2007 (7) TMI 26 - AT - Central Excise

Cenvat/Modvat - Department contended that no credit of duty paid on the capital goods used for the manufacture of wiring harness was admissible to the job worker (appellant) and accordingly demand were made - Held that department contention was not valid and set aside

Summary

Issues:
1. Recovery of MODVAT credit under Central Excise Rules.
2. Imposition of penalty under Section 11AC of the Central Excise Act.
3. Admissibility of capital goods credit to job worker.
4. Interpretation of "exempted final products" under relevant provisions of law.

Analysis:
1. The appellant, a job worker for a principal manufacturer, was facing a demand for recovery of MODVAT credit of Rs. 18,91,930 under Central Excise Rules. The lower authorities contended that no credit of duty paid on the capital goods used for manufacturing 'Wiring Harness' was admissible to the job worker, considering the product as "exempted final products" under Rule 57R(1) of the Central Excise Rules. The appellant challenged this demand, arguing that the credit was allowed in similar cases by the Tribunal's Larger Bench decision in Sterlite Industries and followed in subsequent cases.

2. The appellant also contested a penalty of Rs. 7 lakhs imposed under Section 11AC of the Central Excise Act. The counsel for the appellant relied on previous decisions to support their claim that the capital goods credit should be admissible to the job worker. The Tribunal noted that the Larger Bench decision in Sterlite Industries was applicable in the appellant's case, as it did not categorize job-worked goods as "exempted goods" under Rule 57C, considering that duty was ultimately paid at the principal manufacturer's end.

3. The Tribunal examined the facts of the case and found that the capital goods were used for manufacturing 'Wiring Harness,' which was cleared without duty payment under job work procedure. It was established that the finished goods did not fall under the definition of "exempted final products," allowing the job worker to avail MODVAT credit on the capital goods. Consequently, the Tribunal ruled in favor of the appellant, vacating the entire demand and allowing the appeal with consequential relief.

4. The interpretation of "exempted final products" under Rule 57R(1) and equivalent provisions of law was crucial in determining the admissibility of MODVAT credit to the job worker. The Tribunal clarified that goods cleared without payment of duty under job work procedure did not qualify as "exempted final products," supporting the job worker's right to avail MODVAT credit on the capital goods used for manufacturing such goods. The decision highlighted the importance of distinguishing between exempted and non-exempted final products for the application of relevant excise rules and provisions.