The Supreme Court of India (SC) upheld the order of CESTAT which quashes the order passed by the commissioner which failed to follow Rule 7AA of Central Excise Rules 2001 instead of Rule 1994.
The revenue challenged an order of the Central Excise and Service Tax Appellate Tribunal, (CESTAT) dated 06.12.2007, whereby Mahendra Fabrics, the respondent-assessee appeal allowed.
The assessee is engaged in the business of purchasing and sale of fabric; it is also used to sell ready-made dress material of a certain kind. For that purpose, they used to avail the services of job workers, where job workers used to label the dress material and send it, duly packed, to the assessee. The packing also contained a piece of embroidered cloth for the Kurta, the second piece being the Dupatta and the third piece being a cut piece of fabric for the Pyjama.
The revenue contended that the assesse was liable for the job work and after investigation issued a show-cause notice dated 29.9.2006. The show-cause notice curiously did not cite any Rule, which authorized the collection of tax, by adding the value of the work of such job workers.
The assessment order relied upon Rule 7AA. The Commissioner confirmed the demand. The assessee appealed to CESTAT, which by the impugned order set aside the Commissioner’s determination inter alia noticing that Rule 7A (which was introduced with effect from 01.07.2001 by notification dated 30.04.2001) was superseded by an entirely new set of rules i.e. the Central Excise ( No. 2), Rules 2001.
It was quite evident from the Rules of 2001 that Rule 7AA as framed on 30.4.2001 was superseded/repealed. The new regime brought into force under the 2001 Rules described a procedure different from one envisioned under the Rules framed in 1944.
Justice S. Ravindra Bhat and Justice Dipankar Datta observed that neither the show cause notice nor the order in original has adverted to the change and proceeded instead as if Rule 7AA was still in existence, which was a clear error. The Court held the order of CESTAT as Correct and dismissed the appeal.
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