2012 (9) TMI 708 - AT - Central Excise

Job work - person liable to pay duty of excise - manufacturer - the imported gambier is not processed by M/s. IWPCL but is sent by them to their job worker, M/s. BCPL for processing on job work basis and while processing the imported gambier on job work basis for M/s. IWPCL, M/s. BCPL are not functioning under Notification no.214/86-CE - held that - It is settled law that when a principal manufacturer gets his goods manufactured from a job worker on job work basis and the transaction between them are on principal to principal basis, it is the job worker who would be liable to pay duty not the principal manufacturer. - stay granted. Even if the duty is held as chargeable, if the cenvat credit is allowed, the net duty demand would be negligible and that too after assuming that the entire duty demand for the period from May, 03 to December, 07 is within time, which also appears to be doubtful. Thus, looking at from this angle also, there does not appear to be any duty liability against assessee - in favour of assessee.

Issues Involved:
1. Liability for duty on gambier extract.
2. Principal to principal transaction between IWPCL and BCPL.
3. Valuation of gambier extract.
4. Eligibility for CENVAT credit.
5. Invocation of extended period of limitation.
6. Imposition of penalties on IWPCL and its officials.

Detailed Analysis:

1. Liability for Duty on Gambier Extract:
The central issue was whether IWPCL was liable to pay duty on gambier extract obtained from imported gambier, which was processed by BCPL. The department contended that since katha manufactured by IWPCL was exempt from duty, gambier extract, which is either sold as such or used for blending with Indian catechu, was liable for duty. Two show cause notices were issued demanding duty for different periods, along with interest and penalties.

2. Principal to Principal Transaction between IWPCL and BCPL:
IWPCL argued that the processing of gambier by BCPL was done on a job work basis under an agreement, and the transactions were on a principal to principal basis. Therefore, any duty liability should fall on BCPL, not IWPCL. The Commissioner, however, rejected this plea. Upon appeal, it was observed that the agreement between IWPCL and BCPL did not indicate any control by IWPCL over BCPL, supporting the claim of a principal to principal transaction. It was noted that in such cases, the job worker (BCPL) would be liable for duty, not the principal manufacturer (IWPCL).

3. Valuation of Gambier Extract:
The valuation of gambier extract was another point of contention. The Commissioner initially valued the gambier extract at about Rs.280 per kg, leading to a high duty demand. However, a subsequent order valued it at Rs.93 per kg based on a Chartered Accountant's certificate. The tribunal found the latter valuation more accurate, which significantly reduced the duty demand from Rs.24.02 crores to Rs.7.35 crores.

4. Eligibility for CENVAT Credit:
IWPCL claimed eligibility for CENVAT credit on additional customs duty and special additional customs duty paid on imported gambier. The department denied this credit, arguing that IWPCL did not maintain the required records and evaded duty. The tribunal noted that since IWPCL had paid the customs duties and produced the bills of entry, they were prima facie entitled to CENVAT credit. This credit would offset most of the duty demand.

5. Invocation of Extended Period of Limitation:
The show cause notice for the period May 2003 to November 2007 was issued by invoking the extended period of limitation under Section 11 A(1), alleging suppression of facts by IWPCL. IWPCL argued that they had disclosed all necessary information to the department, negating the grounds for invoking the extended period. The tribunal found merit in IWPCL's argument, suggesting that the extended period might not be applicable.

6. Imposition of Penalties on IWPCL and its Officials:
The Commissioner had imposed penalties on IWPCL and its officials under Section 11 AC and Rule 26 of the Central Excise Rules, 2002. Given the tribunal's prima facie view that the duty demands were not sustainable and the eligibility for CENVAT credit, the imposition of penalties was also questioned. The tribunal waived the requirement for pre-deposit of penalties, indicating a strong case in favor of IWPCL.

Conclusion:
The tribunal found that IWPCL had a strong prima facie case, particularly regarding the principal to principal nature of their transactions with BCPL, the correct valuation of gambier extract, and their eligibility for CENVAT credit. Consequently, the tribunal waived the requirement for pre-deposit of duty demands, interest, and penalties, and stayed the recovery until the disposal of the appeals. The appeals were to be listed in due course.

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