2020 (6) TMI 752 - AT - Central Excise

Job-Work - Exemption to specified items if manufactured in a factory as a job work and used in the manufacture of final products - appellant receive cones from the principal manufacturers and after processing, return the same to them - applicability of N/N. 214/1986-C.E., dated 25-3-1986 or Rule 4(5) of CCR, 2004. Whether the appellant has operated under Notification No. 214/1986-C.E., dated 25-3-1986 as asserted by the assessee or not operated under it, as asserted by the department? - HELD THAT - There is no scope for discharging Excise duty on the value addition component of the goods only under this notification. It is not open for the appellant to pick and chose parts of the notification or modify it to suit their business model - It has been held by the Constitutional Bench of Hon ble Apex Court in the case of COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT that an exemption notification must be strictly interpreted and the benefit of doubt will go against the assessee. So, there is no scope for the Notification to be read as exempted from duty except the value addition , when the notification exempts from the whole of duty . From the facts recorded in the impugned orders, it cannot be concluded whether the assessee appellant has operated under the Notification No. 214/1986-C.E., dated 25-3-1986 or otherwise. The assessee appellant also claimed that they have operated under Rule 4(5) of CCR, 2004. It is not clear as to whether this rule was used for some other consignments. If the assessee s claim is that they have operated both under Notification No. 214/1986-C.E., dated 25-3-1986 and also under Rule 4(5) of CCR, 2004, it is not clear the provision under which they could have done so - The taxable event is the critical factor while determining whether a tax is leviable or otherwise. The taxable event in the case of Excise duty is the manufacture, in case of sales tax, it is the act of selling, in case of Customs it is the act of import or export, in case of Income Tax, it is the act of earning income, etc. There is no tax with value addition as the taxable event. There is indeed value addition in the economy at various stages but no Excise duty is leviable on it and Excise duty is leviable only on the manufacture. Measure of Tax - HELD THAT - The measure of tax in case of Excise duty is determined by Section 4 of the Central Excise Act, Central Excise Valuation Rules, 2000 and the Central Excise Tariff. We find that neither Section 4 nor the Central Excise Valuation Rules have any provision under which Excise duty can be levied on the manufacturer only to the extent of his value addition - there are no basis for such a scheme of operation by the assessee appellant. These are fit cases to be remanded to the original authority to verify from records whether the appellant has operated under Notification No. 214/1986-C.E., dated 25-3-1986 or under Rule 4(5)(a) of CCR, 2004 or otherwise. If they claimed the benefit of Notification No. 214/1986-C.E., dated 25-3-1986 and fulfilled all the conditions required therein, there is no question of any Excise duty being leviable upon the appellant. Therefore, any amount paid by them claiming to be Excise duty is definitely not so. Similarly, if they are operated under Rule 4(5)(a) of CCR, 2004, appropriate provisions would apply. If the appellant has not operated under Notification No. 214/1986-C.E., dated 25-3-1986, they are required to pay Excise duty as applicable to any job worker. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Applicability of Notification No. 214/1986-C.E., dated 25-3-1986.
2. Applicability of Rule 4(5) of CCR, 2004.
3. Determination of excise duty on value addition versus entire value of the final product.
4. Verification of compliance with conditions under the relevant notification or rule.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 214/1986-C.E., dated 25-3-1986:
The appellant claimed that their manufacturing process was covered under Notification No. 214/1986-C.E., which exempts goods manufactured by a job worker used in the manufacture of the final product by the main manufacturer, subject to certain conditions. The central question was whether the appellant had indeed operated under this notification. To ascertain this, it was necessary to examine the records and returns of the appellant, verify if the goods were received and transferred to the principal manufacturers, and check if the principal manufacturer had given the required undertaking and discharged the duty thereof. If these conditions were met, the appellant would not be required to discharge any excise duty at all under this notification.

2. Applicability of Rule 4(5) of CCR, 2004:
The appellant also claimed to have operated under Rule 4(5) of CCR, 2004. The tribunal needed to clarify whether this rule was applicable to some consignments and if the appellant had operated under both Notification No. 214/1986-C.E. and Rule 4(5) of CCR, 2004. The tribunal emphasized that it was not clear under which specific provision the appellant could operate both schemes simultaneously.

3. Determination of Excise Duty on Value Addition Versus Entire Value of the Final Product:
The appellant argued that they paid excise duty only on the value addition component (the cost of the carbon lining plus job charges) and not on the cones supplied by their principals. However, the department contended that excise duty should be paid on the entire value of the final product, including the cones. The tribunal highlighted that there is no provision under Section 4 of the Central Excise Act or Central Excise (Valuation) Rules that allows excise duty to be levied only on the value addition. The tribunal referenced the Constitutional Bench of the Hon’ble Apex Court in the case of Dilip Kumar, which stated that an exemption notification must be strictly interpreted and any benefit of doubt would go against the assessee.

4. Verification of Compliance with Conditions Under the Relevant Notification or Rule:
The tribunal found that it was essential to verify whether the appellant had complied with the conditions of Notification No. 214/1986-C.E. or Rule 4(5) of CCR, 2004. The tribunal noted that if the appellant had fulfilled all conditions under Notification No. 214/1986-C.E., no excise duty would be leviable. Conversely, if the appellant had not operated under this notification, they would be required to pay excise duty as applicable to any job worker. Additionally, it needed to be determined whether the recipient of the goods was merely inspecting and dispatching the goods or further processing them, as asserted by the appellant.

Conclusion:
The tribunal remanded the case to the original authority to verify the factual position and decide whether the appellant had operated under Notification No. 214/1986-C.E. and thus was not liable to pay any excise duty, or if they had cleared the goods on payment of excise duty, in which case the duty must be paid on the value determined as applicable to any job worker. The appeals were disposed of by way of remand to the original authority for further examination and decision.