Custom, Excise & Service Tax Tribunal
Yes vs Represented By : Shri Prakash Shah, ... on 9 September, 2010
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : C/358 to 363 of 2007 Arising out of : OIO No. 01/MP/VAPI/2007 dated 09.01.2007 Passed by : Commissioner of Central Excise & Cus. VAPI For approval and signature : Hon'ble Mrs. Archana Wadhwa, Member (Judicial) Honble Mr. B.S.V. Murthy, Member (Technical) 1 Whether Press Reporter 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? No 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? Yes Appellant (s) : Shri Umesh Rai M/s. Shri Hari Textiles Pvt. Limited M/s. Rapier Machinery Manufacturing Co. (I) P. Ltd. Shri Mahendra H. Agarwal Shri K.D. Singh Shri Vinay Singh Represented by : Shri Prakash Shah, Advocate Respondent (s) : Commissioner of Central Excise & Cus. VAPI
Represented by : Shri Rajendra Nagar, SDR CORAM :
Hon'ble Mrs. Archana Wadhwa, Member (Judicial) Honble Mr. B.S.V. Murthy, Member (Technical) Date of Hearing : 09.09.2010 Date of Decision : 09.09.2010 ORDER No. _____________ /WZB/AHD/2010 Per : Mr. B.S.V. Murthy;
M/s. Shri Hari Textiles Pvt. Limited (Shri Hari for short) is engaged in the manufacture of Polyester Texturised Yarn (PTY) and grey fabrics. After the visit to the factory premises of Shri Hari on 19/20.02.2005 and after further investigations, a show cause notice was issued proposing to recover Central Excise duty on PTY manufactured by the appellants on job work basis and cleared to M/s. Rapier Machinery Manufacturing Company (India) Pvt. Limited (Rapier for short) amounting to Rs. 46,28,786/- for the clearances for the period 09.7.2004 to 23.11.2004. Show cause notice also proposed to recover Central Excise duty amounting to Rs. 30,39,016/- + education cess on the ground that Shri Hari had cleared 1,54,583 Kgs of PTY by issuing parallel invoices. Further differential duty of Rs. 2,57,318/- + education cess was demanded on the ground that the value had not been worked out correctly in respect of the goods manufactured on job work basis. Commissioner has passed impugned order whereby duty demand in respect of clearances of PTY for the period 09.7.2004 to 23.11.2004 against Shri Hari was confirmed. Further differential duty demand on the ground of under valuation was also confirmed.
Penalty equal to duty demand was imposed and interest was also demanded. Further penalties were imposed on the other appellants also.
2. The matter came up before this Tribunal and this Tribunal allowed the appeal filed by all the appellants vide order nO. A/1369-1374/WZB/AH'BAD/2009 dated 04.6.2009.
3. Revenue filed appeal against this order before the Hon'ble Gujarat High Court and the Honble High Court set-aside the order of this Tribunal and restored the appeals to the files of this Tribunal. The Honble High Court also ordered the Tribunal to decide the appeal afresh in accordance with law, after giving the parties an opportunity of hearing. Honble High Court also observed that the order of the Tribunal did not reflect what were the facts and what was the ratio laid down in the decisions referred by the Tribunal and in what manner the said decisions were applicable to the facts of the present case.
4. In accordance with the directions of the Honble High Court, we have heard both the sides. The first issue before us is whether Shri Hari was eligible for exemption from payment of duty in respect of PTY manufactured on behalf of the suppliers of the raw materials on job work basis. Before we proceed further, it would be appropriate to reproduce the relevant notifications and the relevant Rules :-
(i) Notification No. 214/86-CE dated 25.03.1986 (General Exemption No.7) :-In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), (herein after referred to as Special Importance Act), the Central Government being satisfied that it is necessary in the public interest so to do hereby exempts goods specified in column (1) of the Table hereto annexed (herein after referred to as the "said goods") manufactured in a factory as a job work and :-
(a) Used in relation to the manufacture of final products, specified in column (1) of the said Table,
(i) on which duty of excise is leviable in whole or in part; or
(ii) for removal to a unit in a free trade zone or to a hundred per cent. export-oriented undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Parks or for supply to the United Nations or an international organization for their official use or for supply to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) Notification No. 108/95-C.E., dated the 28th August, 1995, or
(iii) for removal under bond for export, or
(iv) by a manufacturer of dutiable and exempted final products, after discharging his obligation in respect of said goods under rule 6 of the CENVAT Credit Rules, 2002; or
(b) cleared as such from the factory of the supplier of raw materials or semi-finished goods -
(i) on payment of duty for home consumption (on which duty of excise is leviable whether in whole or in part); or
(ii) without payment of duty under bond for export; or (iia) by a manufacturer of dutiable and exempted final products, after discharging his obligation in respect of said goods under rule 6 of the CENVAT Credit Rules, 2002; or
(iii) without payment of duty to a unit in a free trade zone or to a hundred per cent. export-oriented undertaking or to a unit in an Electronic Hardware Technology Park or Software Technology Parks or supplied to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-C.E., dated the 28th August, 1995, from whole of the duty of excise leviable thereon, which is specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), the additional duty of excise leviable thereon, which is specified in the Schedule to the said Special Importance Act.
(2) The exemption contained in this notification shall be applicable only to the said goods in respect of which,-
(a) used in or in relation to the manufacture of the final products in his factory; or
(b) removal without payment from his factory :-
(i) under bond for export; or
(ii) to a unit in a free trade zone or to a hundred per cent. EOU or to a unit in an EHTP or STP or for supply to the United Nations or an international organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-C.E., dated the 28.08.1995;
(iii) by a manufacturer of dutiable and exempted final products, after discharging his obligation in respect of said goods under rule 6 of the CENVAT Credit Rules, 2002; or
(c) removed on payment of duty for home consumption from his factory; or
(d) used in the manufacture of goods of the description specified in column (1) of the Table hereto annexed by another job worker for further use in any of the manner provided in clause (a), (b) and (c) as above.
(i) the said supplier produces evidence that the said goods have been used or removed in the manner prescribed above; and
(ii) the said supplier undertakes the responsibilities of discharging the liabilities in respect of Central Excise duty leviable on the final products.
Explanation I. - For the purpose's of this notification, the expression "job work" means processing or working upon of raw materials or semi-finished goods supplied to the job worker/ so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.
Description of inputs Description of final products (1) (2) All goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than polyester filament yarn falling under heading 5402 and tariff item 54060010 [OLD- 54061000 ] [OLD- heading No.54.02 ], light diesel oil [OLD - light diesel oil ], high speed diesel oil and motor spirit, commonly known as petrol All goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).
(II) Notification No. 26/2004-Central Excise dated 09.07.2006 : In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86-Central Excise, dated the 25th March, 1986, and published in the Gazette of India vide number G.S.R. 547(E), dated the 25th March, 1986.
[Notification No. 214/86-CE dated 25.3.1986 as amended vide Notification No. 26/2004-C.E., dated 9-7-2004] (IV) Rule 4(5)(a) of the Cenvat Credit Rules, 2002/2004 : The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service
5. The Commissioner has observed that while Rule 4(5)(a) of Cenvat Credit Rules, 2002 prescribes the conditions for allowing cenvat credit and also provides cenvat credit shall be allowed even if inputs or capital goods as such, or after being partially processed sent to job workers. This Rule does not exempt the job workers from payment of duty. For exemption to the job workers for exemption of duty when process under taken amounts to manufcture relevant notification is 214/86. The manufacturer of PTY out of POY is excluded from the purview of job work and therefore job worker cannot claim exemption from payment of duty, which is due from him as per law. In the absence of any exemption notification duty should have been paid by the job worker (Shri Hari). As pointed out by the learned advocate the very same issue came up before the Tribunal and had been considered.
(a) In the case of Mukesh Industries Limited vs. Commissioner of Central Excise, Ahmedabad 2009 (248) ELT 203 (Tri. Ahmd) taking note of the provisions of Rule 57F (4) of erstwhile rules corresponding to Rule 4(5)(a) of Central Excise Rules, 2004 and the decision of the Tribunal in the case of Trico Processors Limited 2005 (189) ELT 126, it was held that whereas inputs are returned to the principal manufacturer after completion of job work, the duty demand cannot be sustained against the job worker. It was also held that confirmation of demand of duty in the hands of job worker cannot be sustained, even if the said process amounts to manufacture.
(b) In the case of Akash Fashion Prints (P) Limited 2009 (245) ELT 871 (Tri. Ahmd.), the Tribunal noted the arguments advanced by the learned advocate on behalf of the appellants as under :-
2.?Learned advocate on behalf of the appellant submitted that the issue of eligibility for the benefit of manufacture on job work basis in respect of product excluded from Notification No. 214/86, is no longer res integra. It has been held in several decisions of the Tribunal that if the goods have been processed by following the provisions of Rule 57F(4)/57AC of CER, 1944 or Rule 4(5) of CER, 2004, duty cannot be demanded from the job worker. The provision of the law requires that the inputs after processing are returned back within stipulated period and if not returned, the credit taken on such inputs is to be recovered. If duty liability on processed inputs resulting in manufacture is cast on job worker, then principal manufacturer after receiving such items claim them to be duty paid and therefore pay no further duty and yet not be liable to reverse the credit. The concept of Rule 57F(4) or 57AC is to retain the supplier of the input as a manufacturer of such inputs outsourced out of his factory. Such an onus cannot be cast on job worker. These observations have been made in the case of M/s. Trico Process Pvt. Ltd. v. CCE, Mumbai as reported in 2005 (189) E.L.T. 126 (Tri-Mumbai) and the learned advocate submits that the decision is applicable to the appellant. Relying upon the decision in the case of Trico Process Pvt. Limited and making an observation that there have been other decisions, Tribunal allowed the appeal.
(c) In the case of Sunflag Filaments Limited 2008 (224) ELT 281 (Tri. Ahmd.), the very same issue as is in the present case, came before the Tribunal. In that case, Rule 4(5)(a) of Central Excise Rules, 2004 and Notification No. 214/86-CE , as amended by Notification No. 26/2004-CE , were considered. The fact that Notification No. 214/86-CE excluded the Polyester Twisted Yarn from job work was also considered. It was held that since the general provision under Rule 4(5)(a) of Central Excise Rules, has not been amended to exclude the Polyester Twisted Yarn or POY, from being sent to job work, clearances effected in the impugned rules is regular and therefore, no penalty and confiscation are warranted. In this case, goods were confiscated on the ground that they were manufactured on the job work basis and therefore had to be cleared on payment of duty. The Tribunal took a view that receipt of these goods for job work which amounted to manufacture, was permissible and allowed the appeal.
(d) In all the decisions discussed above, this Tribunal have taken a consistent view that in respect of goods sent under Rule 4(5)(a) of Cenvat Credit Rules for job work, job workers cannot be held liable to pay duty.
(e) Judicial discipline requires the Tribunal either to follow the ratio of earlier decisions or in case of disagreement, refer the issue to the Larger Bench. Therefore, by following the principles of judicial discipline, we find that duty demand from the job workers cannot be sustained.
6. The Commissioner has also confirmed duty demand of Rs. 2,57,318/- and education cess of Rs. 5,055/- on the ground that notional profit has to be added to arrive at the assessable value for assessment for the goods cleared for job works. Para 27.1 of the order is reproduced :-
27.1 In this regard, the allegation made int eh show cause notice was that M/s. Shri Hari has manufactured and cleared polyester Texturised yarn classifiable under Chapter heading No. 54.02 to their sister concern i.e. M/s. Rapier on job work basis, during the period from 24.11.2004 to 19.2.2005 on payment of duty as per Section 4 of the Central Excise Act, 1944. The said goods received by M/s. Rapier Machinery was used to manufacture its finished goods i.e. mixed grey fabrics/ knitting fabrics and hence it is to be treated as captive consumption by their sister concern in light of Rule 9 of Central Excise Valuation (Determination of price of Excisable goods) Rules, 2000. Therefore, the valuation of the said goods was to be done in terms of lrule 9 read with Rule 8 of Central Excise Valuation Rules, 2000. The show cause notice sought for demand of differential duty amounting to Rs. 2,57,318/- and Ed. Cess amounting to Rs. 5,055/- on this account.
7. In this case, Shri Hari did not sale the goods to Rapier. Rapier used it for further manufacture. Therefore the duty payable by Shri Hari has to be assessed on the basis of the value arrived at as per the proviso to Rule 9 of Central Excise Valuation Rules, which states that in case, where the related person does not sell goods to use or consume such goods in the production or manufacture of articles, the value shall be determined in the manner specified in Rule 8. Rule 8 states that where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production of manufacture of other articles, the value shall be 110% of the cost of production of such goods. On this basis, the Commissioner has come to the conclusion that Shri Hari has to pay the duty on assessable value which includes the cost of material plus job charges plus 10% of notional profit.
8. The submissions made by the appellants have been summarized by the Commissioner in Para 27.2 and the same are reproduced below :-
they had not sold Texturised yarn to M/s. Rapier. They were receiving the duty paid POY consigned in their name and therefore, it facilitated them for the availment of Cenvat Credit. However, POY was consigned to them for conversion on labor job. The job charges bills raised by them are an evident of the fact that there was no sale of goods. They used to determine the Assessable value in accordance with the norms declared by the Apex court in case of M/s. Ujagar Prints vs. UOI 1989 (38) ELT 535 (SC), which has been followed by the various judicial forums and now. In this context, they refer and rely on CBEC Circular No. 619/10/2003 CX dated 19.02.2002, view reiterated in CBE&C circular NO. 643/34/2002 CX dated 01.07.2002. Therefore, an addition of 10% more is contrary to the provisions of law and also it is contrary to the instructions given in board circulars cited above. That there did not exist a case of captive consumption of goods. They had entered in to a transaction with M/s. Rapier on principal-to-principal basis for conversion of POY. Their interest was only to the extent of labour job carried out by them. The Labour Charges billed to M/s. Rapier, included their profit in conversion bill. Therefore, nothing more was addable. It is a settled law that even if job work is done for related person, provision in respect of related person should not apply as there is no sale through related person, as held in the case of Praful Industries vs. CCE 2000 (118) ELT 97 (CEGAT), followed in case of Special prints vs. CCE 2003 (156) ELT 1010 (CESTAT). In case of J Ice Creams vs. CCE 2000 (121) ELT 89 (CEGAT), it was held that when job work is done for a related person, valuation will be on the basis of job work charges plus material cost. In this case it was a submission that transaction was on principal-to-principal basis and there was no mutual interest and interest was only to the extent of job work and labour charges which included their profit. The alternative submission made was that even if job work was done for the related person, notional profit could not be added. Further, they stated that Rapier was their sister concern and there is no specific allegation in the show cause notice that both were the related person and therefore, the value is required to be revised. In the show cause notice it was simply stated that the goods were to be treated as captively consumed by their sister concern in the manufacture. However, no evidence has been produced in the show cause notice to show that Rapier was related person. There is no examination of the type of contract between two parties and there is no evidence to show that there was under valuation. In the absence of detailed consideration such as, whether both the parties were related persons, whether value was influenced by relationship; whether the claim of Shri Hari that job work charges reflected their cost as well as their profit, was correct; whether there was no under valuation, the conclusion reached by the Commissioner cannot be sustained.
9. In view of the above discussion, the impugned order of Commissioner in respect of demand of both the amounts cannot be sustained and accordingly, appeals have to be allowed. Since, we have taken a view that there was no offence and no duty was liable to be paid, the question of penalty does not arise. Therefore, the impugned order is required to be set-aside and accordingly, set-aside and all the appeals are allowed.
(Pronounced in the Court)
(Archana Wadhwa) (B.S.V. Murthy)
Member (Judicial) Member (Technical)
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