Custom, Excise & Service Tax Tribunal
Central Capacitors Co. Pvt. Ltd vs Nagpur on 23 February, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI APPEAL NOS: E/2850 to 2853/1990 [Arising out of Order-in-Original No: 9/90 dated 04/04/1990 passed by the Collector of Central Excise, Nagpur.] For approval and signature: Hon'ble Shri M.V. Ravindran, Member (Judicial) and Hon'ble Shri P.R. Chandrasekharan, Member (Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : --
3. Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4. Whether Order is to be circulated to the Departmental authorities?
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Yes Vidharbha Cables Omega Scientific Co. Central Cables Pvt. Ltd. Central Capacitors Co. Pvt. Ltd. ...Appellants Vs Commissioner of Central Excise Nagpur ...Respondent Appearance:
Shri Bharat Raichandani, Advocate for the appellant Shri V.K. Singh, Authorised Representative (SDR) for the respondent CORAM:
Hon'ble Shri M.V. Ravindran, Member (Judicial) and Hon'ble Shri P.R. Chandrasekharan, Member (Technical) Date of hearing: 23/02/2011 Date of decision: 23/02/2011 ORDER NO:
Per: P.R. Chandrasekharan:
This appeal is directed against the Order-in-Original No: 9/90 dated 04/04/1990 passed by the Collector of Central Excise, Nagpur.
2. The said order was passed in respect of show-cause notice No. V(15)/01/89/Adj./21457 dated 08/06/1989 wherein M/s. Central Cables (P) Ltd, the appellant and the three job-workers, namely, Omega Scientific, Vidharbha Cables and Central Capacitors Co. Pvt. Ltd. were made parties. The allegation in the show-cause notice was that the assessee was procuring copper and aluminium products falling under Chapter 74 and 76 of the Central Excise Tariff Act, 1985 on payment of duty as inputs and the goods, which were received in their own name, were transferred to the three job-workers by endorsing the concerned gate passes without accounting for the same in the statutory RG23A Part I and II register and making entries of these goods in the private store accounts. The job-workers, who received these goods, took credit of the duty paid on the strength of the endorsed gate passes and manufactured wires and cleared the same on payment of duty availing concessional rate of duty under Notification No. 175/86 dated 01/03/1986 and transferred the manufactured wires to the assessee. The assessee took credit of the duty paid by the job-workers under Notification 175/86-CE at the enhanced rate as provided for in para 5 of the said Notification read with Rule 57B of the Central Excise Rules, 1944. The allegation is that since the job-workers are manufacturing intermediate products and the assessee was receiving the raw materials, they should have followed the procedure under Rule 57F of the said Rules whereunder the assessee should have taken the credit of the duty paid on the raw material and dispatched the goods for manufacture on job-work basis to the job-workers who in turn should have manufactured the goods and cleared the same to the assessee without payment of duty under Notification No. 214/86-CE as amended. In other words, the allegation was that the assessee was not entitled to avail the higher modvat credit under Rule 57B read with Notification No. 175/86 and they should have necessarily followed the procedure prescribed under Rule 57F relating to the job-work procedure. The adjudicating authority, who examined the matter came to the conclusion that the transaction between the job-workers and the principal manufacturer, namely, M/s. Central Cables Pvt. Ltd., is fully covered under the scope of Rule 57F(2) of the Central Excise Rules, 1944 read with Notification 214/86 dated 02/04/1986 and hence the higher notional credit taken by the assessee under Rule 57B was not permissible for such transactions because, they were sending their own goods for job-work and receiving them back and the ownership never changed hands. Accordingly, the adjudicating authority confirmed an amount of Rs. 16,44,436=91 short-paid/excess credit taken under Section 11A of the Central Excise Act, 1944. He imposed a penalty of Rs. 1.5 lakhs on the assessee under Rule 173Q and penalty of Rs. 25,000/- each on the three job-workers under Rule 173Q read with Rule 209A of the Central Excise Rules, 1944.
3. The learned counsel for the appellant submits that in respect of earlier transactions of the assessee, a show-cause notice had been issued on 21/04/1987 and the cases adjudicated by the jurisdictional Assistant Collector vide order No. 131/89 dated 01/08/1989 wherein the Assistant Collector had held that the assessee is the manufacturer of the goods and not the job-workers and accordingly, the assessee should not have taken the credit of the duty paid by the job-workers. The said order, after the first appellate stage, came before the Tribunal and this Tribunal vide final order No. E/1188/98-B1 dated 30/07/1998 held that merely because the assessee has supplied raw material they cannot be held to be the manufacturers and the job-workers are the manufacturers. The said order attained finality as it was not challenged by the department. As regards the present order of the Collector of Central Excise, Nagpur, the assessee contends that he is not the manufacturer of the wires produced by the job-workers and in support thereof, relies on the judgment of the Hon'ble Bombay High Court in the case of Commissioner of Central Excise & Customs, Aurangabad vs. Mahyco Seeds Ltd. 2005 (182) ELT 163 and the judgment of the Hon'ble apex court in the case of Collector of Central Excise, Baroda vs. M.M. Khambhatwala 1996 (84) ELT 161 (SC) wherein it has been held that the job-workers are manufacturers in their own right and the raw material supplier cannot be held to be the manufacturer even in a case where the raw material supplier paid wages to the people who actually undertook the manufacturing operation. The learned counsel for the assessee also relies on the judgment of the Bombay High Court in the case of Impact Containers Pvt. Ltd. vs. Asstt. Collector of Central Excise, Bombay 1996 (85) ELT 213 wherein the issues were identical. In the said case, the appellants therein had supplied aluminium ingots directly to the job-workers and got plain aluminium tubes manufactured by them and the job-workers took credit of the duty paid on the aluminium ingots and discharged duty liability on the plain aluminium tubes. Thereafter, the appellant in that case, undertook manufacture of lacquered printed aluminium tubes by taking credit of the duty paid by the job-workers. In that case also the department alleged that the assessee should have followed the procedure prescribed under Rule 57F(2) and could not have cleared the raw materials and transferred the credit thereon to the job-workers. In the said case, the Hon'ble High Court of Bombay held that the procedure provided under Rule 57F(2) is only a facility which could be availed of by the manufacturer at his option if he so desired and it was not at all compulsory or mandatory for him to comply with the said procedure. The assessee cannot be compelled to follow the said procedure laid down under Rule 57F(2) and it was open for the assessee not to follow the procedure laid down under Rule 57F(2), and, instead to pay central excise duty on the goods cleared from his factory after claiming the benefit of the modvat credit of the duty paid on the inputs against the duty payable on the finished excisable goods. The Hon'ble High Court further held that there is nothing in Rule 57F(2) which would in any way indicate that if a manufacturer wants to avail of the benefit of modvat facility under Rule 57A, it is obligatory on him to follow the procedure laid down in Rule 57F(2). In the light of these submissions, the learned counsel for the appellant submitted that the order passed by the Commissioner of Central Excise, Nagpur is devoid of merits and needs to be set aside and the appeals allowed.
4. The learned DR, on the other hand, would submit that Rule 57F(2) was mandatory and the assessee should have followed the said procedure and should not have availed the modvat credit at a higher rate as provided for in Rule 57B read with Notification 175/86 as amended, even though the duty liability was discharged at a lower concessional rate by the job-workers under Notification No. 175/86 as amended. He also relied upon the decision of the Tribunal in the case of Modi Rubber Ltd. vs. Collector of Central Excise, Meerut 1998 (100) ELT 142. In the said decision, this Tribunal has held that the Notification No. 175/86-CE has been issued under Rule 8(1) and not under Rule 57A of the Central Excise Rules, 1944, and non-obstante clause in Rule 57B does not extend to Notification No. 175/86.
5. We have considered the rival submissions. As has been held by this Tribunal in final order No. E/1188/98-B1 dated 30/07/1998 in appeal No. E/781/90, the raw material supplier cannot be considered as manufacturer and the job-workers are manufacturers in their own right. Therefore, treating the manufacture of wires made by the job-workers as on behalf of the assessee has no basis whatsoever. In the Mahyco Seeds case (supra) and also the M.M. Khambhatwala case (supra) both the Bombay High Court and the Hon'ble Supreme Court has clearly held that job-workers are manufacturers in their own right and if they are entitled to SSI exemption based on their clearances, the value of goods cleared by them individually cannot be clubbed together for the purpose of determining the exemption under Notification No. 175/86 or its successor Notification No. 80/80-C.E. Therefore, in the case under consideration, it cannot be held that the manufacture undertaken by the job-workers was on behalf of the assessee.
6. Further, in the case of Facit Asia Ltd. vs. Collector of Central Excise 1991 (54) ELT 347 the Madras Bench of the Tribunal held that modvat credit cannot be denied to a manufacturer just because his job-workers paid duty on the intermediate components under the normal procedure instead of returning them to the manufacturer without payment of duty under the provisions of Notification No. 214/86. The Tribunal further held that the job-worker cannot be forced to avail the benefit of Notification No. 214/86 and the choice is with him in regard to availment of the benefit of Notification. Similarly, the Hon'ble Bombay High Court in the Impact Containers Pvt. Ltd. case (supra) has clearly held that Rule 57F(2) is only a facility and it cannot be forced upon every manufacturer and it is the manufacturer who has to decide whether he wants to follow such a procedure or he wants to avail the benefit of modvat facility under Rule 57A. This position was also confirmed by the Central Board of Excise & Customs in their letter dated 17/10/1988 to the All India Manufacturers Organisation wherein it was made clear that it was entirely the option of the assessee whether to avail of the procedure laid down under Rule 57F(2) or not.
7. In the light of these submissions the order of the Collector of Central Excise, Nagpur, that the assessee should have necessarily followed the procedure under Rule 57F(2) has no legal basis whatsoever. The Hon'ble High Court in the case of Impact Containers Pvt. Ltd. (supra) further held that the assessee is entitled to avail modvat facility under Rule 57A and it is not necessary for the assessee to follow the procedure under Rule 57F to claim the benefit under Rule 57B. Rule 57B provided for allowing of credit of duty in a case where the duty on inputs had been paid under a notification issued under sub-rule (1) of Rule 8 or sub-section (1) of Section 5A of the Act as the case may be, exempting such inputs from a part of the duty leviable thereon on the basis of value of clearances of such inputs during any specified period be allowed at the rate otherwise applicable to such inputs but for the said notification subject to the condition that the Notification provides for grant of credit in respect of such inputs at such higher rates. In the instant case, duty liability has been discharged by the job-workers under Notification No. 175/86 dated 01/03/1986. Para 5 of the Notification as it stood at the relevant time provided that:
"5. Notwithstanding the exemption granted by this notification, in respect of the specified goods which are subjected to concessional rate of duty (other than those specified goods which are wholly exempted from the duty of excise leviable thereon), under this notification, and used as inputs in the manufacture of final products in terms of the provisions of SECTION AA of Chapter V of the said Rules, the credit in respect of such inputs shall be allowed under rule 57B of the said Rules, at the rate of duty otherwise applicable, but for this notification." In view of these provisions, the availment of input credit on the goods manufactured by the job-workers at a higher rate was permissible as it was the policy of the Government to allow such higher amount of credit.
8. In the light of the foregoing discussions, we set aside the impugned order No. 9/90 dated 04/04/1990 passed by the Collector of Central Excise, Nagpur and allow the appeal filed by M/s. Central Cables Pvt. Ltd. and the three job-workers, namely, M/s. Vidharbha Cables, M/s. Omega Scientific Co. and M/s. Central Capacitors Co. Pvt. Ltd. with consequential relief, if any. (Operative part of the order Pronounced in Court) (M.V. Ravindran) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 11 9