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2026 Supreme(Online)(CESTAT) 1317
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
Binu Tamta, Judicial Member, P.V. Subba Rao, Technical Member
Lear Automotive India Private Limited – Appellant
Versus
Commissioner of Central GST & Central Excise Dehradun – Respondent
Excise Appeal No.50156 of 2024
For the Appellants/Petitioners: B.L. Narasimhan, Sukriti Das
For the Respondents: R.K. Mishra
Excise duty is legally chargeable upon the manufacturer who actually performs the process of production; a principal supplier of raw materials who does not engage in manufacturing and operates on a principal-to-principal basis with the job worker is not liable for excise duty under the Central Excise Act.
Headnote:(A) Central Excise Act, 1944 - Section 2(f) - Definition of Manufacture - Section 3 - Levy of excise duty - Central Excise Rules - Rule 4 - Job work - Liability of excise duty - Appellant engaged in contract manufacturing through an independent contractor - Raw materials provided by appellant - Final goods sold by appellant - Whether principal manufacturer liable for excise duty on goods produced by job worker - Held, excise duty is payable by the manufacturer who undertakes the actual manufacturing activity - The relationship being that of principal-to-principal, the appellant as a mere supplier of raw materials is not the 'manufacturer' under the Act - Liability rests on the contract manufacturer who owns the resources and machinery. (Paras 4, 6, 7, 15 and 16)
Facts of the case:
The appellant entered into an agreement with a contract manufacturer for the production of car seat sets. The appellant provided raw materials and tools, while the job worker utilized its own resources, labor, and machinery. The Department issued a show-cause notice demanding excise duty, asserting that the appellant, as the principal, was liable for the duty on the goods produced by the job worker. The Adjudicating Commissioner confirmed the demand for a portion of the duty, leading to this appeal.
Findings of Court:
The Tribunal observed that the agreement between the appellant and the job worker established an independent relationship. Since the appellant did not undertake any manufacturing process and the job worker operated independently, the job worker is liable to pay excise duty. The Tribunal further noted that the contract manufacturer had already paid excise duty for certain periods, confirming their status as the manufacturer.
Issues: Whether the principal manufacturer (appellant) is liable for excise duty on finished goods manufactured by a third-party job worker.
Ratio Decidendi: The excise duty is levied on the activity of manufacturing as defined under the Act, and legally falls upon the person performing that activity, regardless of the ownership of the goods, unless specifically shifted by valid notifications. Result : Appeal allowed.
| Table of Content |
|---|
| 1. factual background of the dispute regarding job work and excise liability. (Para 1 , 2) |
| 2. parties' contentions regarding who qualifies as the manufacturer under the act. (Para 3 , 4 , 5) |
| 3. application of the principle of 'independent contractor' in manufacturing agreements. (Para 6 , 7 , 15) |
| 4. precedent-based analysis of job worker vs. principal liability for excise duty. (Para 8 , 9 , 10 , 11 , 12 , 13 , 14) |
| 5. final determination setting aside the demand for duty against the appellant. (Para 16) |
BINU TAMTA:
1. The issue for consideration is whether M/s. Lear Automotive India Pvt. Ltd.1Appellant is liable to pay excise duty on the goods manufactured by the contract manufacturer, i.e. M/s. Kavin Creations on job work basis.
2. Facts of the case are that the appellant had entered into an agreement with M/s.Kavin Creations for manufacture of car seat sets on contract manufacturing/job–work basis and the inputs or raw materials were provided by them to the contract manufacturer, who was availing the area based exemption under Notification No.50/2003–CE dated June 10, 2003. The finished goods manufactured by M/s. Kavin Creations were cleared to the appellant, who sold the same to M/s. Mahindra and Mahindra Limited without undertaking any manufacturing activity. On the basis of audit of records of the appellant, show cause notice dated March 3, 2022 was issued proposing to recover excise duty amounting to Rs.10,16,32,109/- along with interest by invoking the extended period of limitation under Section 11A(4)of the Act and also penalty under Section 11AC on the allegation that the appellant as a principal manufacturer was liable to pay excise duty in respect of the goods manufactured by the contract manufacturer and cleared to Mahindra and Mahindra on the basis of Notification No.8/2005–ST dated March 1, 2005, which grants service tax exemption on the activities of job workers and passes on the liability of duty on the principal manufacturer. On adjudication, by the impugned order the demand of duty amounting to Rs.4,53,71,477.38 along with interest and penalty was confirmed, however, the balance demand of Rs.5,62,60,631.62 was dropped on the ground that the duties were payable at the applicable rate of 12.5% only and not 28% as proposed in the show cause notice. Hence, the present appeal has been filed.
3. We have heard both sides and perused the records of the case.
4. Ms. Sukriti Das, learned counsel for the appellant submitted that as per Section 3 , central excise duties are levied on all excisable goods which are produced or manufactured in India and the person who is undertaking the activity of “manufacture” is liable to pay the duty. She referred to the definition of “manufacture” as defined under Section 2(f) of the Act. She further relied on the provisions of Rule 4 of the Excise Rules to say that a manufacturer is liable to pay central excise duty on the manufacture and reproduced at the time of removal from the factory. In nut shell, she submitted that it is the job worker who has manufactured the goods in their own right and the same is evident from the terms of the agreement entered between the parties and therefore, it is the job worker who is liable to pay duty on automotive seats manufactured and cleared by them. The appellant has not undertaken any activity on the manufactured excisable goods except for supplying the raw material and some tools to the contract manufacturer. In support of her arguments, the learned counsel has referred to the following decisions:-
(i) CCE, Baroda Vs. M.M. Khambhatwala21996 (84) ELT 161 (SC)
(ii) Thermax Babcock & Wilcox Ltd.Vs. Commissioner of Central Excise, Pune-I32018 (364) ELT 945 (Tri.-LB)
(iii) Rajasthan Antibiotics Ltd. Vs. Commissioner of CGST4Final Order No.50740/2025 dated 21.05.2025 in Excise Appeal No.55823 of 2018
(iv) Desh Rolling Mills Vs. CCE, Delhi52000(122) ELT 481 (Tribunal)
(v) Dow Chemical International Pvt. Ltd. Vs. CCE, Kutch
