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Dinesh Textiles Vs. Commissioner of Central Excise, Customs and Service Tax, Calicut - (Supreme Court) (28 Feb 2019)

If a legal fiction is introduced that legal fiction must be taken to the logical end



Present appeals filed under Section 35L of the Central Excise Act, 1944 (Excise Act) question the correctness of the Final Order passed by the Tribunal, in Central Excise Appeal and Miscellaneous Order passed by the Tribunal rejecting application seeking rectification of mistake. The Appellants are traders who get cotton fabrics and made-ups mentioned in Chapters 52 and 53 of the Central Excise Tariff Act, 1985 (Tariff Act) manufactured through job workers.

It was submitted by the Appellants that, in terms of the Circular dated 30th October, 2003, 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.

In the present case, 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 question that arises is whether the Appellants' liability is 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.

According to Rule 12B3 of Central Excise Rules, 2002 dealing with "job work in textiles and textiles articles", any person who gets yarn or fabrics; or readymade garments or made up textile articles falling under Chapters mentioned in said Rule 12B produced or manufactured on his account on job work shall obtain registration, maintain accounts and pay duty leviable on such goods as if he is an Assessee. If the conditions in Rule 12B are satisfied, the liability on such person gets fixed "as if he is an Assessee".

The Exemption Notification dated 30th April, 2003 exempts "first clearances for home consumption, upto an aggregate value not exceeding twenty lakh rupees". Moreover the emphasis is on the aggregate value and what is exempted is, "upto an aggregate value". The conditions stipulated in Para 2 of said Exemption Notification, specially Clauses (i) and (ii) again emphasize the applicability in respect of "aggregate value of clearances for home consumption and not separately regarding individual clearances". The extent of limits was raised by subsequent Notification dated 17th May, 2003. The language of the exemption Notification dated 30th April, 2003 as amended, is clear. However, certain doubts arose which were clarified by Circular dated 30th October, 2003.

Rule 12B introduces 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 Rule 12B, would make him liable. The Exemption Notification again does not put the matter at individual clearances of job workers and what is to be considered is an aggregate value of the clearances. It is well settled that, if a legal fiction is introduced that legal fiction must be taken to the logical end.

For the present purposes second illustration in the Circular dated 30th October, 2003 is more appropriate. According to said illustration, the moment the clearances go beyond the limit, the liability gets fastened in respect of the aggregate value of clearances. The assessment made by the Appellate Authority and the Tribunal was, therefore, correct. Consequently, it was not the individual clearance of one single job worker alone exceeding the limit of Rs. 25 lakhs but the aggregate of all clearances made by the Appellant, was liable to duty. Present appeals dismissed.


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