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2014 (10) TMI 444 - HC - Central ExciseDenial of CENVAT Credit - Job work - credit availed by the Job worker on capital goods - contravention of Cenvat Credit Rules, 2001 - held that - Cenvat credit cannot be denied on capital goods used in the manufacture of exempt intermediate products exempt from payment of duty, which are used captively in the manufacture of finished goods chargeable to duty. Cenvat credit is permissible to a job worker or even to a manufacturer at intermediate stage in respect of inputs like lubricants, soaps, chemical etc. where on final products, duty is admittedly paid. The Court held that the object of Cenvat credit is to avoid cascading effect of duty. SEIITL only manufactured the chassis, which is only a part of a TV. It is not a finished product and is only an intermediary product. We also find that SEIITL supplied intermediary product to SEIL, which manufactured the TV and paid duty on it. Consequently, it was entitled to avail Cenvat Credit in order to prevent the cascading effect, if duty was levied. We are of the opinion that SEIITL, which was the job worker was entitled to duty paid on inputs and used in the manufacture of intermediary product. Consequently, for the reasons stated aforesaid, the appeal fails and is dismissed. - Decided against Revenue.
Issues:
1. Admissibility of CENVAT credit on capital goods exclusively used in the manufacture of exempted goods. 2. Imposition of penalties on the company and specific individuals for contravening Central Excise Rules. Issue 1: Admissibility of CENVAT credit on capital goods: The case involved M/s Samsung Electronics India Information and Telecommunication Ltd. (SEIITL) utilizing Auto Insertion Machines received from Samsung Electronics India Ltd. (SEIL) for manufacturing CTV chassis. SEIITL claimed CENVAT credit on these machines amounting to Rs. 74,40,730.00. The dispute arose over whether SEIITL, as a job worker manufacturing intermediary products, was entitled to avail CENVAT credit on capital goods exclusively used in the manufacture of exempted goods. The Excise Department contended that Rule 6(4) of the CENVAT Credit Rules, 2001 prohibited such credit. However, SEIITL argued that as an intermediary product manufacturer supplying to SEIL for final product assembly with duty payment, they were eligible for CENVAT credit to prevent cascading duty effects. Detailed Analysis - Issue 1: The court analyzed Rule 6(4) of the CENVAT Credit Rules, which prohibits CENVAT credit on capital goods exclusively used in the manufacture of exempted goods. However, the court referenced Rule 3, which allows credit on inputs or capital goods used in the manufacture of intermediary products. Additionally, a circular clarified that CENVAT credit should not be denied on capital goods used in manufacturing exempt intermediate products if these goods are used in the manufacture of dutiable finished products. Precedents like Commissioner of C.Ex., Ludhiana Vs. Jainsons Wool Coombers Ltd. supported the allowance of CENVAT credit to job workers for inputs used in final products with duty payment. The court also cited Commissioner of C.Ex., Banglore Vs. Bharath Fritz Werner Ltd. and Escorts Ltd. Vs. Commissioner of Central Excise to emphasize the importance of preventing cascading duty effects by allowing credit where duty is paid on final products. Issue 2: Imposition of penalties: The second issue pertained to the imposition of penalties on SEIL and specific individuals for contravening Central Excise Rules, specifically Rule 57E (3), (4), and (5) of the Central Excise Rules, 1944, and Rule 7(1) of the CENVAT Credit Rules, 2002. The department sought penalties for alleged violations related to the utilization of CENVAT credit and declaration of duty information. Detailed Analysis - Issue 2: The court deliberated on the penalties sought by the department for contraventions of Central Excise Rules. While the department argued for penalties based on alleged violations of specific rules, the court did not find merit in the department's contentions. The judgment did not provide detailed analysis of individual penalties or culpability of the concerned individuals. The focus remained on the primary issue of CENVAT credit admissibility and the related legal interpretations. In conclusion, the Allahabad High Court dismissed the appeal, ruling in favor of SEIITL regarding the admissibility of CENVAT credit on capital goods used in manufacturing intermediary products supplied to SEIL for final product assembly. The judgment emphasized the importance of preventing cascading duty effects and upheld SEIITL's entitlement to the claimed credit. The penalties sought by the department were not upheld, with the court focusing primarily on the CENVAT credit issue and legal interpretations surrounding it.
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