2007 (6) TMI 352 - AT - Central Excise

Summary

Issues:
1. Denial of CENVAT credit on inputs for exported garments.
2. Interpretation of Rule 12B of the Central Excise Rules, 2002 regarding job work.
3. Compliance with procedural requirements for availing CENVAT credit.

Analysis:

Issue 1: Denial of CENVAT credit on inputs for exported garments:
The case involved the appellants getting garments manufactured by M/s. Celebrity Fashions Ltd. (M/s. CFL) using raw materials supplied by them. The garments were exported by the appellants. The Commissioner denied CENVAT credit on inputs for the exported garments based on three grounds: non-receipt of input in the factory, non-manufacture of garments by the appellants, and discrepancies in production quantities. The appellants claimed a refund equal to the denied credit, which was also rejected by the Commissioner. However, the Tribunal found that the appellants were eligible for the CENVAT credit as they had exported the final products, leading to a legitimate claim for refund.

Issue 2: Interpretation of Rule 12B of the Central Excise Rules, 2002 regarding job work:
The appeal focused on the Commissioner's failure to consider Rule 12B, which allows registered persons to have readymade garments manufactured by job workers and discharge duty when cleared for consumption. The appellants argued that they were entitled to CENVAT credit on fabrics used by M/s. CFL for manufacturing garments for export. The Tribunal noted that the appellants did not physically supply raw materials to the job worker but retained them for job work. Despite non-compliance with procedural requirements under sub-rule (4) of Rule 12B, the Tribunal found a prima facie case in favor of the appellants, emphasizing the concept of "cause to supply" as relevant to the factual scenario in the case.

Issue 3: Compliance with procedural requirements for availing CENVAT credit:
The Tribunal examined the provisions of Rule 12B, emphasizing that the appellants' situation, where M/s. CFL retained raw materials for job work without physical transfer from the appellants' premises, warranted a different interpretation. While the SDR argued non-compliance with procedural requirements, the Tribunal found that the appellants were eligible for CENVAT credit and a refund based on a harmonious construction of sub-rules (3) and (4) of Rule 12B. Consequently, the Tribunal granted a waiver of pre-deposit and stay of recovery for the denied credit and associated penalty.

In conclusion, the Tribunal ruled in favor of the appellants, allowing them to avail CENVAT credit on inputs for exported garments manufactured by M/s. CFL and granting a refund based on the provisions of Rule 12B despite procedural non-compliance, highlighting the importance of the factual context and interpretation of relevant rules in determining eligibility for credits and refunds.