2015 (11) TMI 1467 - AT - Central Excise

Job Work - claim of full exemption under notification no. 214/86CE whereas the principal manufacturer availing the area based exemption from duty under notification no. 50/03 - extended period of limitation - Held that - M/s. Divya Pharmacy (principal) is not the manufacturer of dutiable and exempted final product but he is manufacturing exempted final products only. Therefore in our prima facie view the exemption notification no. 214/86CE would not be available. Principal manufacturer-M/s. Divya Pharmacy under their letter dated 6/5/2008 addressed to Assistant Commissioner of Central Excise Bhiwadi District Alwar under whose jurisdiction the appellant unit had intimated that they wish to remove the raw material without availing of CENVAT Credit to the appellant unit under notification no. 214/86CE; that the goods manufactured on job work basis would be returned to their factory for manufacture of final product which is exempted from duty under notification no. 50/03CE. Thus the department was aware of the fact that the goods manufactured by the appellant on job work basis for M/s. Diya Pharmacy would be used by M/s. Divya Pharmacy for manufacture of finished goods in respect of which they are availing fully duty exemption under notification no. 50/03CE. - even if the appellant in their ER-1 Returns filed by them were not separately mentioning the clearances of job work goods to M/s. Divya Pharmacy by availing full duty exemption under notification no. 214/86CE we are of the prima facie view that the extended limitation period under proviso to section 11A(1) would not be invokable and the duty demand would be sustainable only for the normal limitation period and according to the appellant the duty demand for normal limitation period is only about Rs. 18.5 lakhs. - Partial stay granted.

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 214/86CE.
2. Applicability of extended limitation period under proviso to Section 11A(1).
3. Eligibility for CENVAT Credit.
4. Imposition of penalty under Rule 26 of the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Notification No. 214/86CE:
The appellant manufactured plastic containers on job work basis for a principal manufacturer who availed full duty exemption under Notification No. 50/03CE. The department contended that since the final product (Ayurvedic medicines) was exempt from duty, the plastic containers used for packing these medicines were not eligible for exemption under Notification No. 214/86CE. The appellant argued that they were eligible for the exemption as they did not avail CENVAT Credit on the plastic granules, and the principal manufacturer had discharged their obligation under Rule 6 of the Central Excise Rules, 2002. However, the tribunal noted that the exemption under Notification No. 214/86CE is available only if the final products are dutiable or if the principal manufacturer manufactures both dutiable and exempted final products and has discharged obligations under Rule 6. Since the principal manufacturer only produced exempted products, the tribunal prima facie found that the exemption under Notification No. 214/86CE was not applicable.

2. Applicability of Extended Limitation Period under Proviso to Section 11A(1):
The tribunal examined whether the extended limitation period for demanding duty was applicable. The principal manufacturer had informed the Assistant Commissioner of Central Excise about sending raw materials for job work under Notification No. 214/86CE and the use of the processed goods in manufacturing exempt final products. Despite this information, there was no response from the department. The tribunal observed that since the department was aware of the facts, the extended limitation period under proviso to Section 11A(1) was not invokable. Consequently, the duty demand would be sustainable only for the normal limitation period, which amounted to approximately Rs. 18.05 lakhs.

3. Eligibility for CENVAT Credit:
The appellant argued that if the duty was demanded, they should be eligible for CENVAT Credit. However, the department contended that CENVAT Credit would not be available as the invoices for the raw materials (plastic granules) were in the name of the principal manufacturer. The tribunal noted that this issue required further examination during the final hearing.

4. Imposition of Penalty under Rule 26 of the Central Excise Rules:
The appellant challenged the imposition of a penalty on their director under Rule 26 of the Central Excise Rules. The tribunal did not provide a detailed analysis on this issue at this stage, focusing instead on the requirement for pre-deposit.

Conclusion:
The tribunal directed the appellant to deposit Rs. 5 lakhs within 12 weeks, after which the requirement for pre-deposit of the remaining duty, interest, and penalty would be waived, and recovery thereof stayed. The tribunal emphasized that this was not a case for total waiver and that further examination was needed during the final hearing, especially regarding the eligibility for CENVAT Credit.