Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

Reportable

       IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL NOS.9740-9741 of 2018

Dinesh Textiles               …. Appellant  

Versus

Commissioner of Central Excise,  Customs and Service Tax, Calicut           …. Respondent  

JUDGMENT

Uday Umesh Lalit, J.

1. These appeals  filed under Section 35L of  the Central  Excise Act,

1944 (hereinafter referred to as “the Excise Act”) question the correctness

of the Final Order dated 06.02.2018 passed by the Customs, Excise 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 15.06.2018

         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

passed  by  the  Tribunal  rejecting  application  seeking  rectification  of

mistake.    

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 relevant

portion 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 special economic zone) who gets 2[yarns or fabrics falling under Chapter 50, 51, 52, 53, 54, 55, 58 or 60, readymade garments falling under Chapter  61  or  62  or  made  up textile  articles  falling under Chapter 63 of First Schedule to the Tariff Act] produced or manufactured on his account, on job work (herein  after  referred  to  as  “the  said  person”)  shall obtain  registration,  maintain  accounts,  pay  duty leviable  on  such  goods  and  comply  with  all  the relevant  provisions  of  these  rules,  as  if  he  is  an assessee :

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.

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

Provided that  the job worker may,  at  his  option, agree to obtain registration, maintain accounts, pay the duty leviable on such goods, prepare the invoice and comply with the other provisions of these rules. In such a case the provisions of these rules shall not apply to the said person.  The job worker,  may,  at  his  option, authorize the said person to, on his behalf as his agent, maintain  accounts,  pay  duty,  prepare  invoice  and comply with any of the provisions of these rule except that of rule 9 :

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

4. Soon  thereafter  Exemption  Notification  was  issued  by  the

Government of India on 30.04.2003 wherein exemption was granted for

clearances upto Rs.20 lakhs in respect of processes falling under Chapters

51,  52,  54,  55,  58 or  60 of  the First  Schedule to  the Tariff  Act.   The

substantive part of the Notification was as under:

“In exercise of the powers conferred by sub-section (1) of section 5A of the Central  Excise Act,  1944 (1 of 1944),  read  with  sub-section  (3)  of  section  3  of  the Additional  Duties  of  Excise  (Goods  of  Special Importance)  Act,  1957  (58  of  1957),  the  Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts first clearances for  home  consumption,  upto  an  aggregate  value  not exceeding twenty lakh rupees made on or after the 1st day  of  April  in  any  financial  year,  of  fabrics,  not

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

subjected to any process falling under Chapter 51, 52, 54, 55, 58 or 60 of the First Schedule to the Central Excise  Tariff  Act,  1985  (5  of  1986)  (herein  after referred to as the specified goods), from the whole of the  duty  of  excise  specified  thereon  in  the  First Schedule to the said Central Excise Tariff Act and the First Schedule to the said Additional Duties of Excise (Goods of Special Importance) Act :

Provided that during the financial year 2003-2004, the exemption contained in this notification shall apply to  the  first  clearances  for  home  consumption  of  the specified goods, upto an aggregate value not exceeding twenty lakh rupees made on or  after  the 30th day of April 2003.

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

(i) where  a  manufacturer  clears  the  specified goods from one or more factories, the exemption in his case  shall  apply  to  the  said  aggregate  value  of clearances  for  home consumption and not  separately for each factory;  

(ii) where the specified goods are cleared by one or more manufacturers from a factory, the exemption shall apply to the said aggregate value of clearances for home  consumption  and  not  separately  for  each manufacturer;

(iii) the aggregate value of clearances for home consumption  of  specified  goods,  by  the  said manufacturer  from one or  more  factories,  or  from a factory by one or more manufacturers, does not exceed twenty five lakh rupees in a financial year :

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

Provided that in the financial year 2003-2004, the exemption shall  apply only if  the aggregate value of clearances of specified goods, by a manufacturer from one or more factories, or from a factory by one or more manufacturers, does not exceed twenty five lakh rupees during the period beginning from the 30th day of April, 2003:

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

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

5. By further Notification No.47/2003-CE dated 17.05.2003 the earlier

notification dated 30.04.2003 was amended as under:

S. No.

Notification No. and date  

Amendments

(1) (2) (3) 1. 34/2003-

Central Excise,  dated the 30th April,

In the said notification, - (i)  for  the  words  “thirty

lakh  rupees”  wherever they  occur,  the  words

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

2003 “forty lakh rupees” shall be substituted;

(ii)  for  the  words  “twenty five  lakh  rupees” wherever they occur, the words  “thirty  lakh rupees”  shall  be substituted.

2. 35/2003- Central Excise,  dated the 30th April, 2003

In the said notification –  (i)  for  the  words  “twenty

five  lakh  rupees” wherever they occur, the words  “thirty  five  lakh rupees”  shall  be substituted;

(ii)  for  the  words  “twenty lakh  rupees”  wherever they  occur,  the  words “twenty  five  lakh rupees”  shall  be substituted.

 3. 36/2003- Central Excise,  dated the 30th April, 2003

In the said notification, -  (a)  in  the  opening  paragraph, after  item  number  (iv),  the following  shall  be  inserted namely.- “(v) terry towels falling under Chapter 63; vi) woolen blankets, of yarn of shoddy,  falling  under  Chapter 63”; b)  in  paragraph  2,  for  the words  “thirty  lakh  rupees” wherever they occur, the words “thirty  five  lakh rupees”  shall be substituted.   

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

6. Since  there  were  doubts  regarding  extent  of  applicability  of  the

aforesaid  Exemption  Notifications,  a  Clarification  was  issued  by  the

Government  of  India,  Ministry  of  Finance,  Department  of  Revenue,

Central  Board  of  Excise  &  Customs,  New  Delhi  vide  circular  dated

30.10.2003.  The relevant portion of the Circular dated 30.10.2003 stating

three illustrations is as under:

“(f) the following illustrations are given to explain the above, -  

 Three  traders  A,  B  and  C  get  grey  fabrics manufactured from job worker  ‘X’.   The value (raw material cost + job charges) of the 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 is not  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 from job worker ‘X’.  In addition, X also clears  grey  fabrics  manufactured  by  him  as independent  weaver.   His  clearance  as  independent weaver 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.  For clearances made as independent weaver and on job work for ‘A’, there is no duty as the total clearance till then is below Rs.25 lakhs.  The first clearances of Rs.5 lakhs for ‘B’ are also  exempted.   Thus,  till  then,  ‘B’ need not  follow Rule 12B procedure.  However, the balance Rs.2 lakhs clearances  for  ‘B’  become  dutiable,  as  the  total

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

clearances of ‘X’ have now crossed the limit of Rs.25 lakhs.  Thus, now ‘B’ has to take registration and pay duty on clearances of Rs.2 lakhs.  As for ‘C’ his entire clearances  of  Rs.7  lakhs  are  dutiable  and  he  has  to follow Rule 12B procedure for his entire clearances.  It may be mentioned that in case the clearances value for ‘C’ increases  beyond  Rs.8  lakhs,  the  total  clearance value  of  ‘X’  exceeds  Rs.35  lakhs  eligibility  limit. Consequently,  the  entire  clearance  of  ‘X’  would become dutiable and 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 job workers is below Rs.25 lakhs.  All the  clearances  from  the  job  workers  are  within  the exemption limit for individual units.  The trader has no obligation to register himself or pay duty in terms of Rule 12B.  In other words, he is out of the scope of the provisions of Rule 12B.”

7. During the period from April 2003 to January 2004 the Appellants

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 who were the

actual manufacturers and that there was no liability on the trader.  Two

show cause  notices  were  issued on 07.07.2004 and 14.01.2005 by the

Department demanding duty of Rs.12,28,801/- (BED) and Rs.3,07,201/-

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

(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 Authority that the

job workers were the manufacturers and that no liability could be fixed on

the traders.  The submission was accepted by the Joint Commissioner of

Central Excise at Calicut vide Order dated 28.11.2005.  It was held that in

a situation where raw materials were supplied by a unit to the job worker,

the duty liability would be on the job worker.   

9. The  Revenue  filed  appeal  before  the  Appellate  Authority.   After

considering  rival  contentions,  the  Appellate  Authority  by  Order  dated

31.01.2008  held  the  Appellants  liable.   Relying  on  the  Circular  dated

30.10.2003, it was observed,

“As  per  clarification  under  clause  A(e)  and  the Illustrations under clause A(f), the duty liability is on the Trader once any of the job worker had crossed the exemption limit  of  Rs.25 lakhs.   The total  clearance from the dealer in respect of all the goods cleared by him from all job workers would be chargeable to duty. In  the  instant  case,  though  the  respondents  had submitted that they had not availed Cenvat, they had around  seventy  job  workers  etc.,  they  have  also conceded that the total value of clearances from one of the  job  worker  M/s.  Dinesh  Weaving  Mills  had exceeded  Rs.25  Lakhs.   As  per  clause  A(d)  for  the

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

value limit of Rs.25 lakhs, value of all clearances is to be  taken.   Thus  in  terms  of  clause  A(e)  of  Board Circular duty would be payable and trader would have to  be  registered  and  pay the  duty.   So  also  all  past clearances  become  dutiable  and  the  trader/traders/ weavers,  would be required to discharge the duty on earlier clearances.”

Confirming the demand as raised in the Show Cause Notices, the

Appellate Authority also imposed penalty of Rs.10,000/-.

10. The  Appellants  being  aggrieved,  filed  Central  Excise  Appeal

No.E/370/2008-DB before the Tribunal.  The Tribunal found no infirmity

in  the  order  of  the  Appellate  Authority  and dismissed  said  Appeal  on

06.02.2018.  It was held,

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

11. A Rectification Application was thereafter  filed by the Appellants

which was also dismissed by the Tribunal on 15.06.2018.

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

12. The  Appellants  have  challenged  the  aforesaid  Orders  dated

06.02.2018 and 15.06.2018 passed by the Tribunal, in this appeal.   We

heard Mr. S. Durai Raj, learned Advocate for the Appellants and Mr. V.

Shekhar learned Senior Advocate for the Respondent.  It was submitted by

the Appellants that in terms of the Circular dated 30.10.2003, 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.  The Revenue on the other hand submitted that in

terms of said Circular, if the clearance value of even one job worker were

to be in excess of Rs.25 lakhs, the dealer would be liable in respect of the

clearances of all the job workers and aggregate value thereof.

13. 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

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

clearance was greater than the limit of Rs.25 lakhs or in respect of the

entire aggregate value of clearances.

14. According  to  Rule  12B3 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  30.04.2003 exempts  “first  clearances  for

home consumption, upto an aggregate value not exceeding twenty lakh

rupees…”.  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 17.05.2003.

3 Introduced on 25.03.2003

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

15. In our considered view, the language of the exemption Notification

as amended, is quite clear.   However, certain doubts arose which were

clarified  by  Circular  dated  30.10.2003.   This  Circular  gives  three

illustrations.   According  to  the  First  illustration,  even  though  the

clearances of the job worker qua each of three traders was Rs.20 lakhs

since the aggregate value of clearance was Rs.60 lakhs, he would not be

eligible  to  claim  any  benefit  and  must  pay  due  in  respect  of  entire

clearance.  According to the second illustration so long as the clearances

of the job worker were within the aggregate limit, no liability would get

fixed but the moment clearances went beyond the limit, the illustration

makes it clear that the entire clearances of the job worker would become

dutiable.  The third illustration however strikes a slightly different note

and  says  that  if  a  trader  got  grey  fabrics  manufactured  by  three  job

workers and the clearance value of each of those job workers was below

Rs.25 lakhs, the trader had no obligation and would be out of the scope of

the provisions of Rule 12B.

16. We find it  difficult  to accept how the emphasis in the Exemption

Notification on the aggregate value could be diluted and the trader would

not be liable on the aggregate value in the third illustration.  If Rule 12B

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

introduces a premise that if the conditions in said Rule are satisfied, the

person  concerned is  an  assessee  for  all  purposes,  it  does  not  stand to

reason how third illustration fits in the scheme of Rule 12B as well as the

Exemption Notification.  What Rule 12B introduces is nothing but 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

Rule12B, 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.  In  Gurupad Khandappa Magdum v. Hirabai Khandappa

Magdum  and  others4,  while  dealing  with  legal  fiction  introduced  in

Section 6 of the Hindu Succession Act, this Court quoted with approval

passage in  East End Dwelling Co. Ltd. vs. Finsbury Borough Council5

and held that once the statute requires an assumption to be made, such

assumption  is  irrevocable  and  all  consequences  which  flow  from  the

assumption must permeate the process of ascertainment thereafter.

4 (1978) 3 SCC 383 5 (1952) AC 109, 132 = (1951) 2 ALL ER 587

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

17. Be that as it may, for the present purposes second illustration in the

Circular  dated  30.10.2003  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.   If  the

submission made by the Appellant is accepted to be correct, the second

illustration would have exempted all the clearances in respect of ‘A’, ‘B’

and ‘C’.  Again, if the contention of the Appellant is accepted, a dealer

may get the goods referred to in Rule 12B manufactured from several job

workers to ensure that the value of the clearances from each job worker is

less than the limit prescribed for individual clearances.  In such a case the

emphasis in the Rule regarding aggregate clearances would be rendered

meaningless.

18. 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.  We

have no hesitation in affirming the view taken by the Tribunal.    

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         Civil Appeal Nos.9740-9741 of 2018           Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

19. We, therefore, dismiss the present appeals.  No orders as to costs.   

  ...………………….J.

      (Uday Umesh Lalit)

..…………………..J.                   (Indu Malhotra)

New Delhi, February 28, 2019

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