Custom, Excise & Service Tax Tribunal
Precision Metals vs Commissioner Of Central Excise on 13 January, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. I Appeal No. E/740/07 (Arising out of Order-in-Original No. 42/MS (31)/Commr/Rgd/ 06-07 dated 29.03.2007 passed by Commissioner of Customs & Central Excise, Raigad) For approval and signature: Honble Mr. Ramesh Nair, Member (Judicial) Honble Mr. Raju, 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 : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
Precision Metals Appellant Vs. Commissioner of Central Excise Raigad Respondent Appearance:
Ms. Anjali Hirawat, Advocate for appellant Shri Ajay Kumar, Jt. Commr (AR) for respondent CORAM:
Honble Mr. Ramesh Nair, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing: 13.01.2016 Date of Decision: 13.01.2016 ORDER NO Per: Ramesh Nair This appeal is directed against order-in-original No. 42/MS (31)/Commr/Rgd/06-07 dated 29.03.2007 passed by the Commissioner of Customs & Central Excise, Raigad wherein he confirmed the demand of Rs.78,74,208/- under Section 11A(i) of Central Excise Act, 1944 read with Rule 14 of Cenvat Credit Rules, 2002 and also demanded interest under Section 11AB and imposed penalty equivalent of Rs.78,74,208 under Section 11AC of the above said Rule.
2. The issue involved in the present case is that whether CENVAT credit on the input used by the jobworker for the manufacture of goods on jobwork basis under Notification No.214/86-CE dated 25.03.1986 is admissible or otherwise. The adjudicating authority confirmed the demand of CENVAT amount i.e. 10% of the value of the goods manufactured and cleared under Notification No. 214/86 on the ground that the goods so manufactured on jobwork basis is exempted from payment of excise duty therefore in terms of Rule 6 of Cenvat Credit Rules, 2004 the appellant is liable to pay 10% of the value of exempted goods and consequently whether the appellant is liable to pay 10% of the value of such exempted goods in terms of Rule 6 of Cenvat Credit Rules, 2002.
3. Ms. Anjali Hirawat, learned Counsel for the appellant submits that the appellant received the raw material from the principal supplier under Rule 4(5)(a) of the Cenvat Credit Rules, 2002 without payment of duty on the said raw material manufacturing is carried out. During the manufacturing they utilized propane gas on which they were availing CENVAT credit. She further submits that the adjudicating authority demanded 10% of the value of the goods manufactured on jobwork basis on the ground that such jobwork goods is exempted under Notification No. 214/86. It is her submission that as per the said exemption the principal manufacturer undertakes to discharge the excise duty on their final product wherein the intermediary goods manufactured by the appellant are used. In such situation there is no exemption from payment of duty as the final product which is subsequently cleared by the principal supplier of the raw material are cleared on payment of duty. She submits that the issue involved has come up before this Tribunal and the Hon'ble High Courts in many cases and in those cases under the similar set of facts it was held that CENVAT credit is admissible in respect of input used in the manufacture of goods on jobwork basis in terms of Notification 214/86. Consequently provisions of payment of 10% of the value of such goods as provided under Rule 6(3)(b) has no application. She placed reliance on the following judgements:-
(a) Hwashin Automotive India Pvt. Ltd. v. CCE 2007 (218) ELT 703
(b) CCE v. Kapsons Inds. Ltd. 2007 (218) ELT 460 (Tri. Del)
(c) CCE vs. Jainsons Wool Chambers Ltd. 2010 (261) ELT 1015 (Tri. Del)
(d) Sterlite Industries (I) Ltd. v. CCE 2005 (183) ELT 353 (Tri.LB)
(e) CCE v. Happy Forging Ltd. 2011-TIOL-34-HC-P&H-CX
(f) Welspunn India Ltd. v. CCE 2009 (248) ELT 898 (Tri. Ahmd.)
4. On other hand Shri Ajay Kumar, learned Jt. Commissioner (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order.
5. We have carefully considered the submissions made by both the sides.
6. We find that the demand was raised for an amount equivalent to 10% of the value of the goods which was manufactured by the appellant on jobwork basis which was returned without payment of duty to the principal supplier of raw material in terms of Notification No.214/86. As per the condition of the Notification 214/86 principal supplier of raw material indicates to discharge the excise duty either on the jobwork goods itself or on the final product in which jobwork intermediary goods is used. With this proviso it can be said that the goods manufactured on jobwork basis is exempted from payment of excise duty. It is that the Notification 214/86 only facilitates the principal supplier of raw material to avoid payment of duty at two stages, (1) at jobwork stage and (2) at the stage of final product clearances. However, the amount of duty required to be paid will remain same as if no duty is charged at the jobworker end the same shall be available as CENVAT credit to the principal supplier of raw material. It is only for the convenience of the procedure, Notification 214/86 was issued and not to exempt any excise duty. Since the goods manufactured on jobwork basis is exempted on the ground that the excise duty is charged on the full value of final product wherein the value of jobwork goods deemed to have been included the jobwork goods is not exempted. Therefore, Rule 6(3)(b) which is applicable only on the clearance of exempted goods shall not apply in the case of the goods manufactured on jobwork basis under Notification 214/86. The relevant paras of the judgements relied on by the learned Counsel are reproduced below:-
(a) Hwashin Automotive India Pvt. Ltd.
8.?In Mahindra & Mahindra Ltd. (supra), the Tribunal observed that the amount paid in terms of Rule 6(3)(b) of CCR was for the adjustment of credit of inputs which went into the manufacture of exempted goods. This amount was collected towards the inadmissible credit availed by an assessee using common inputs and clearing also the exempted final product. As the appellants were eligible for the input credit relatable to job worked goods cleared to the principal manufacturer, they were not required to pay any amount in terms of Rule 6 (3)(b) of CCR, 2002. This position was clarified by the following observation of this Bench in paragraph 3 of Final Order No. 1536/2005 in CCE, Chennai v. Ucal Machine Tools Ltd. reported in 2006-TIOL-76-CESTAT-MAD :
3. After giving careful consideration to the submissions, I find that the Larger Bench did not recognize job-worked goods as exempted goods for purposes of Rule 57C, which provision mandated that no credit of duty paid on inputs shall be allowed where the final product manufactured out of such input was wholly exempted from the payment of duty of excise leviable thereon or was chargeable to nil rate of duty. It was observed that, in the special procedure laid down under Rule 57F(3), duty did not get paid at the job workers end at the time of clearance of goods, but ultimately got paid at the principal manufacturers end. In other words, assessable value of the goods cleared by the job worker without payment of duty to the principal manufacturer would ultimately become as ingredient of the assessable value of the final product cleared by the latter on payment of duty. Thus, duty gets paid on the job-worked goods at a later stage and, therefore, such goods cannot be categorized as exempted goods for purposes of Rule 57C or Rule 57R. Thus, the Larger Bench decision operates in favour of the respondents. In the circumstances we find that the appellants were not required to pay an amount of Rs. 63,68,953/- along with interest of Rs. 50,352/-. They were eligible for refund of the same. As these amounts do not represent duty, the refund of the same need not be subjected to the procedure prescribe under Section 11B of the Central Excise Act. It is seen from the order of the original authority that the amount impugned had not been collected from the customers by the appellants. Therefore, the refund of the same would not involve unjust enrichment. In the circumstances, we find that the impugned order is not sustainable.
(b) Kapsons Inds. Ltd.
6. On plain reading of Rule 4(5)(a), it is clear that the manufacturer shall take credit of duty paid inputs or capital goods sent to a job worker. So, the manufacturer would pay duty on the goods returned back by the job worker after processing. The duty liability on job work goods is on the manufacturer and not on the job worker. Therefore, in the present case before us, we observe that Electrical Stampings of Laminations and Aluminium Casting manufactured by the respondent on job work basis under Rule 4(5)(a) of Cenvat Credit Rules cannot be treated exempted goods and the recovery of the amount under Rule 6(3) of Cenvat Credit Rules is not sustainable. It is seen that the Tribunal in the case of Shree Rayalaseema Dutch Kassenbown Ltd. v. CCE, Tirupathi - 2006 (76) RLT 464 (CESTAT- Bombay) held that demand of duty on job worker working under Rule 4(5)(a) for the reason that raw material supplier has not followed the provision of Notification No. 214/86-CE, is not correct. Hence, the contention of the Revenue, in the present case, that the procedure under Notification No. 214/86-CE were not followed, has no merit.
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7. We find that the Larger Bench of the Tribunal in the case of Sterlite Industries (I) Ltd. v. Commissioner of Central Excise, Pune - 2005 (183) E.L.T. 353 (Tribunal-LB) following the decision of Honble Supreme Court in the case of Escorts Ltd. v. CCE - 2004 (171) E.L.T. 145 (S.C.), held as under :-
By applying the ratio of the above decision, it becomes clear that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilization in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honourable Supreme Court, we would hold in favour of assessee. ? 8. In view of the above, we find that the Commissioner rightly dropped the demand under Rule 6(3) of Cenvat Credit Rules, 2002 on job work material. There is no reason to interfere the Order of the Commissioner. Accordingly, the appeal filed by the Revenue is dismissed.
(c) Jainsons Wool Chambers Ltd.
4.? I have carefully considered the submissions from both the sides and perused the records. The dispute in this appeal is only for the period prior to 1-4-03 i.e. for the period from April01 to March03 when Rule 12B of the Central Excise Rules was not there. During this period, the respondent were receiving raw material from the principal manufacturers and were processing the same into woolen tops/woolen yarn by using their own inputs for which the Cenvat credit was being taken. The principal manufacturers were clearing the finished goods on payment of duty. The point of dispute is as to whether in such a situation, the respondent as job worker were eligible for Cenvat credit of inputs used in or in relation to the manufacture of goods on job work, which were cleared without payment of duty to the principal manufacturers who, in turn, cleared the same on payment of duty. I find that this issue stands settled against the Revenue by Larger Bench judgment of the Tribunal in the case of Sterlite Industries (I) Ltd. v. CCE, Pune (supra) which has been upheld by Honble Bombay High Court vide judgment reported in 2009 (244) E.L.T. A89. Honble Bombay High Court while upholding the Larger Bench of the Tribunal has observed that the Tribunals judgment is in accordance with the law laid down by Honble Supreme Court in the case of Escorts Ltd. v. CCE reported in 2004 (171) E.L.T. 145 (S.C.). I also find that Honble Bombay High Court in a recent judgment in the case of Tata Motors Ltd. v. UOI reported in 2009 (244) E.L.T. 337 (Bom.) has upheld the same principle. As regards the revenues plea that the Tribunals judgment in the case of Sterlite Industries (I) Ltd. (supra) was with regard to Rule 57C, this plea is not correct as Rule 57C is pari materia with Rule 6(1) of Cenvat Credit Rules, 2001, which was in force during the period of dispute and therefore, the ratio of the Tribunals judgment in the case of Sterlite Inds. Ltd. would be applicable to this case also. In view of this, I do not find any infirmity in the impugned order. The Revenues appeal is accordingly dismissed. The Cross Objection filed by the respondent also stands disposed of as above.
(d) Sterlite Industries (I) Ltd.
3.?We are also in agreement with the appellants contention that Rule 57C debars taking of credit in respect of the inputs used in the manufacture of the final product, if final product is exempted from the whole of duty of excise leviable thereon or chargeable to nil rate of duty. As such, to attract the provisions of Rule 57C, two situations in respect of the final product should be satisfied. Either the final product should be exempted, which situation can arise only when there is an exemption notification issued under Section 5A of the Central Excise Act or the final product is chargeable to nil rate of duty. Expression chargeable to nil rate of duty or exempted from whole of duty was considered by the Tribunal in the case of Orissa Synthetics Ltd. v. Collector of Central Ex. [1995 (77) E.L.T. 350 (Tri.)] and after taking note of the Ministries clarifications issued vide Circular No. 10/75/CX. 6, it was held that clearance under goods under provision of 191BB for export without payment of duty would not get covered by the above expression. Reference was made to the advice received from the Ministry of Law dealt in the paragraph of 9 in the said decision. It was opined in the said letter of the Law Ministry that the term exempted has a definite connotation. The same as attributed to the notification issued by the Central Government. Similarly, the chargeable to nil rate of duty would refer to the tariff rate being nil and the goods cleared in terms of provision of Rule 199BB would not be covered by the said expression inasmuch as the same are not chargeable to nil rate. In the present case, we find the job worker could have cleared the goods on payment of duty and manufacturer could have claimed credit of the same. It is only under the special procedure laid down in terms of the Rule 57F(3) that the duty does not get paid at the job workers end at the time of clearance of the goods, but ultimately gets paid at the manufacturers end. In these circumstances, we are in agreement with the decision rendered in the case of Bajaj Tempo and Jindal Polymers.
3.?Apart from the above two decisions, we also note that identical view was taken in the case of Shakti Insulated Wires Ltd. v. CCE & C, Mumbai-V [2002 (149) E.L.T. 668 (Tri.) = 2002 (51) RLT 115 (CEGAT-Mum)] & also in the case of CCEx, Jaipur v. Noorani Textiles Mills [2000 (122) E.L.T. 744 (Tribunal)].
4.?In only case of Escorts Ltd. v. CC Ex, Delhi [2003 (160) E.L.T. 623 (Tri-Del.)] while interpreting Rule 57C of the Central Excise Rules, the Tribunal rejected the appellants claim of Modvat credit of duty paid on the inputs used in the manufacture of the parts, which were cleared without payment of duty to, appellant's other unit under Chapter X procedure and utilised in the manufacture of tractor which were cleared on payment of duty by observing that since no duty was paid on the part at the time of clearance, Rule 57C will apply and no Modvat credit would be admissible. However, the said decision was subsequently reversed by the Supreme Court as reported in Escort v. C.C.Ex. [2004 (171) E.L.T. 145 (S.C.)]. For appreciation, we reproduce paragraphs 8 & 9 of the said decision.
8.?It is to be seen that the whole purpose of the Notification and the Rules is to streamlines the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product.
9.?In cases of manufacturers like the Appellants the final product is the tractor. The intermediate product would be parts which are manufactured for being used in the tractor. In such a case the parts would not be the final product. Thus Rule 57C would have no application. The mere fact that the parts are cleared from one factory of the Appellants to another factory of the Appellants would not disentitle the Appellant from claiming benefit of Notification No. 217/86-C.E., dated 2nd April, 1986. As stated above, the Notification itself clarifies that the inputs can be used within the factory of production or in any other factory of the same manufacturer. By applying the ratio of the above decision, it becomes clear that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Inasmuch as, the matter stands decided by the Honourable Supreme Court, we would hold in favour of assessee.
5.?As regards the decision in the case of Alpha Lavan laying down that the Modvat credit could be claimed in such a situation, we find the earlier decision of the Bajaj Auto was not followed. However, in view of the facts that the ratio of Bajaj Auto decision stands approved by the Supreme Court decision in the case of Escort Ltd. referred supra, we are of the view that the Alpha Lavan is no longer good law.
6.?In view of the foregoing, we answer the reference in favour of the assessee. The papers may be placed before the original Bench for passing the appropriate orders.
(e) Happy Forging Ltd.
5. Learned counsel for the appellant submits that Cenvat Credit has been availed by the assessee in violation of Rule 6(1) of the Rules and the adjudicating authority was not justified in dropping the proceedings. The Commissioner (Appeals) as well as the Tribunal erred in upholding the view taken by the adjudicating authority. Reliance has also been placed on judgment of the Honble Supreme Court in CCE v. Ballarpur Industries Ltd. (2007)8 SCC 89.
6. We are unable to accept the submissions. While there is no dispute that under Rule 6(1) of the Rules, Cenvat Credit cannot be availed in respect of inputs used in manufacture of exempted goods, the same has to be read with the notification referred to above. Learned counsel for the appellant is not able to assail the finding that under the notification, availing of Cenvat Credit is permissible by job worker, subject to the final manufacturer paying the duty. In such a situation, matter is covered against the revenue by Escorts, wherein it was observed:-
8. It is to be seen that the whole purpose of the notification and the Rules is to streamline the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57-D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where an intermediate product comes into existence, even though no duty has been paid on the intermediate product as it is exempted from whole of the duty or is chargeable to nil rate of duty, credit would still be allowed so long as duty is paid on the final product.
9. In cases of manufacturers like the appellants, the final product is the tractor. The intermediate product would be parts which are manufactured for being used in the tractor. In such a case the parts would not be the final product. Thus Rule 57-C would have no application. The mere fact that the parts are cleared from one factory of the appellants to another factory of the appellants would not disentitle the appellants from claiming benefit of Notification No. 217/86-CE dated 2-4-1986. As stated above, the notification itself clarifies that the inputs can be used within the factory of production or in any other factory of the same manufacturer.
10. Mr Lakshmikumaran relied upon the decision of this Court in the case of CCE v. Hindustan Sanitaryware & Industries (2002) 7 SCC 515, wherein in respect of this very notification, this Court has held that so long as duty is paid on the final product, the mere fact that duty was not paid on the intermediate product would not disentitle the manufacturer from the benefit of Notification No. 217/86-CE dated 2-4-1986. In that case, the input was plaster of Paris, the intermediate product was moulds made out of the plaster of Paris, the final product was sanitaryware. In our view, the facts of that case are identical to the facts of the present case. The ratio laid down therein fully applies to this case.
11. In this view of the matter, we set aside the impugned judgment and the order of the Commissioner of Central Excise. It is held that the appellants will be entitled to MODVAT credit on duties paid for the inputs used for manufacture of parts, so long as the parts are used in the manufacture of tractors on which duty is paid. We clarify that in respect of parts which are sold in the open market and/or used for manufacture of tractors on which no duty is paid, the benefit of Notification No. 217/86-CE dated 2-4-1986 may not be available. As regards the judgment of the Honble Supreme Court in Ballarpur Industries Ltd., therein the issue was not of effect of the notification dated 25.3.1986, which has been invoked in the present case. The said judgment is, thus, distinguishable.
8. No substantial question of law arises.
The appeal is dismissed.
(f) Welspunn India Ltd.
3.?The said order of the Commissioner is impugned before us by the assessee as also by the Revenue on the ground that the goods cleared under job work are neither considered as exempted goods nor goods cleared at Nil rate of duty. The goods cleared from the job workers premises are at par with the normal clearance except that of shifting duty liability to be discharged on these goods at the hands of recipient principal manufacturers, as held in the following cases :-
(i) 2007 (218) E.L.T. 460 (Tri. - Del.) Commissioner of Central Excise Jalandhar v. Kapsons Industries Ltd. (Unit-I)
(ii) 2005 (183) E.L.T. 353 (Tri. - L.B.), New Delhi, Sterlite Industries (I) Ltd. v. Commissioner of Central Excise, Pune
(iii) 2004 (175) E.L.T. 486 (Tri. - Mumbai), Jinalloy Steel Processor v. Commissioner of Central Excise, Belapur.
(iv) 2001 (135) E.L.T. 657 (Tri. - Del.), Jindal Polymers v. Commissioner of Central Excise, Meerut-II
(v) 1994 (69) E.L.T. 122 (Tribunal), Bajaj Tempo Ltd. v. Collector of Central Excise, Pune.
4.?It further stands contested that the provisions of Rule 6 of Cenvat Credit Rules, 2004 are meant for situation where the unit manufactures both dutiable and exempted goods using common inputs in respect of which Cenvat credit has been availed by them. The said provisions cannot be in respect of clearances under job work.
5.?As it is a case of assessee as also of the Revenue that the issue is settled in favour of the assessee and impugned order should be set aside. We order accordingly and remand the matter to Commissioner for fresh decision in the light of various precedent judgments, as referred above as also in the light of departments own stand as reflected in their appeal.
6.?Stay petition as also appeal filed by the assessee and the Revenue is disposed off in above terms. 6.1 From the above judgements it can be seen that the issue involved in the present case has been decided in a number of cases and accordingly the demand raised for an amount equivalent to 10% of the value of jobwork goods in terms of Rule 6(3)(b) is not sustainable. We, therefore, set aside the impugned order and allow the appeal with consequential relief, if any in accordance with law.
(Dictated in Court) (Raju) Member (Technical) (Ramesh Nair) Member (Judicial) nsk ??
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1 17Appeal No. E/740/07