2009 (9) TMI 838 - AT - Central Excise

Reversal of MODVAT/CENVAT credit - applicability of Rule 6(3) of CCR 2002 - job worked goods being exempted from duty - Held that - Once there is nexus of the job worked goods with the finished goods produced by the principal manufacturer denial of CENVAT credit to the job worker for use of input in the intermediate goods exempt from duty in terms of the above Notification would be unjust if the principal manufacturer has not claimed CENVAT credit in respect of inputs of job worker used in the job worked goods of principal manufacturer. However it is required on the part of the learned Commissioner (Appeals) to conduct an enquiry and examine the record of the principal manufacturer M/s. DSM Anti-Infectives India Pvt. Ltd. and find out whether the job worked goods were properly accounted for at both the ends and whether such job worked goods had undergone the process of manufacture of final product and whether the final output has undergone suffering of excise duty and whether the principal manufacturer has claimed Cenvat credit on the inputs of job worker since job worker was exempt from payment of duty. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether Cenvat credit can be claimed on job worked goods exempted from duty.
2. Whether job workers are required to reverse Cenvat credit on inputs used for job work goods cleared without payment of duty.
3. Whether job workers are liable to pay an amount equal to 8% of the value of job work goods cleared at nil rate of duty to the principal manufacturer.

Issue 1:
The first issue revolves around whether Cenvat credit can be claimed on job worked goods exempted from duty. The Appellate Tribunal analyzed the case where a job worker claimed to have used certain inputs in job worked goods, which were cleared without payment of duty. The Tribunal highlighted the importance of evidence, such as a letter from the principal manufacturer, to establish the use of inputs in job worked goods. It was emphasized that denial of Cenvat credit to the job worker for inputs used in exempted goods would be unjust if the principal manufacturer did not claim Cenvat credit for those inputs. The Tribunal stressed the need for an inquiry to ensure proper accounting and compliance with the Cenvat Credit Rules.

Issue 2:
The second issue addresses whether job workers are required to reverse Cenvat credit on inputs used for job work goods cleared without payment of duty. The Tribunal discussed the requirement under Rule 6(3) of the Cenvat Credit Rules, 2002, which does not permit the appellant to enjoy Cenvat credit in such cases. The Tribunal noted the lack of discussion in the lower appellate authority's order regarding the basis for demanding reversal of Cenvat credit. It referenced previous judgments supporting the view that a job worker may not need to reverse credit if the final product is cleared by the parent manufacturer on payment of duty, emphasizing the need for a thorough examination of applicable precedents in the decision-making process.

Issue 3:
The third issue involves whether job workers are liable to pay an amount equal to 8% of the value of job work goods cleared at nil rate of duty to the principal manufacturer. The Tribunal directed the lower appellate authority to consider specific points related to this issue, including whether the Cenvat credit taken on inputs used in job work goods had been reversed and whether the job workers were obligated to pay the specified amount under Rule 6(3)(b) of the Cenvat Credit Rules, 2002. The Tribunal highlighted the necessity for the lower appellate authority to provide findings on the applicability of relevant judgments and to conduct a comprehensive analysis before making a decision.

In conclusion, the judgment by the Appellate Tribunal CESTAT NEW DELHI addressed complex issues surrounding Cenvat credit, reversal of credit on job work goods, and the liability of job workers in cases of duty exemption. The detailed analysis provided insights into the interpretation of rules, the importance of evidence, and the need for thorough inquiries to ensure fair and just decisions in matters concerning taxation and duty obligations.