2006 (9) TMI 336 - AT - Central Excise

Summary

Issues:
- Demand of duty and penalty on M/s. Agrofab Machineries (India) Pvt. Ltd.
- Penalty imposed on M/s. Mahindra and Mahindra by the Commissioner of Central Excise, Nagpur.

Analysis:
1. Demand of duty and penalty on M/s. Agrofab Machineries (India) Pvt. Ltd.:
The case involved M/s. Agrofab receiving inputs from M/s. Mahindra and Mahindra for manufacturing RAC assemblies, which were then used by M/s. Mahindra and Mahindra in the production of duty-exempt tractors. The dispute arose when the benefit of Notification No. 214/86 was denied to M/s. Agrofab by the Commissioner due to non-compliance with a specific condition. A duty demand of Rs. 2,96,28,133/- and a penalty of Rs. 10 lakhs were imposed on M/s. Agrofab. The argument presented was that the provisions of Notification No. 214/86 were applicable as M/s. Agrofab had followed the requirements of Rule 6 of the Cenvat Credit Rules, 2002, by maintaining separate records for inputs used in the manufacture of exempted and dutiable products without availing duty credit.

2. Penalty imposed on M/s. Mahindra and Mahindra:
Additionally, a penalty of Rs. 5 lakhs was imposed on M/s. Mahindra and Mahindra for supplying the inputs to M/s. Agrofab. The contention put forth was that the goods were not entirely exempt from duty as Education Cess was paid on the tractors by M/s. Mahindra and Mahindra, making them subject to the provisions of Notification No. 214/86. It was also argued that if duty was deemed payable, M/s. Agrofab was entitled to Modvat credit on the inputs used in manufacturing RAC assemblies.

In the judgment, the Tribunal analyzed the provisions of Notification No. 214/86 in detail. It was observed that the manufacturer of final products, as mentioned in the notification, should be the supplier of inputs and not the job worker. The Tribunal agreed with the appellants' argument that Education Cess payment on tractors rendered them not wholly exempt from duty, aligning with the provisions of the Finance Act. Moreover, M/s. Agrofab was found eligible for Modvat credit on the duty paid on inputs, which was not availed by M/s. Mahindra and Mahindra. Consequently, the Tribunal ruled in favor of the appellants, waiving the pre-deposit of duty and penalties imposed, and stayed the recovery until the appeals were disposed of.