Custom, Excise & Service Tax Tribunal
Mahindra Hinoday Industries Ltd vs Commissioner Of Central Excise, Pune I on 19 September, 2011
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Appeal No. E/1276/09
(Arising out Order-in-Appeal No. P-I/VSK/190/2009 dated 21.08.09 passed by the Commissioner of Central Excise (Appeals), Pune I)
For approval and signature:
Honble Mr. P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
Mahindra Hinoday Industries Ltd.
Appellant
Vs.
Commissioner of Central Excise, Pune I
Respondent
Appearance:
S/Shri Prakash Shah, Advocate with Prasad Paranjape, Advocate for the appellant Shri V.K. Singh, A.D.A.R. for the respondent CORAM:
Honble P.R. Chandrasekharan, Member (Technical) Date of hearing : 19.09.2011 Date of decision : 19.09.2011 O R D E R No:..
The appeal is directed against Order-in-Appeal No. P-I/VSK/190/2009 dated 21.08.09 passed by the Commissioner of Central Excise (Appeals), Pune I
2. The facts of the case are as follows. The appellant Mahindra Hinoday Industries Ltd. are manufacturers of excisable goods falling under Chapter 37, 84 and 87 of the Central Excise Tariff. They sent out various types of cast articles for job work to various job workers for the purposes of machining/fettling, bending, or carrying out any other operation necessary for the manufacture of final product. The finished goods are removed from the premises of the job workers and directly sent to the customers in terms of the permission granted to them under Rule 4(6) of the CENVAT credit Rules, 2004. The aforesaid permission was granted subject to undertaking given by the appellant that the waste and scrap if generated at the job workers end would either be brought back or removed on payment of Central Excise duty from the premises of the job workers. During the scrutiny of records of the appellants factory, it was noticed that they had failed to pay excise duty on waste and scrap generated at the job workers end for the period May 2007 to February, 2008. Accordingly, two show-cause notices dated 18.1.2008 and 2.5.08 were issued proposing to recover Central Excise duty amount to Rs. 5,17,110/- under the provisions of Section 11A of the Central Excise Act for having contravened the provisions of Rules 4(6) of CENVAT credit Rules, 2004 and Trade notice no. 38/02 dated 10.6.2002 issued by the Commissioner of Central Excise, Pune, proposing to recover interest on the said amount under Section 11AB of the Central Excise Act and also proposing to impose penalty under Rule 15 of the CENVAT Credit Rules. The case was adjudicated by the Jurisdictional Asst. Commissioner who vide order dated 12.12.2008 dropped the proceedings initiated under the aforesaid show-cause notice, on the ground that in terms of the judgment of this Tribunal in Preetam Enterprises vs. CCE 2004 (173) ELT 26 and Rocket Engineering Corporation Ltd. vs. CCE 2005 (191) ELT 483, the liability to discharge duty on waste and scrap is on the job workers who are the manufacturers and not on the supplier of materials. The adjudicating authority also relied on the circular of the Board S/267/28/06 CX dated 18.6.2008, wherein, it was clarified that there was no liability on the principal manufacturer to pay duty on scrap generated at the job workers premises after 31.3.2000. Against the said order the department filed an appeal before the Commissioner (Appeals) on the ground that in terms of the permission given by the Asst. Commissioner under Rule 4(6) of the CENVAT Credit Rules, 2004, the appellant had given an undertaking that they would discharge the duty liability on waste and scrap generated at the job workers premises in case they failed to bring back such waste and scrap. Therefore, in terms of the undertaking given, the appellant are liable to discharge duty liability on waste and scrap generated at the job workers premises. The ld. lower appellate authority accepted the plea of the department and set aside the order of the lower adjudicating authority and held that the appellants are liable to pay excise duty on the waste and scrap generated at the job workers premises in terms of undertaking given by them under Rule 4 of the CENVAT Credit Rules, 2004. The appellant are before us against the impugned order.
3. The ld. counsel for the appellant submits as follows. They have not given any undertaking that they would discharge liability on the waste and scrap generated at the premises of the job workers since the job workers are the manufacturers of waste and scrap (and) liability to pay excise duty lies on the job workers and not on the principal manufacturer. In the permission granted to them for clearance of finished goods from job workers premises vide permission dated 11.4.05, it has been stated as follows:-
the aforesaid permission is granted subject to fulfilment of the condition stipulated vide trade notice no. 38/02 dated 10.6.2002 of this Commissionerate and liability of the job workers to pay service tax on the job charges with effect from 10.9.2004. From the permission granted it can be seen that the liability to pay excise duty on the finished goods on the job workers premises is on the job workers but not the appellant and they cannot be fastened with such liability which is not legally binding on them. As per para 4 of the Trade notice no. 30/02 dated 10.6.2002 waste and scrap if any, arising during the job work to be either returned to the applicant or may be cleared from the premises of the job workers in the above said manner and duty liability should be discharged by debit in the account current or in CENVAT account before the goods are cleared from the job workers premises.
4. The ld. counsel relies on the judgement of the Tribunal in Rocket Engineering Corporation 2005 (191) ELT 483 wherein the question arose regarding payment of duty on waste and scrap generated at the job workers premises when goods were supplied for job work under the provisions of Rule 4(5)(a) of the CENVAT Credit Rules, 2002. In the said case it was held that Rule 4(5)(a) of the CENVAT Credit Rules does not cover return of waste and scrap to the manufacturers premises and therefore demand of duty on waste and scrap on the principal manufacturer who is sending the goods for job work is not sustainable in law. The said decision was challenged by the Revenue before the Hon'ble High Court of Bombay and Hon'ble High Court in the same case reported in 2008 (223) ELT 347 held as follows:-
Having heard rival parties and having examined the findings recorded in the order in original, it is not in dispute, that the assessee had paid duty on the scrap generated at the factory of the job worker for the period April 1999 to March 2000. There is no liability on the principal manufacturer-respondent after 31st March 2000 in view of amended Rule 57AC of the CENVAT credit Rules. Accordingly the Hon'ble High Court held that the principal manufacturer is not liable to pay duty on the scrap generated at the job workers premises after 31.3.2000. Counsel submitted that similar issue also came up before the Bangalore bench in Alucast Foundries P.Ltd. Vs. CCE 2009 (236) ELT 301 and this Tribunal held as follows:-
There is no denial of the fact that the scrap was removed from the job workers premises. In such a circumstance the department ought to have raised demand on the job workers and not on the suppliers of the raw material as held by the above noted judgements. 4.1 As regards the condition prescribed in Trade Notice no. 38/2002, the counsel points out that condition which are contrary to the provisions of law cannot be incorporated in circulars and trade notices and places reliance on the judgment of the Hon'ble Apex Court in CCE vs. Ratan Melting & Wire Industries 2008 (231) ELT 22. In the said case, the apex held as follows:-
Circulars and instructions issued by the Board, are no doubt, binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarification/circulars issued by the Central Government and of the State Government are concerned, they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law. 4.2 The ld. counsel also relies on the judgment of the Tribunal in the case of Fag Engineering vs. CCE reported in 2011 (266) ELT 193 wherein it was held that under the provisions of Rule 4(5)(a) of the CENVAT credit Rules, 2002/2004, in case inputs sent for job work are not received back by the principal manufacturer, they can be only asked to reverse the CENVAT credit on the inputs sent for job work and no duty liability can be fastened on the principal manufacturer in case of non-receipt of goods. The counsel also relies on the judgement of this Tribunal in Emco Ltd. 2008 (223) ELT 613 wherein a similar view was taken. The counsel further submits that in their own case relating to a previous period, the Commissioner (Appeals) vide order dated 09.5.07 had allowed refunds of the duty paid on waste and scrap generated at the job workers premises which were not brought back. In the light of these decisions, the counsel submits that the order of the lower appellate authority in the instant case is bad in law and should be set aside.
5. The ld. AR appearing for the department reiterates the finding of the lower appellate authority and submits that once the appellant has given an undertaking to discharge the duty liability in respect of waste and scrap generated at the job workers premises and did not bring back the waste and scrap, then in terms of provisions of Rule 4(6) of the CENVAT Credit Rules, 2004, the appellant cannot renege on the undertaking given and therefore they are liable to pay excise duty on such waste and scrap. Therefore, the lower appellate authority is right in confirming the demand of duty on waste and scrap generated at the job workers premises and prays for upholding the impugned order.
6. I have carefully considered the rival submissions. The short issue for consideration is whether the appellant is liable for payment of duty on the waste and scrap generated at the job workers premises in terms of provisions of Rule 4(6) of the CENVAT Credit Rules, 2004 which has not been brought back to the appellant premises. The said rule reads as follows:-
4(6) The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job worker may, by an order which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job worker.
7. A reading of the rule clearly indicates that the Asst. Commissioner can impose conditions in the interest of revenue including the manner in which duty, if leviable, is to be paid. The Commissioner has prescribed the manner in which the duty liability has to be discharged vide trade notice 30/02 wherein he has fastened the duty liability on the principal manufacturer rather than on the job worker. The waste and scrap is generated during the course of the job work and it is a job worker who is the manufacturer of waste and scrap under the Central Excise Rules, 2002 and the liability to pay duty is on the person who produces or manufactures any excisable goods in terms of Rule 4 of the said rules and duty liability has to be discharged in the manner provided for in rule 8 of the said rules. The liability to pay excise duty and the manner of payment of duty are governed by Rules 4 and 8 of the Central Excise Rules. They are not, in any way, altered or changed by the CENVAT Credit Rules, 2004 which deals with allowing of CENVAT credit. The CENVAT Credit Rules 2004 does not create any liability to pay excise duty under any of its provisions. It provides for reversal of credit in case the credit has been taken wrongly. Therefore, under rule 4(6) CENVAT Credit Rules, 2004 only such conditions can be prescribed which are in conformity with Rules 4 and 8 of the Central Excise Rules, 2002 and not conditions which are repugnant or contrary to the provisions of these rules. In Fag Engineering case (supra), it was held that no duty liability can be fastened upon the principal manufacturer in case of non-receipt of goods in terms of rule 4(5)(a) of the CENVAT Credit Rules, 2004 and the only consequence would be reversal of credit availed on the inputs in case goods on which credit has been taken and which has been allowed to be removed for job work is not brought back within the time period stipulated. The same legal position was held in the case of Rocket Engineering decided by this Tribunal as also by the Hon'ble High Court of Bombay. In the light of these judicial pronouncements, it has to be held that the principal manufacturer who has supplied the inputs as such or partially processed, to job workers for further processing cannot be fastened with the duty liability on the waste and scrap generated at the job workers premises and said liability falls on the job workers who have actually manufactured the waste and scrap. In case, the department wanted to recover duty on the waste and scrap, then the demand should have been raised on the job workers as has been held in Alucast Foundries (supra).
8. In the light of the foregoing, I set aside the impugned order and allow the appeal with consequential relief, if any.
(Operative part pronounced in Court) P.R. Chandrasekharan, Member (Technical) SR 11