2008 (6) TMI 85 - AT - Central Excise

Duty paid by the job worker on repair charges capital goods not received back in premises of principal manufacturer-respondent -- principal manufacturer taking credit of duty paid by his job-worker on capital goods (Dies) mere on basis of invoices is correct credit is admissible larger period not invokable for raising demand

Summary

Issues involved: Appeal against order setting aside demand and penalty on grounds of limitation for duty paid on capital goods.

Analysis:
1. Issue of limitation: The appeal was filed by the Revenue against the order of the Commissioner (Appeals) setting aside the demand of Rs. 3,84,000/- and an equal amount of penalty under Section 11AC on the ground of limitation. The Department invoked the extended period under Section 11AC as the respondents had taken credit of duty paid on capital goods from April 2003 to March 2004, which were not received in their factory. The Department issued a show cause notice in 2006 based on this discrepancy. The Revenue argued that the extended period was rightly invoked due to the lack of proof that the goods were sent to the job worker and the failure to follow proper procedures. However, the Tribunal found that the issue arose due to a procedural irregularity by the respondents in choosing to take credit based on duty paying documents without physically receiving the goods. The Tribunal concluded that the stand taken by the Commissioner (Appeals) that the extended period cannot be invoked was justified, and hence, the appeal on the grounds of limitation failed.

2. Merits of the case: The Revenue contended that the capital goods were never received in the factory, and therefore, the credit taken by the respondents was not admissible. They argued that the Department had a strong case based on this premise. On the other hand, the respondents cited a Tribunal decision where duty paid by a job worker on repair charges was considered admissible as modvat credit. The Tribunal noted that the capital goods were with the job worker since 1980 when the credit was not admissible as Cenvat credit. The Tribunal highlighted that there were two options available to the respondents regarding the transfer of dies to the job worker for repair charges. The first option involved following proper procedures for transferring the goods, while the second option, chosen by the respondents, led to a procedural irregularity. The Tribunal found that the judgments cited by both sides were not comparable on facts and concluded that the appeal filed by the Department failed on merits as well as on limitation. Therefore, the appeal was rejected based on the admissibility of credit on repair charges and the procedural irregularity in taking credit on duty paying documents without physically receiving the goods.