2006 (6) TMI 320 - AT - Central Excise

Summary

Issues:
Claim for Cenvat credit on duty paid by job worker under Rule 12B of Central Excise Rules, 2002.

Analysis:
The appellants, manufacturers of ready-made garments, sent grey cotton fabrics to a job worker for dyeing under Rule 12B of the Central Excise Rules, 2002. The processed fabrics were returned under regular invoices under Rule 11, and duty was paid on such clearances. However, the Cenvat credit of the duty paid, amounting to Rs. 1,46,199/-, was disallowed by the original and first appellate authorities, leading to the present appeal.

The consultant for the appellants argued that even though the job worker was not liable to pay duty on the processed fabrics, they did pay the duty, making the credit admissible to the appellants as all Cenvat credit requirements were met. The consultant cited relevant case laws to support this argument. On the other hand, the SDR supported the findings of the Commissioner (Appeals) and referred to a Circular of the Board, stating that the job worker was not authorized to pay duty under Rule 12B, making the Cenvat credit inadmissible to the principal manufacturer.

After considering both sides' submissions, the judge noted that if the payment of duty by the job worker was unauthorized by law, its collection by the department was also unauthorized, contravening Article 265 of the Constitution. The judge emphasized that the dyed fabrics received by the appellants were duty-paid, fulfilling the basic requirements for Cenvat credit. Referring to a previous case with similar circumstances, the judge allowed the credit to the principal manufacturer, ensuring safeguards against double benefits. Consequently, the impugned order disallowing the credit was set aside, and the appeal was allowed.