2018 (7) TMI 1931 - AT - Central Excise

CENVAT Credit - Process amounting to manufacture or not - Whether Cenvat credit availed by NIPL on the inputs sent to TGS, which were used in the manufacture of final products, was available to NIPL? - HELD THAT - In the instant case there is no dispute that structural fabrication was carried out on the goods supplied by TGS at the site of NIPL - Such structural fabrication, as held in the case of Mahindra Mahindra Vs. CCE 2005 (11) TMI 103 - CESTAT, NEW DELHI by the Larger Bench of this Tribunal amounts to manufacture within the meaning of Section 2(f) and Section 3 of the Central Excise Act. It is not in dispute that the kiln and cooler in question are capital goods, used in the manufacture of final product, namely, sponge iron. The raw material on which NIPL has availed Cenvat credit are inputs, used in the manufacture of the capital goods - Even otherwise, as per Rule 2(k) of the CCR, inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. Therefore, NIPL was eligible to avail the disputed Cenvat credit. Liability of payment of duty on TGS on the manufacture of the said capital goods - Job-work - HELD THAT - It is an admitted fact that NIPL, being the principal manufacturer in the instant case, had undertaken to discharge the duty liability harnessed on TGS by way of a declaration made before the jurisdictional Central Excise officer as per Notification No. 214/86-CE - Since, there is no allegation or finding to the effect that the principal manufacturer in the instant case had not complied with any condition of the said notification, the benefit of the Notification was available to them. Therefore, TGS was not liable to discharge duty on the goods manufactured by them - Since, the liability of payment of duty on NIPL is not the subject matter of the Show Cause Notice in the instant case, we refrain from making any observation to that extent. Penalty - HELD THAT - Since the demands against NIPL and TGS are liable to be dropped, the penalty imposed on Shri R.K. Agrawal cannot sustain. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Whether Cenvat credit availed by NIPL on the inputs sent to TGS, which were used in the manufacture of final products, was available to NIPL.
2. Whether TGS was liable to pay duty on the goods cleared by them to NIPL after job work.
3. Whether the Department was correct in imposing penalty on Shri R.K. Agarwal.

Detailed Analysis:

Issue 1: Cenvat Credit Availment by NIPL
On examining the contract between NIPL and TGS, it was established that structural fabrication was carried out at the NIPL site, which amounted to "manufacture" as per Section 2(f) and Section 3 of the Central Excise Act. The Commissioner found that the kiln and cooler did not attain the shape of final products at TGS's factory. The final product was obtained only at NIPL's premises. The Tribunal referred to the decision in CCE Vs. Surco Rubber Ltd. to conclude that TGS could not be held liable for duty as the goods were not fully manufactured at its premises.

The Tribunal found that the kiln and cooler are capital goods used in the manufacture of sponge iron, and the inputs on which NIPL availed Cenvat credit were used in the manufacture of these capital goods. Rule 2(k) of the Cenvat Credit Rules (CCR) includes goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer. Thus, NIPL was eligible to avail the disputed Cenvat credit.

Issue 2: Duty Liability of TGS
The Tribunal noted that NIPL, as the principal manufacturer, had undertaken to discharge the duty liability harnessed on TGS by a declaration made under Notification No. 214/86-CE. The goods cleared by TGS after job work were dutiable, and as per the decision in Thermax Babcock and Wilcox Ltd. v. CCE, the liability to pay duty is shifted from the job worker to the principal manufacturer through Notification No. 214/86-CE. Since there was no allegation that NIPL had not complied with any condition of the said notification, TGS was not liable to discharge duty on the goods manufactured by them. The liability of payment of duty on NIPL was not the subject matter of the Show Cause Notice, so no observation was made on that aspect.

Issue 3: Penalty on Shri R.K. Agarwal
Given that the demands against NIPL and TGS were dropped, the penalty imposed on Shri R.K. Agrawal could not sustain.

Conclusion:
The Tribunal found no infirmity with the impugned order of the Commissioner, upheld the same, and dismissed the appeals filed by the Revenue.