2006 (9) TMI 337 - AT - Central Excise

Cenvat/Modvat - Orders on denial of credit demands - interest and penalty - Manufacturing Factory - benefit of Exemption Notification No. 214/86 - whether a Unit if they do not have any machinery in their premises can be a factory under the Central Excise Law - HELD THAT - We find nothing amiss in the appellant having form out their entire production on job work to various job worker/manufacturers under the provisions of Notification 214/86-C.E. since no charge on violation of the procedures prescribed under this Notification have been brought out or shown to us, we would consider that the input credit which was availed by these appellants and thereafter their having obtained goods manufactured exclusively and completely on job work outside the premises, they could use such credit to discharge the duty liabilities under the provisions of notification from such credit accounts as well as from their personal ledger account which in the applicants admitted position that they have. In view that we are taking as long as the job working is allowed, we cannot insist on a manufacturing factory will be having any machine or machinery in their premises to be a sine qua non to call for registration under the law or a liability to credit or discharge of duty from such credit. We therefore find no reason to impose and call for any penalty in this case. The orders on denial of credit demands, interest and penalty as arrived at cannot be sustained and the impugned order set aside and this appeal allowed.

Summary

Issues:
- Whether the appellant, engaged in manufacturing excisable goods, is eligible for availing credit of duty without having machinery in their premises?
- Whether a unit without machinery can be considered a factory under Central Excise Law?
- Whether the appellant's activities of manufacturing goods through job workers comply with the relevant provisions and notifications?
- Whether the imposition of penalty and recovery of amounts by the Ld Commissioner is justified?

Analysis:

1. Eligibility for Availing Credit without Machinery:
The appellant, engaged in manufacturing excisable goods, was availing credit on raw materials without having installed any plant and machinery for manufacturing. The issue arose whether the appellant could avail credit without machinery. The Tribunal analyzed the definitions of 'factory' and 'manufacture' under the Central Excise Act. It was established that the law does not mandate the presence of machinery for carrying out manufacturing activities. The Tribunal emphasized that all functions necessary for manufacturing need not be conducted in the same premises. The appellant's practice of getting goods manufactured through job workers outside their premises was found to be in compliance with relevant provisions and notifications.

2. Unit Without Machinery as a Factory:
The question of whether a unit without machinery can be considered a factory under Central Excise Law was examined. The definition of 'factory' in the Act was scrutinized, which includes premises where manufacturing processes are carried out. The Tribunal concluded that the absence of machinery in the appellant's premises did not preclude them from being considered a factory. The Tribunal highlighted that the appellant's adherence to procedures under Notification No. 214/86 for job work outside their premises was in line with legal requirements.

3. Compliance with Provisions and Notifications:
The Tribunal delved into the appellant's compliance with the provisions and notifications governing manufacturing through job workers. It was noted that the appellant had followed the prescribed procedures for job work under Notification No. 214/86. The Tribunal emphasized that the movement of inputs and completion of manufacturing processes through job workers outside the appellant's premises did not violate any prescribed procedures. Consequently, the Tribunal found the appellant's utilization of credit to discharge duty liabilities in accordance with the law.

4. Imposition of Penalty and Recovery of Amounts:
The Ld Commissioner had imposed a penalty and ordered the recovery of amounts from the appellant. However, the Tribunal disagreed with this decision. It held that since the appellant's manufacturing activities through job workers were permissible under the law and no violations were established, there was no basis for imposing penalties or demanding recovery of amounts. The Tribunal set aside the orders on denial of credit demands, interest, and penalties, allowing the appeal in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing that the absence of machinery in the appellant's premises did not disqualify them from availing credit or conducting manufacturing activities through job workers in compliance with relevant provisions and notifications. The imposition of penalties and recovery of amounts by the Ld Commissioner were deemed unjustified, leading to the appeal being allowed.