2015 (10) TMI 720 - HC - Central Excise

Denial of CENVAT Credit - whether the manufacturer is entitled to claim credit for the duty paid by the job worker or not - Held that - First respondent/assessee handed over plastic materials during the period from July 2006 to December 2006 to a Company by name Nypro Forbes Products Private Limited for carrying out certain job works. The goods were handed over after availing credit for inputs, but, not actually paying duty. The Company which undertook the job work, while returning the goods, after carrying out the job work, raised invoices, for amounts including the duty that they paid. Even according to the Department, the job worker was not liable to make payment of duty. But, since the duty was paid by the job worker and also claimed from the first respondent/assessee, the first respondent/assessee claimed credit - Department went on a wrong presumption that credit had been claimed twice by the first respondent. As a matter of fact, the assessee did not claim credit twice over. At the time when the goods were supplied, they availed the credit. After the Company which undertook the job work, had paid the duty, even according to the Department, the job worker was not liable to pay it. Since they have paid and collected it from the assessee, what the first respondent collected was only the duty that had to be paid on account of the mistake committed by the job worker. The original authority and the appellate authority wrongly construed the same as a double benefit by applying the theory of unjust enrichment. This is what was rectified by the Tribunal. Hence, the order of the Tribunal is in accordance with law - Decided against Revenue.

Summary

Issues:
1. Whether the manufacturer is entitled to claim credit for the duty paid by the job worker.

Analysis:
The appeal before the Madras High Court was brought by the Revenue under section 35G of the Central Excise Act, 1954. The case involved a show cause notice issued to the assessee regarding the alleged excess credit claimed as CENVAT credit, leading to a demand for a specific sum. The Commissioner (Appeals) dismissed the appeal filed by the assessee, but the Tribunal later allowed a further appeal, albeit with a minor error corrected through a subsequent order. The Commissioner of Central Excise then appealed against the Tribunal's original decision. The main issue raised in the appeal was whether a manufacturer is entitled to claim credit for duty paid by a job worker.

The High Court referred to previous judgments, including one by the Supreme Court and another by a Bench of the court, to address the issue at hand. The court cited the decision in INTERNATIONAL AUTO LTD. v. COMMISSIONER and COMMISSIONER OF CENTRAL EXCISE, PUDUCHERRY v. KOHINOOR PRINTERS PVT. LTD., emphasizing that a manufacturer can avail credit for duty paid by a job worker, even if the job worker is not obligated to pay it. In the present case, the first respondent/assessee provided plastic materials to a company for job works, and the company, upon returning the goods after completing the job works, invoiced amounts that included duty paid by them. Despite the job worker not being liable to pay duty, the first respondent claimed credit for the duty paid by the job worker.

The Department mistakenly assumed that the credit had been claimed twice by the first respondent, leading to a misconception of double benefit and unjust enrichment. However, the court clarified that the first respondent did not claim credit twice; they initially availed credit when supplying the goods and later received the duty amount paid by the job worker, which was collected due to the job worker's mistake. The Tribunal rectified this misinterpretation by the original and appellate authorities, confirming that the first respondent did not receive double benefits. Consequently, the court upheld the Tribunal's order as lawful, ruling in favor of the assessee and dismissing the appeal by the Revenue. No costs were awarded in this matter.