2016 (4) TMI 187 - AT - Central Excise

CENVAT credit on the input used by the jobworker for the manufacture of goods on jobwork basis under Notification No.214/86-CE dated 25.03.1986 admissible - demand was raised for an amount equivalent to 10% of the value of the goods which was manufactured by the appellant on jobwork basis which was returned without payment of duty to the principal supplier of raw material in terms of Notification No.214/86 - Held that - As per the condition of the Notification 214/86 principal supplier of raw material indicates to discharge the excise duty either on the jobwork goods itself or on the final product in which jobwork intermediary goods is used. With this proviso it can be said that the goods manufactured on jobwork basis is exempted from payment of excise duty. It is that the Notification 214/86 only facilitates the principal supplier of raw material to avoid payment of duty at two stages, (1) at jobwork stage and (2) at the stage of final product clearances. However, the amount of duty required to be paid will remain same as if no duty is charged at the jobworker end the same shall be available as CENVAT credit to the principal supplier of raw material. It is only for the convenience of the procedure, Notification 214/86 was issued and not to exempt any excise duty. Since the goods manufactured on jobwork basis is exempted on the ground that the excise duty is charged on the full value of final product wherein the value of jobwork goods deemed to have been included the jobwork goods is not exempted. Therefore, Rule 6(3)(b) which is applicable only on the clearance of exempted goods shall not apply in the case of the goods manufactured on jobwork basis under Notification 214/86 The issue involved in the present case has been decided in a number of cases and accordingly the demand raised for an amount equivalent to 10% of the value of jobwork goods in terms of Rule 6(3)(b) is not sustainable. - Decided in favour of assessee

Summary

Issues Involved:
1. Admissibility of CENVAT credit on inputs used by the jobworker for manufacturing goods on a jobwork basis under Notification No. 214/86-CE.
2. Applicability of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 to the goods manufactured on a jobwork basis.

Issue-wise Detailed Analysis:

1. Admissibility of CENVAT credit on inputs used by the jobworker for manufacturing goods on a jobwork basis under Notification No. 214/86-CE:

The primary issue is whether the CENVAT credit on inputs used by the jobworker for manufacturing goods on a jobwork basis is admissible under Notification No. 214/86-CE. The adjudicating authority confirmed the demand of CENVAT amounting to 10% of the value of the goods manufactured and cleared under Notification No. 214/86 on the ground that these goods are exempt from excise duty. Consequently, the appellant was deemed liable to pay 10% of the value of such exempted goods in terms of Rule 6 of the Cenvat Credit Rules, 2002.

The appellant argued that the principal manufacturer undertakes to discharge the excise duty on the final product, which includes the intermediary goods manufactured by the appellant. Therefore, there is no exemption from payment of duty as the final product is cleared on payment of duty. The appellant cited several judgments, including Hwashin Automotive India Pvt. Ltd. v. CCE, CCE v. Kapsons Inds. Ltd., CCE vs. Jainsons Wool Chambers Ltd., Sterlite Industries (I) Ltd. v. CCE, CCE v. Happy Forging Ltd., and Welspunn India Ltd. v. CCE, which supported the admissibility of CENVAT credit for inputs used in jobwork.

2. Applicability of Rule 6(3)(b) of the Cenvat Credit Rules, 2002 to the goods manufactured on a jobwork basis:

The Tribunal found that the demand was raised for an amount equivalent to 10% of the value of the goods manufactured by the appellant on a jobwork basis, which was returned without payment of duty to the principal supplier of raw material under Notification No. 214/86. The condition of Notification 214/86 stipulates that the principal supplier of raw material must discharge the excise duty either on the jobwork goods or on the final product in which the jobwork intermediary goods are used. This provision is intended to avoid double payment of duty.

The Tribunal noted that the goods manufactured on a jobwork basis are not exempt from excise duty, as the duty is ultimately paid on the final product. Therefore, Rule 6(3)(b), which applies to the clearance of exempted goods, does not apply to goods manufactured on a jobwork basis under Notification 214/86.

The Tribunal referred to several judgments, including Hwashin Automotive India Pvt. Ltd., Kapsons Inds. Ltd., Jainsons Wool Chambers Ltd., Sterlite Industries (I) Ltd., Happy Forging Ltd., and Welspunn India Ltd., which consistently held that CENVAT credit is admissible for inputs used in the manufacture of goods on a jobwork basis and that Rule 6(3)(b) does not apply in such cases.

Conclusion:

The Tribunal concluded that the demand raised for an amount equivalent to 10% of the value of jobwork goods in terms of Rule 6(3)(b) is not sustainable. The impugned order was set aside, and the appeal was allowed with consequential relief in accordance with the law. The operative part of the judgment was pronounced in court.