SUZUKI PROCESSORS Vs. COMMISSIONER CENTRAL EXCISE JAIPUR

JUDGEMENT

(1.) BY this petition, the petitioner challenges show cause notices dated 15. 1. 99 (Annex. 2) issued by Commissioner, Central Excise, Jaipur-II, and dated 11. 6. 99, 30. 9. 99, 23. 12. 99 & 16. 3. 2000 by Assistant Commissioner, Bhilwara (Annex. 4 to 7 respectively of the writ petition) covering different periods for which the liability to pay excise duty under the Central Excise Act is sought to be determined and raised against the petitioner from 3. 06. 1997 onwards excluding the period from 24. 02. 1998 to 15th December 1998.

(2.) THE facts necessary for the present purposes may be noticed. M/s. Suzuki Processors is a unit of M/s. Suzuki Textiles Ltd. , a company registered under the Indian Companies Act. M/s. Suzuki Textiles Ltd. had set up a process house and a weaving unit under the name Suzuki Processors in village Guda, Tehsil Mandal, District Bhilwara and finances for the purposes were arranged by securing loans from IDBI. According to the case set up by the petitioner, the processing section of the Suzuki Processors was leased out to another company namely PGO Processors (Pvt.) Ltd. which was incorporated in 1994 and the said lease was duly registered on 3. 06. 1997. As a result of this transaction, M/s. Suzuki Processors applied for amending its certificate of registration under the Central Excise Rules on 2. 6. 97 and PGO Processors (Pvt.) Ltd. applied for grant of registration certificate under the said Rules so that with effect from 3. 6. 97, the date of lease the manufacturing activities carried out in the process house become the manufacturing activities of the lessee and the lessee become liable for payment of excise duty under the Central Excise Act. To the extent manufacturing/processing done at the unit leased out to the PGO Processors the lessor is denuded of its liability to account for and pay excise duty on the manufacture of goods (processing of man-made grey fabrics) carried on by the lessee at the said process house since 3. 6. 97. THE registration was also granted to PGO Processors (Pvt.) Limited with effect from 3. 06. 1997 and the certificate of registration of the petitioner was amended in consonance with it. As a result of this arrangement, the goods processed at the leased unit since 3. 6. 97 neither formed part of the price list furnished by the lessor nor it remained responsible for classification of goods manufactured at the processing house y the lessee. THEre is no dispute between the parties that as per the arrangements stated above, the lessee was only carrying out the job work for various customers including that of the lessor-petitioner but was not processing its own goods, that is to say the lessee was himself not selling the goods processed at its unit. Accordingly, the basis for determining the excise duty in the hands of the lessee was not on the sale price charged by the lessor-owner of the fabrics but was covered by the principle enunciated by the Supreme Court in Ujagar Prints vs. Union of India's case (1 ). THE excise duty was paid by and recovered from PGO Processors (Pvt.) Ltd. on said basis until 23rd Feb. , 1998, During this period, the search was conducted on the premises of the petitioner and of the PGO Processors (Pvt.) Ltd. on 19th/20th Jan. , 1998 and 19th/20th Feb. , 1998. As a consequence of that search, the immediate effect was that with effect from 24th Feb. , 1998 the basis for determining the Excise duty on the processed fabric as job work on behalf of the lessor in the hands of PGO Processors (Pvt.) Ltd. was shifted from the principle enunciated in Ujagar Print's case (supra), to the sale price of the commodity, which was processed as job work for petitioner company, at the sale price at which the petitioner company (Suzuki Processors) sold such processed fabrics and the same was paid by PGO Processors (Pvt.) Ltd. for which PGO Processors (Pvt.) Ltd. raised objection and filed refund applications which have been rejected and appeal against such rejection is going to be filed by the said company. In the meantime, there was a Notification No. 36/98 by the Central Govt. on 10. 12. 98 which came into operation with effect from 16. 12. 98 which provided certain benefits to the independent processors on the processed textile fabric falling under heading Nos. 52. 07, 52. 08, 52. 09, 54. 06, 54. 07, 55. 11, 55. 12, 55. 13 and 54. 14 manufactured or processed by it with the aid of hot air stenter. This required a declaration to be filed by the `independent processors' claiming benefit under the notification. THE PGO Processors, the lessee, which was registered under the Central Excise Rules, sought to file declaration as `independent processor' under the Notification No. 36 of 1998 which was refused to be accepted by the respondent officers, presumably on the basis of pending investigation as a consequence of the aforesaid search. This action on the part of the respondents of not accepting the declarations by the PGO Processors (Pvt.) Ltd. under Notification No. 36 of 1998 led to filing of writ petition No. 11 of 1999 seeking a writ of mandamus for directing the Deputy Commissioner to entertain the declaration filed by the petitioner and to determine the annual capacity of the production of the process house under the notification and determine the levy of excise duty under the said notification in its favour and it was prayed that the petitioner be allowed to clear the goods availing the benefit of Notification No. 36 of 1998 dated 10. 12. 98. THE controversy raised before the Division Bench in the said writ petition was whether the respondents could refuse to allow the petitioner (PGO) to clear the goods by not treating the petitioner (PGO) as `independent processor' of fabrics under Notification No. 36 of 1998 dated 10. 12. 98 even before deciding finally as to whether they are covered under the Notification or not. In reply to the challenge, it was contended on behalf of the Central Excise Department that the PGO could claim to be covered under Notification No. 36 of 1998 only after its declaration was accepted by the Department and not before that. It was submitted before the Court that the Department of Central Excise had on investigation found out material to support the contention that the said petitioner company was not independent processor and it had virtually no capital assets of its own and it did not own any land, building plant or machinery and all these have been taken on lease from M/s. Suzuki Textiles Limited. It was also alleged that the entire goods processed by the said petitioner company either belong to M/s. Suzuki Textiles Limited (about 97%) or goods of other manufacturers sent for processing to the petitioner company for processing through the present petitioner and the petitioner (PGO) is only an instrumentality of M/s. Suzuki Textiles Limited and it is used only as a facade for avoiding excise duty. in support of their contention, the revenue has also filed joint show cause notice issued after the filing of the petitioner on 15. 1. 99 to M/s. Suzuki Textiles Limited as well as to the PGO Processors (Pvt.) Limited and their Directors and offices. In the said show cause notice the validity of agreement of M/s. Suzuki Company and the PGO Company has been doubted. Those notices had not been adjudicated.

(3.) THE principal contention is this petition is that in view of the categorical finding of the Court in its order dated 22. 4. 99 in Writ Petition No. 11/99 that until registration of PGO Processors (Pvt.) Ltd. is cancelled in accordance with the provisions of Rule 174 (11), the PGO Processors (Pvt.) Ltd. has to be treated as independent processor for the purposes of benefit under Notifications No. 36 of 1998 and 42 of 1998 and that the show cause notice does not have necessary ingredients of revocation or suspension of the registration of PGO Processors (Pvt.) Ltd. as required under Rule 174 (11) and the notice can only be considered to be a notice of cancellation; the exercise of enquiry into the show cause notice against present petitioner shall remain futile inasmuch as so long as the notice of cancellation of registration under Section 174 (11) is not issued to the PGO Processors (Pvt.) Ltd. for revocation of the registration, its existence as independent unit will have to be accepted by the revenue and even if the registration were to be cancelled it can only act prospectively, therefore, for the periods for which the notices in question relate, no liability can be fixed on the petitioner even on revocation/suspension of registration certificate of PGO (P) Ltd. under the pending proceedings.