f), the duty liability is on the Trader once any of the jobworker had crossed the exemption limit of Rs.25 lakhs. The totalclearance from the dealer in respect of all the goods cleared byhim from all job workers would be chargeable to duty. In theinstant case, though the respondents had submitted that they hadnot availed Cenvat, they had around seventy job workers etc.,they have also conceded that the total value of clearances fromone of the job worker M/s. Dinesh Weaving Mills had exceededRs.25 Lakhs. As per clause A(d) for the value limit of Rs.25lakhs, value of all clearances is to be taken. Thus in terms ofclause A(e) of Board Circular duty would be payable and traderwould have to be registered and pay the duty. So also all pastclearances become dutiable and the trader/traders/ weavers, wouldbe required to discharge the duty on earlier clearances.”

Confirming the demand as raised in the Show Cause Notices, theAppellate Authority also imposed penalty of Rs.10,000/-.

10. The Appellants being aggrieved, filed Central Excise AppealNo.E/370/2008-DB before the Tribunal. The Tribunal found no infirmityin the order of the Appellate Authority and dismissed said Appeal on06.02.2018. It was held, AB

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A“In the instant case, appellant’s job worker M/s Dinesh WeavingMills has crossed the limit of Rs.25 lakhs. When it is so, then theappellant is not entitled to the benefit of exemption under theNotification No.35/2003 dated 30.04.2003, where in para 2(i), hasdiscussed the aggregate value of the clearances. In the instantcase, the aggregate value is more than Rs.57 lakhs in the case ofBjob worker M/s Dinesh weaving Mills. Thus, the statutory limit ofRs.25 lakhs has been crossed. When it is so, then the appellant isnot entitled for the exemption.”

11. A Rectification Application was thereafter filed by theAppellants which was also dismissed by the Tribunal on 15.06.2018.C

12. The Appellants have challenged the aforesaid Orders dated06.02.2018 and 15.06.2018 passed by the Tribunal, in this appeal. Weheard Mr. S. Durai Raj, learned Advocate for the Appellants and Mr. V.Shekhar learned Senior Advocate for the Respondent. It was submittedby the Appellants that in terms of the Circular dated 30.10.2003, the dutyDcould not be demanded if the value of clearance of job workers was lessthan Rs.25 lakhs individually and the Revenue could raise demand onlyin respect of the clearance value of that job worker, where the valuewas in excess of Rs.25 lakhs. The Revenue on the other hand submittedthat in terms of said Circular, if the clearance value of even one jobworker were to be in excess of Rs.25 lakhs, the dealer would be liable inErespect of the clearances of all the job workers and aggregate valuethereof.

13. In the present case the Appellants had supplied raw materialto more than 70 job workers and the total clearances were more thanRs.1.45 crore. Only one out of said job workers had crossed the limit ofFRs.25 lakhs while the individual clearances of rest of the job workers were less than Rs.25 lakhs. The question that arises is whether theAppellants’ liability is only in respect of the clearance of that job workerwhose clearance was greater than the limit of Rs.25 lakhs or in respectof the entire aggregate value of clearances.G14. According to Rule 12B[[3]] dealing with “job work in textiles and

14. According to Rule 12B[[3]] dealing with “job work in textiles andtextiles articles”, any person who gets yarn or fabrics; or readymadegarments or made up textile articles falling under Chapters mentioned insaid Rule 12B produced or manufactured on his account on job workshall obtain registration, maintain accounts and pay duty leviable on suchgoods as if he is an assessee. If the conditions in Rule 12B are satisfied, H

3 Introduced on 25.03.2003

the liability on such person gets fixed “as if he is an assessee”. TheExemption Notification dated 30.04.2003 exempts “first clearances forhome consumption, upto an aggregate value not exceeding twenty lakhrupees…”. The emphasis is on the aggregate value and what is exemptedis, “…upto an aggregate value”. The conditions stipulated in Para 2 ofsaid Exemption Notification, specially clauses (i) and (ii) again emphasizethe applicability in respect of “aggregate value of clearances for homeconsumption and not separately regarding individual clearances”. Theextent of limits was raised by subsequent Notification dated 17.05.2003.

15. In our considered view, the language of the exemptionNotification as amended, is quite clear. However, certain doubts arosewhich were clarified by Circular dated 30.10.2003. This Circular givesthree illustrations. According to the First illustration, even though theclearances of the job worker qua each of three traders was Rs.20 lakhssince the aggregate value of clearance was Rs.60 lakhs, he would notbe eligible to claim any benefit and must pay due in respect of entireclearance. According to the second illustration so long as the clearancesof the job worker were within the aggregate limit, no liability would getfixed but the moment clearances went beyond the limit, the illustrationmakes it clear that the entire clearances of the job worker would becomedutiable. The third illustration however strikes a slightly different noteand says that if a trader got grey fabrics manufactured by three jobworkers and the clearance value of each of those job workers wasbelow Rs.25 lakhs, the trader had no obligation and would be out of thescope of the provisions of Rule 12B.

16. We find it difficult to accept how the emphasis in the ExemptionNotification on the aggregate value could be diluted and the trader wouldnot be liable on the aggregate value in the third illustration. If Rule 12Bintroduces a premise that if the conditions in said Rule are satisfied, theperson concerned is an assessee for all purposes, it does not stand toreason how third illustration fits in the scheme of Rule 12B as well asthe Exemption Notification. What Rule 12B introduces is nothing but alegal 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 ofRule12B, would make him liable. The Exemption Notification againdoes not put the matter at individual clearances of job workers and whatis to be considered is an aggregate value of the clearances. It is well AB

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Asettled that if a legal fiction is introduced that legal fiction must be takento the logical end. In Gurupad Khandappa Magdum v. HirabaiKhandappa Magdum and others[4], while dealing with legal fictionintroduced in Section 6 of the Hindu Succession Act, this Court quotedwith approval passage in East End Dwelling Co. Ltd. vs. FinsburyBorough Council[5]and held that once the statute requires an assumptionBto be made, such assumption is irrevocable and all consequences whichflow from the assumption must permeate the process of ascertainmentthereafter.

17. Be that as it may, for the present purposes second illustrationin the Circular dated 30.10.2003 is more appropriate. According to saidCillustration, the moment the clearances go beyond the limit, the liabilitygets fastened in respect of the aggregate value of clearances. If thesubmission made by the Appellant is accepted to be correct, the secondillustration would have exempted all the clearances in respect of ‘A’, ‘B’and ‘C’. Again, if the contention of the Appellant is accepted, a dealer Dmay get the goods referred to in Rule 12B manufactured from severaljob workers to ensure that the value of the clearances from each jobworker is less than the limit prescribed for individual clearances. Insuch a case the emphasis in the Rule regarding aggregate clearanceswould be rendered meaningless.

18. The assessment made by the Appellate Authority and theETribunal was, therefore, correct. Consequently, it was not the individualclearance of one single job worker alone exceeding the limit of Rs.25lakhs but the aggregate of all clearances made by the Appellant, wasliable to duty. We have no hesitation in affirming the view taken by theTribunal.F19. We, therefore, dismiss the present appeals. No orders as tocosts.

Kalpana K. Tripathy

Appeals dismissed.

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4 (1978) 3 SCC 383

5 (1952) AC 109, 132 = (1951) 2 ALL ER 587