2012 (11) TMI 1031 - AT - Central Excise

Notification No. 214/86-C.E. - Availment of CENVAT Credit - Appellant had a contract with M/s. BHEL for conversion of Copper Wire Bars into Rectangular Copper Bars with specified sizes and dimensions on job work basis - appellant were operating under Notification No. 214/86-C.E. and accordingly while BHEL were availing Cenvat credit in respect of copper wire bars, the appellant were returning the rectangular copper bars of specified dimension to BHEL without payment of duty and rectangular copper bars were being used by BHEL in manufacture of finished goods which were being cleared by BHEL on payment of duty - Held that - The appellant in terms of their contract with BHEL for processing of copper wire bars into rectangular bars of specified size and dimensions on job work basis, were required to return 98% of the raw-material in process form, as in terms of the contract the burning loss of only 2% was permitted. There is no dispute that while BHEL were availing Cenvat credit in respect of wire bars sent by them to the appellant for job work, the appellant were operating under Notification No. 214/86-C.E. and sending the processed material to BHEL without payment of duty. In terms of Rule 57F(4) of Central Excise Rules, 1944, the waste arising in the course of the processing of material received from the principal manufacturer was required to be returned to the factory of the principal manufacturer, unless the waste has been cleared by the manufacturer (job-worker) on payment of duty. In this case, the conversion of copper bars involved, in addition to 2% waste on account of burning loss, 16% waste on account of off size cuts. Since the appellant were required to return 98 Kg of rectangular bars out of every 100 Kg of copper wire bars received from BHEL and the procurement of copper wire bars from outside to the extent of 16% was in lieu of the sale of copper waste to the extent of 16%, the copper bars procured from outside have to be treated as owned by BHEL and since Cenvat credit in respect of the same has been availed by the appellant, they would be liable to pay duty on the rectangular bars manufactured out of the same, and this duty would be payable on the value determined in terms of the Apex Court s judgment in the Ujagar Prints (1989 (1) TMI 124 - SUPREME COURT OF INDIA) i.e. on the cost of wire bars procured from outside plus job charges - Thus the duty has been correctly demanded by the Department in respect of the rectangular copper wire bars manufactured by appellant out of the wire bars procured by them, from outside - As regards the limitation, the extended period has been correctly applied, as the fact of manufacture of rectangular wire bars out of copper wire bars procured from outside was never disclosed by the appellant to the Department - Decided in favour of assessee.

Summary

Issues:
- Duty liability on rectangular copper bars manufactured from wire bars procured from outside
- Applicability of Notification No. 214/86-C.E.
- Cenvat credit availed by the appellant
- Reversal of Cenvat credit
- Imposition of penalty under Section 11AC and Rule 173Q
- Extended period of limitation

Analysis:

Duty Liability on Rectangular Copper Bars:
The appellant, engaged in converting copper wire bars into rectangular copper bars on a job work basis for M/s. BHEL, faced a dispute regarding the duty liability on the rectangular bars manufactured from wire bars procured from outside sources. The department contended that duty should be paid on these bars based on the cost of raw material plus job charges, as per the Supreme Court's judgment in Ujagar Prints. The tribunal agreed with this view, stating that since the appellant were availing Cenvat credit on the wire bars procured from outside, they were liable to pay duty on the rectangular bars manufactured from these wire bars.

Applicability of Notification No. 214/86-C.E.:
The appellant operated under Notification No. 214/86-C.E., allowing them to send processed material to BHEL without payment of duty. However, the tribunal held that the duty was correctly demanded by the department on the rectangular copper bars manufactured by the appellant from wire bars procured from outside, as the Cenvat credit had been availed on these bars.

Cenvat Credit and Reversal:
The appellant availed Cenvat credit on duty paid copper wire bars purchased from outside. They were reversing this credit at the time of clearance of rectangular bars to BHEL. The tribunal found that the Cenvat credit in respect of the self-procured copper wire bars was not required to be reversed, as per the judgment in Sterlite Industries (I) Ltd. v. Commissioner of Central Excise. However, in this case, the duty liability was upheld based on the specific circumstances.

Imposition of Penalty and Extended Period of Limitation:
The department issued a show cause notice for allegedly short-paid duty and imposed penalties under Section 11AC and Rule 173Q. The tribunal upheld the application of the extended period of limitation, as the appellant had not disclosed the fact of manufacturing rectangular wire bars from copper wire bars procured from outside. Consequently, the appeal was dismissed, affirming the duty liability and penalties imposed.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by both sides, and the tribunal's reasoning leading to the dismissal of the appeal.