2012 (5) TMI 531 - AT - Central Excise

Waiver of pre deposit - exemption under Notification No. 214/86-C.E. - Held that - appellant manufactured crankshafts out of the rough castings received from M/s. Escorts on job work basis and, they were sending back the fully finished crankshafts to M/s. Escorts without payment of duty under Notification No. 214/86-C.E. The duty liability on the goods manufactured by the job worker and sent back to the principal manufacturer is required to be discharged by the principal manufacturer or in case goods are used by the principal manufacturer in the manufacturing of some other finished products, that finished product is cleared on payment of duty. In this case, the crankshafts were used by Escorts in the manufacture of engines for tractors and the engines, in turn, were used in the manufacture of tractors. Though the tractors during the period of dispute were fully exempt from duty and for this reason, exemption under Notification No. 67/95-C.E. was no longer available to the engines, duty should have been paid on the engines by M/s. Escorts. But prima facie, there is no evidence that M/s. Escorts have not discharged duty on the engines. In view of this, exemption Notification No. 214/86-C.E. would no longer be available to the appellant in respect of crankshafts manufactured by them - Conditional stay granted.

Summary

Issues:
Manufacture of crankshafts for different customers, duty exemption under Notification No. 214/86-C.E., liability of principal manufacturer, duty demand on crankshafts, penalty imposition, limitation period under Section 11A(1), duty payment on engines by principal manufacturer, waiver of pre-deposit for hearing of appeal.

Analysis:
The appellants are engaged in manufacturing crankshafts for various customers, including one customer from whom they receive rough castings for processing into finished crankshafts. The dispute arises from the duty liability on the crankshafts supplied to this customer, who uses them in manufacturing engines for tractors. The duty exemption under Notification No. 214/86-C.E. is subject to the principal manufacturer discharging duty on the finished goods. In this case, the tractors were duty-exempt, but the engines were not, yet the principal manufacturer failed to pay duty on the engines. A show cause notice was issued to demand duty from the appellants, resulting in a confirmed duty demand, interest, and penalties by the Commissioner.

During the hearing, the appellant argued that they were merely job workers operating under the exemption notification, and the duty liability rested with the principal manufacturer. They contended that there was no intention to evade duty, and the penalty imposition was unjustified. On the other hand, the Departmental Representative argued that the duty liability exemption was contingent on the principal manufacturer paying duty on the goods, which was not done in this case. They asserted that the longer limitation period was rightly invoked due to suppression of facts by the appellants.

The Tribunal found that the appellants did not have a prima facie case in their favor as the principal manufacturer had not paid duty on the engines, rendering the duty exemption inapplicable to the crankshafts. Regarding the limitation period and pre-deposit, the Tribunal directed the appellants to deposit 50% of the confirmed duty demand within a specified period. Compliance was required, failing which recovery proceedings would continue. The balance amount of duty demand, interest, and penalty would be waived upon the initial deposit, with recovery stayed until the appeal's disposal.