1. The same common question of law and interpretation of one and the same notification issued by the Government of India ono April 30, 1975, arise for consideration in each of theses four maters and hence we will dispose of othosse four matters oby this common judgment.
2. The petitioner in eacah of these four matters is, what is known in the trade, as a job manufacturer. The petitioner concerned has a factory of his own, and in this factory, he carris out processesofo manufacture of article and materials brouoght by his or its custsomoers from outside. After the manufacturing process is over, as intended between the parties, the final product is returned to the cusstomer and the petitioner concerned, the job worker, charges for the job work, that is, for the labour and other incidental charges which have been agreed upon between the customer and the job worker. The articles which are brought too the job worker for being subjected to the process of manufacture do not belong to the job worker. In order to illustrate what is being done by each of the four petitioners, we will refer to the faacts appearing in Special Civil Application No.1184 of 1977. In paragraph 7 of the petition, it has been specifically stated that the customer supplies to the petitioner company materials, such as, tin plates, sheets, tubes, pipes, etc. for carrying out job work and making equpments and components. These materials which are supplied to the petitioner company by the customers are themselves excisable goods. The plates and articles which are supplied by the custsomers are all duty-paid goods and they are goods which are manufactured from raw materials like iron ore etc. in lump form. Thesse goods which are supplied by the customers to the petitioner are themselves not raw themselves not raw materials but are articles. According to the opetitioner, when the petitioner carried out job work on these articles, the jobo work so carried out oby the petitioner company would fall squarely within the exemption Notification No.119 fo 1975 and the petitioner would be liable to pay excises duty only on the job work charges recovered from the custsomers, exclusive of the value of the articles supplied by the customers to the petitioner company. The excise authorities, who are respondents in each of these petitions, have sought to levy excise duty at the rate of one per cent aad valorem under Entry 68 in the First Schedule to the Central Excise and Salt Act, 1944, with effect from 1-4-75 on all articles oon which job work has been carried out on the total value, that is on the value including the value of the materials supplied by the customers to each of these job workers. Prior to 1st March, 1975, there was no item like Tariff Entry No.68 but, on and from 1st march 1975, Tariff Item No.68 was added to the First Schedule to the Central Excise and Salt Act, 1944. Under that Entry, all other goods not elswhere specified in the Schedule, manufactured in a factory, became liable to pay excise duty at the rate of one per cent ad valorem. The exemptions sset out in Article 68 are not necessary to be considered ino the course of this judgment.
16th June, 1978
3. In the affidavit in reply in each of these matters, the stand taken up by the excises authorities is practically similar. The stand is as shown in the affidavit in reply, for example, in Special Civil Application No. 1184 of 1977, is as shown in paragraph 4 that the petitioner manufactures machineries, machine parts and components which are entirely different articles from the raw material said to have been supplied by the customer. Such material completely loses its original identity and is not returned to the custsomer but altogether a new article as per specifications and designs is brought into exisstence and given to the custsoomer. Again, in paragraph 10 of the affidavit in reply, in to paragraph 7 of the petition, it has been stated that the petitioner is deliberately keeping back the details and description of the equipments and components manufactured by it on so called job work. According to the affidavit in reply, the description would make it abundantly clear that these articles are substantially and materially and materially new articles and it cannot be said that the articles returned to the petitioner are same or similar to the one supplied by the custsomer. Since the raw materials, namely, steel plants, sheets, tubes, pipes, etc. received from the custsomer were not returned to the customer but an entirely different article is prepared and given to the customer after sophistsicated manufacturing process, which is absolutely a new article having different description in trade and popular parlance, the material received from the customer and the article returned to him are entirely different in character and use and it cannot be said that the article supplied by the customer is returned to the customer and hence the so called job work done by the petitioner is not a job work as defined in the Notification and therefore the petitioner is not entitled to clais the exemption under the Notification.
4. Sesction 37 of the Central Excise and Salt Act, 1944, confurspower on the Central Govoeornment to make rules to carry into effect the prupose of the Act. According to sub-section (2), in particular, and without prejudice to the generality of the foregoing power, such rules may, under clausse (xvii), exempt any goods from the whole or any duty imposed by the Act.
5. We may peruse the Central Excisse Rules. Rule 8 the Central Excise Rules, 1944, made by the Central Government in exercise of th powers conferred by ssections 6, 12 and 37 of the principal Act, confers power on the Central Government to authorise exemptions from duty. Under clausse (1) of Rule 8 the CentralGovernment may from time to time, by notification in the Official Gazette, exempt, subject conditions as may be specified in the notification, any excisable goods from the whole or any part of the duty leviable on such goods.
6. Aacting under the powers conferred by Rule 8(1) of the Central Excise Rules, the Central Government issued Notification No.119 of 1975 on April 30, 1975. The Notification is in these terms :-
'119/75-CE, dated 30-4-75.
In exercise of the powers conferred by rule 8(1) of the Central Excise Rules, 1944, the Central Government hereby oexempts goods falling under Item No. 68 of the First Schedule to the Central Excise and Salt Act, 1944 (1 of 1944), manufactured in a factory as a job work, from so much of the duty of excise leviable thereoon as is in excessofo duty calculated on the basis of the amount charged for the job work.
Explanation - For the purposes of this notification, the expression `job work' shall mean such items of work where an article intended to undergo manufacturing process is supplied to the job worker and that article is returned by the job worker to the supplier, after the article has undergone the intended manufacturing process, on charging only for the job work done by him.'
7. It is clear, that, by this Notification, goods falling under Item 68 of the First Schedule manufactured in a factory as a job work are exempted from excise duty, exceopt to the extent of the duty on charges for the job work. The Explanation set out in the Notification makes clear what is meant by `job work' and job work, in the context of this Notification,means such items of work where the article intended to undergo manufacrturing process is supplied to the job worker and that article is returned by the job worker too the supplier after the article has undergone the intended manufacturing process, charging only for the job work doen by him. It is clear, therefore, that the article supplied by the customer has to undergo manufacturing process as intended. It is obvious, in the context of the excise law, that unless a new article known to trade emerges after the manufacturing process is completed, excise duty cannoto be levied at all. That is the very basis of taxation under the excise law. In order to exempt job workers from payment of duty except to the extent of duty on the job work charges, this Explanation to the Notificartion makes it clear that the article which undergoes manufacturing process at the hands of the job worker, must be supplied by the customer and the only thing which the job worker has to do is to subject that article supplied by the customer to the intended manufacturing process. The final result after the manufacturing process is completed has to be returned to the customer and the job worker only charges for the job work done by him. Under these circumstances, it is clear that, though excise duty would be otherwise leviable on the value of the article as it leaves the job worker`s faactory, by virtue of the Notification, excise duty has to be paid only on the charges for the job work and not on the totral value of the articles when it leaves the factsory of the job workers. No other meaning is possible on the wording on this particular Notification.
8. To take one or two illustrations : If a custsomer takes a sheet of brass to a factory which does job work and gets a brass pot made out from the job worker oon payment of job charges, a new article, namely, the barss pot, has certainly come into existsence. But, in view of the Notification, the new article, namely, the brass pot, cannot be subjected to excise duty on the total value of the brass pot, but only in respect of the charges for the job work done by the job worker. To take anothe illustration : If a customer take a piece of suits length to a factory which undertakes job work of making suits according to the specifications of the coustomer, the suit returned to the customer is certainly a different article from the article which was brought by the cusstomer, namely, a piece of cloth. But, though it is a new article, under the Notification, excise duty can be charaged only in respects of charges for the job work carried out by the the factory which converted othe piece of cloth into a suit. These illustrations have been given with a view to explain the scope and ambit of Notification No.119 of 1975, dated April 30,1975.
9. In thesse petitions, it has been pointed out other Collectorates under the Central Excise Act, for example, functioning in States of Maharashtra and Haryana, have put the same interpretation on this Notificiation no.119 of 1975 that we are placing. In paragraph 10n of the petition in Special Civil Application No.1184 of 1977, it has obeen specifically pointed out that, to the information and knowledge of the petitioner, in other States, like the States of Maharashtra and Haryana, etc., excise duty on the materials supplied by the customers and ussed by the job contractorso in carrying out th ejoob work is not levied. Annexure D to the petition is a copy of the Trade notice issued by the Deputy Collector of Central Excisse, Bombay, on April 30, 1975, clarifying that no excise duty would be payable on the vlue of materials supplied, to the job contractor for ooocarrying out otho ejob work. That Trade Notice in the lasts paragraph mentions-
'Government of India, Ministsry of Finance (Deptt. of REvenue & Insurance). New Delhi, has how clarified in the matter that it is not essential that for claiming exemption under the above said notification, the articles received by the job worker and the procesosoed article returned by him should have the same trade description. So long as it can be shown that the job worker is retseurnign an article supplied to him after subjectsing it to a manufacturing process, the exemption under Notification No.119/75-CE, dated the 30th April, 1975 would appear to be applicable, irrespective of the trade nomenclature ofo tohe article at the time of receipt and at the time of despatch (after subjecting it to a manufacturing process).'
10. In the affidavit in reply filed in Special Civil Application No.1184 of 1977, the stand taken up is that it is not admitted that in other States, excise duty on materials supplied by the customer and used by the job workers is not levied. Even with regard to the Trade Notice, the contention is that the interpretation sought to be plaaced by the petitioner is not correct, and the contention is that the Tariff Entry read with the Notification would govern the case and the excise authority would have to apply the statutory oprovisions and the notification according to their true effect.
11. It is a very strange manner of function of the Central Excise Authorities that one the same notification of thoe Central Excise issued by the Central Govoernment receives one interpretation at the hands of the Central EXcise Authorities in the State of Gujarat and quite opposite interpretation at the hands of the Central Excisse Authorities in States of Maharashtra and Haryana. The Trade Notice from which we have set out an extract above clearly goes to show that, irrespective of the nomencclature of the article received from the cusstomer and the article when it is despatched by the job worker after subjecting the article received from the customer to the job worker`s manufactureing process, aaccording to excisse authorities in Maharashtra, what counts is the essence of the job worker relationship between the customer and the job worker.
12. The only interpretation which can be placed on the Notification No.119 of 1975, dated 30th April 1975, is to read it in th emanner in which the Trade Notice issued by the Deputy Collector of Central Excise, Bombay, reads it and as we have read it above. To read it in the manner in which the Central Excisse Authorities try to read it in Gujarat would be to render the Notification dated 30th April, 1975 totally, otiose and redundant. If a new article does not emerge after the manufacturing process is completed, there is no occasion to levy excises duty. If a new article is to be subjected to the levy of full excise duty when granting exemption under Notification no.119 of 1975 dated 30th April 1975, the whole exemption would be totally meaningless. One cannot contemplate any possible occasion of which that particular notification would apply. Under these circumstances, the stand taken up by the Excisse Authorities in each of these matters with respect to the job work done by the respective petitioners cannot be upheld. The order by the Excise Authorities-in each of these matters, therefore, to levy excise duty on the total value of th earticle when it leaves the job worker`s factory must be quashed and sest aside. We, therefore, allow each of these special civil applications.
13. Before we leave these matters, we want to point out the extreme hardship which would be causesd to the indusstrialists oin a place like Gujarat where one view is taken which would go to the detriment of the job working factories in Gujarat and an opposite view that will be traken in places like Maharashtra and Haryana. If there is any difficulty which the excise authorities in any particular State feel about any particular notification or a provision of law as regards interpretation, it would be advisable to have the same interpretation all over India and to sesek directions from the Central Board so that the same interpretation, whether right of wrong, is supplied all over the country and situation like th epresent one where the job working factories-in Haryana and Maharashtra are at an advantage as compared to similar factories in the State of Gujarat, may be avoided.
14. During the pendency of thesse writ petitions, each of the respective petitioners has been asked at the instance of the Central Government to provide bank guarantees. Becauses the stand taken up by the Central Excise Authorities is totally unsustainable, we directs the Centeral EXcise Authorities to pay the charges paid by the respective petitioner for furnishing bank guarantee-the amount of such charges to be certified by the respective bank, to the excisse authorities and on such certification, the amount to be paid by the Central Excise Authorities to the petitioner concerned. The respondents will pay the costs of each of the petitioners in each of the four matters. Rule is made absolute in each of the above four matters.