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Tax & Customs LawSupreme Court of India

Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut

Civil Appeal · 2019 INSC 294Decided 28 Feb 2019
Civil Appeal Nos. 9740-9741 of 2018
Justice Uday Umesh Lalit · Justice Indu Malhotra

Background

Dinesh Textiles, a trader, got cotton fabrics manufactured through more than 70 job workers without paying excise duty, claiming the job workers were the actual manufacturers liable for duty, not the trader. An excise exemption scheme exempted clearances up to a certain aggregate value, and only one of the 70-plus job workers had individually crossed the Rs. 25 lakh exemption limit while the rest remained below it. The tax department demanded duty on the trader's entire clearances once that one job worker crossed the limit, a demand upheld by the Appellate Authority and the Customs, Excise and Service Tax Appellate Tribunal, prompting the trader's appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that excise Rule 12B creates a legal fiction treating the trader who gets goods made on job work as "the assessee," and that the relevant exemption notification repeatedly emphasizes the "aggregate value" of clearances, not clearances calculated job-worker-by-job-worker. Relying on the government's own clarificatory circular's illustrations, the Court held that once any one job worker's clearances crossed the Rs. 25 lakh threshold, the entire aggregate of clearances made through all job workers for that trader became dutiable, not merely the clearances of the job worker who crossed the limit. The Court rejected the trader's reading because it would let a dealer deliberately split production across many job workers to keep each individually under the exemption limit, defeating the exemption scheme's purpose, and so it affirmed the Tribunal's view and dismissed the appeals.

Lesson Learnt

Under tax exemption schemes that hinge on an "aggregate value" of clearances, businesses cannot escape liability by spreading production across many intermediaries to keep each one individually under the threshold: the law looks at the combined total.

Dinesh Textiles v. Commissioner of Central Excise, Customs and Service Tax, Calicut – Legal Case Shots | LegalAware