Getting law to spot job work

If the customer supplies some of the raw materials and the job worker also uses some of his own material to complete the process, will the activity amount to job work? The Supreme Court's answer to that question, in its judgment in the case of Prestige Engineering (India) Ltd [1994 (73) ELT 497 (SC)], held the field till recently. Two recent decisions depart from that judgment and give job workers more flexibility.

Interpreting the explanation in the notification that exempted duty on job-worked goods, the SC in the Prestige Engineering case had held: "The notification 119/75-C.E. was conceived in the interest of small manufacturers undertaking job work. The idea was to help job workers - the persons who contributed mainly their labour and skill, though done with the help of tools, gadgets or machinery, as the case may be. This notification was not intended to benefit those workers who contributed their own raw materials to the articles supplied by the customers and manufactured different goods but addition or application of minor items by the job workers would not detract from the nature and character of job work. For example, a tailor entrusted with a cloth piece and asked to stitch a shirt, a pant or a suitpiece may add his own thread, buttons and lining cloth; such an activity amounts to job work."

The excise department continued to follow that judgment on matters relating to job work, although the said notification 119/75 had given way to notification 214/86-CE dated March 25, 1986. Recently, in the case of Abhinav Chemicals [2012 (284) ELT 589 (Tri-Del)], the Tribunal observed the explanations defining job work in the notification 119/75-C.E. and notification 214/86-C.E were different. So, the Prestige judgment could not not be extended to the meaning of job work in respect of notification 214/86. The Tribunal allowed exemption under notification 214/86, although the job worker had also used his own raw material.

On matters relating to imports for jobbing, the Customs and excise departments insisted a job worker could use only some minor items of insignificant value as in the Prestige judgment, although the notifications in question did not define jobbing. And, in the case of Sapthagiri Leathers [2003 (153) ELT 559 (Tri-Chennai)], the Tribunal held the Prestige judgment had no bearing on the interpretation of jobbing notification 81/95, dated March 31, 1995. The CBEC Circular 18/2004-Cus dated February 20, 2004, also said substantial usage of indigenous goods along with imported goods in jobbing work would not take the processes undertaken out of 'job work or 'jobbing'. But, helped keep the disputes going by saying the definition of jobbing may be derived from the scope of the term 'job work' as clarified by the SC in the Prestige judgment.

In the case of Sujag Fine Chemicals, the Bombay High Court held [2013 (295) ELT 32 (Bom)] the Prestige judgment would not apply to the Customs exemption notification relating to imports for jobbing and the notification 32/97 nowhere provided that exemption would not be available if indigenous material was used by the job worker. Hopefully, the above judgments will help job workers claim exemptions even when they use a substantial quantity of their own raw material.

email: tncr@sify.com