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2015 (11) TMI 899 - HC - Central ExciseCENVAT Credit - Job Work - Whether the CESTAT is correct in law to hold that finished goods cleared without payment of duty under job work procedure to the principal manufacturer would not come within the scope of expression exempted final products used under Rule 57-R (1) and Rule 57-C of the Central Excise Rules, 1944 or under Rule 6 (4) of the CENVAT Credit Rules, 2002 - Held that - Manufacture of wiring harness is done at Unit-I. The inputs are sent by Unit-I to Unit-II, viz., the principal manufacturer to the respondent/assessee for manufacture semi-finished wiring harness and the job-worked goods are cleared under delivery challans and not on payment of duty. The respondent/assessee is availing the exemption under Notification No.214/86-CE for the job work done by the assessee. Tribunal was correct in holding that wiring harness was removed without payment of duty under job work procedure to the principal manufacturer and that semi-finished goods removed by the job worker from its unit to the principal, without payment of duty, would not come within the scope of expression exempted final product used in Rule 57-R (1) equivalent to Rule 6 (4) of the Cenvat Credit Rules, 2004. The Tribunal has rightly held that availment of Modvat Credit on capital goods to be job work is in order. For the reasons aforesaid, the substantial question of law is answered in favour of the assessee and against the Revenue. - Decided in favour of Assessee.
Issues Involved:
1. Whether finished goods cleared without payment of duty under job work procedure to the principal manufacturer would fall within the scope of "exempted final products" under Rule 57-R (1) and Rule 57-C of the Central Excise Rules, 1944 or Rule 6 (4) of the CENVAT Credit Rules, 2002. 2. Validity of the Cenvat credit availed on capital goods used in the manufacture of exempted excisable goods. 3. Imposition of penalty and interest for wrongful availment of Cenvat credit. Detailed Analysis: Issue 1: Scope of "Exempted Final Products" The primary issue was whether finished goods cleared without payment of duty under job work procedure to the principal manufacturer would be classified as "exempted final products" under the relevant rules. The Tribunal relied on the Larger Bench decision in Sterlite Industries (I) Ltd. and other related cases to conclude that job-worked goods do not qualify as "exempted goods" for purposes of Rule 57C or Rule 57R. The rationale was that duty is ultimately paid at the principal manufacturer's end, thus such goods cannot be categorized as "exempted goods." The High Court upheld the Tribunal's view, affirming that wiring harness removed under job work procedure does not fall within the scope of "exempted final products." Issue 2: Validity of Cenvat Credit on Capital Goods The Department contended that Cenvat credit on capital goods used exclusively for manufacturing exempted goods should not be allowed. The Tribunal, however, found that the capital goods were used for manufacturing wiring harness, which were removed without payment of duty under job work procedure. The Tribunal concluded that the availment of MODVAT credit on such capital goods by the appellant (job worker) was in order, citing the principle that duty ultimately gets paid at the principal manufacturer's end. This view was supported by precedents like Escorts Ltd. and Sterlite Industries Ltd., which clarified that intermediate products used in the manufacture of final products on which duty is paid do not disentitle the manufacturer from claiming Cenvat credit. Issue 3: Imposition of Penalty and Interest The original adjudicating authority had reversed the Cenvat credit and demanded interest and penalty. However, the Tribunal's decision to allow the appeal and vacate the demand for Cenvat credit implied that the penalties and interest imposed were also not justified. The High Court upheld this view, confirming that the credit availed was legitimate and thus, penalties and interest were not applicable. Conclusion: The High Court dismissed the appeal, confirming the Tribunal's order that the finished goods cleared under job work procedure do not come within the scope of "exempted final products." The Tribunal's decision to allow the Cenvat credit on capital goods used in the manufacture of such goods was upheld. Consequently, the imposition of penalty and interest was also overturned. The substantial question of law was answered in favor of the assessee, and the appeal was dismissed without costs.
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