2014 (2) TMI 769 - AT - Central Excise

Disllowance of CENVAT Credit - Cenvat Credit on input services availed by the Job Worker availing exemption under Notf. No. 214/ 86-CE dated 25.03.1986 - Held that - credit availed by the job worker cannot be denied where inputs were used in the manufacture of goods which were cleared without payment of duty under Notification No. 214/ 86-CE - appellants were entitled to Modvat credit of duty paid on inputs procured on their own account & used in the manufacture of job-worked goods exempted under notification number 214/ 86 CE. CENVAT Credit of input services was admissible to the job worker clearing goods to principal manufacturer under notification number 214/ 86 CE. In view of the above, we hold that the provisions of Rule 6(1) of the CENVAT Credit Rules, 2004 cannot be invoked for denying CENVAT Credit of input services used by the appellant factory for manufacture of job-worked goods under Notf. No. 214/ 86 CE - job work activity of the appellant is amounting to manufacture and is not one of providing any service . The appellant factory cannot be both a manufacturer and a service provider at the same time in relation to a particular activity. It is settled proposition in central excise matters that a job worker is a manufacturer and hence the appellant factory cannot be treated as a service provider rendering exempted/ non-taxable service for the manufacturing activity - Decided in favour of assessee.

Summary

Issues:
Admissibility of CENVAT Credit for input services in the manufacture of job-worked goods exempted under Notification No. 214/86 CE.

Analysis:
The appellant filed an appeal against an order disallowing CENVAT Credit of Rs. 71,80,949/-, along with interest and penalty, under the CENVAT Credit Rules, 2004. The issue revolved around the appellant's factory manufacturing goods on a job work basis and the admissibility of CENVAT Credit on input services used for such manufacturing. The Department contended that the appellant's CENVAT Credit on service tax for input services used in job work manufacturing was not admissible under Rule 6(1) of the CENVAT Credit Rules, 2004. Additionally, the Department argued that the appellant rendered 'Business Auxiliary Service' to its own factory, making the CENVAT Credit inadmissible.

The appellant's representative relied on legal precedents, including the Sterlite Industries case, to support their argument that CENVAT Credit for input services should be allowed even for goods cleared under exemption notifications. The Revenue's representative contended that no service tax was payable on processes amounting to manufacture, and thus, the service tax credit for exempted services was not admissible.

The Tribunal analyzed the case laws cited by both sides and concluded that the issue was settled by the Larger Bench in the Sterlite Industries case. It was held that the appellant was entitled to CENVAT Credit for input services used in manufacturing job-worked goods exempted under Notification No. 214/86 CE. The Tribunal emphasized that a job worker is considered a manufacturer, not a service provider, and hence, the appellant's job work activity amounted to manufacturing, making them eligible for the CENVAT Credit.

In light of the above observations, the Tribunal allowed the appeal by setting aside the order disallowing the CENVAT Credit. The judgment clarified the admissibility of CENVAT Credit for input services in the manufacturing of job-worked goods exempted under Notification No. 214/86 CE, emphasizing the appellant's status as a manufacturer in the job work process.