2014 (2) TMI 723 - AT - Central Excise

Cenvat credit - Job Work - Tools and tips not received back as such from the Job Worker within 180 - Capital Goods - Commissioner allowed credit - Held that - In the show-cause notice (itself) these tools and tips has been held as capital gods . Therefore, the revenue cannot be said, at this stage, that these tools and tips are not capital goods. As these tools and tips are capital goods and there is no bar under the Central Excise Acts or Rules that the capital goods cannot be sent to the job-worker. Therefore, the capital goods used in the factory of the job-worker are entitled for credit to the respondent. Although the capital goods could not be returned as such after the usage, in that circumstances also the credit cannot be denied. Further, there is no bar on the respondent to take away 50% of the CENVAT credit in the year of procurement of the capital goods and the remaining 50% in the subsequent year although they were in the possession of the job-workers. There is no bar in taking 50% of the CENVAT credit in the subsequent year as they are components of the capital goods and are covered under Rule 4(2)(b) of CENVAT Credit Rules, 2004 - Decided against Revenue.

Issues:
- Appeal against allowing input credit on capital goods
- Entitlement to CENVAT credit on tools and tips sent for job work
- Classification of tools and tips as capital goods
- Interpretation of Rule 4(2)(b) of CENVAT Credit Rules, 2004

Analysis:

1. Appeal against Allowing Input Credit on Capital Goods:
The Revenue appealed against the order allowing input credit on capital goods by the Commissioner (Appeals). The Revenue argued that the tools and tips in question were not received "as such" by the respondent after job work, hence they were not entitled to CENVAT credit. The adjudicating authority had confirmed the demand and imposed penalties, but the Commissioner (Appeals) set aside the order and allowed the credit. The Tribunal upheld the Commissioner's decision, stating that the tools and tips were indeed capital goods, and there was no prohibition on sending capital goods to job-workers. Therefore, the respondent was entitled to the credit even if the goods were not returned "as such" after usage.

2. Entitlement to CENVAT Credit on Tools and Tips Sent for Job Work:
The Revenue contended that since the tools and tips were not used in the respondent's factory and were not received back "as such" after job work, the respondent should not be allowed to claim CENVAT credit on them. However, the Tribunal held that the tools and tips were correctly classified as capital goods, and there was no legal impediment to the respondent claiming credit on them. The Tribunal emphasized that the capital goods used in the job-worker's factory were eligible for credit to the respondent, irrespective of whether they were returned "as such" after usage.

3. Classification of Tools and Tips as Capital Goods:
The crux of the dispute revolved around whether the tools and tips could be considered as capital goods for the purpose of claiming CENVAT credit. The Revenue argued that since these items were not used in the respondent's factory and were not returned in their original state after job work, they should not qualify as capital goods. However, the Tribunal disagreed and upheld the classification of tools and tips as capital goods, emphasizing that there was no statutory prohibition on sending capital goods for job work and subsequently claiming credit on them.

4. Interpretation of Rule 4(2)(b) of CENVAT Credit Rules, 2004:
The Tribunal also analyzed Rule 4(2)(b) of the CENVAT Credit Rules, 2004, which deals with the distribution of credit for capital goods. It was argued by the Revenue that the respondent should not be allowed to claim credit on tools and tips that were not returned "as such" after job work. However, the Tribunal found no legal basis to deny the credit, stating that the respondent was within their rights to claim 50% of the CENVAT credit in the year of procurement and the remaining 50% in the subsequent year, even if the goods were with the job-workers. This interpretation was supported by Rule 4(2)(b) of the CENVAT Credit Rules, 2004.

In conclusion, the Tribunal dismissed the appeals filed by the Revenue and upheld the decision allowing the respondent to claim CENVAT credit on the tools and tips used for job work. The Cross Objections filed by the respondent were also disposed of accordingly.

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