2008 (2) TMI 806 - AT - Central Excise

Demand and interest - Grey fabrics - job-work - applicability of Rule 4(5)(a) of Cenvat Credit Rules, 2002 - Held that - the inputs received by the appellants were duty paid yarn and the finished goods received from the job worker and cleared by the appellants were man-made fabrics. These fabrics were cleared by the appellants on payment of duty. Therefore, the movement of grey fabrics to the job worker and the return of man-made fabrics to the appellants were in accordance with the above statutory provisions. As the appellants had cleared the man-made fabrics on payment of duty no demand can be raised on the appellants in respect of duty payable on the intermediate product grey fabrics - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Demand of Central Excise Duty and interest on clearances of grey fabrics made between April and September 2005 without payment of duty for further manufacture into man-made fabrics by job workers.

Analysis:
The orders under appeal confirmed the demand of Central Excise Duty and interest on the clearance of grey fabrics between April and September 2005. The appellants, registered for manufacturing processed fabrics, had cleared grey fabrics without paying duty, which were then processed into man-made fabrics by job workers. The lower authorities considered grey fabrics as final products of the assessee, stating that only inputs or partially processed inputs could be sent to job workers for further processes. They argued that grey fabrics, being the final products, should have been cleared with duty payment. The appellants received duty-paid yarn, wove them into grey fabrics, and then cleared the man-made fabrics after various processes, including export packing. The authorities contended that no manufacturing process was undertaken on the man-made fabrics received from job workers, and thus, the job work procedure under Rule 4(5)(a) of Cenvat Credit Rules, 2002, did not apply to the movement of grey fabrics.

Upon hearing both sides and examining the case records, the Tribunal analyzed Rule 4(5)(a) of Cenvat Credit Rules, which allows CENVAT credit for inputs sent to job workers for further processing. Additionally, Rule 16B of Central Excise Rules permits the removal of semi-finished goods for manufacturing processes without duty payment. In this case, the inputs received were duty-paid yarn, and the finished goods received from job workers were man-made fabrics, cleared by the appellants with duty payment. The Tribunal found that the movement of grey fabrics to job workers and the return of man-made fabrics complied with statutory provisions. As the appellants had already paid duty on the man-made fabrics, no demand could be raised on them for duty on the intermediate product, grey fabrics. Consequently, the Tribunal set aside the impugned orders and allowed the appeals.

In conclusion, the Tribunal ruled in favor of the appellants, holding that the demand for duty on grey fabrics was not justified as the movement of goods and the subsequent clearance were in accordance with relevant statutory provisions.