2016 (4) TMI 446 - AT - Central Excise

Demand of duty and imposition of penalty - Inputs supplied to the job worker and those procured on their own account for manufacture have been inter utilised whenever required - Held that - inputs meant for manufacture on job work cannot be utilised for manufacture on their own account and vice versa. Such removal according to revenue would be construed as diversion of inputs or removal outside the factory for home consumption inviting reversal of credit or payment of duty but there is no provision in the Act or Rules or in Cenvat Credit Rules treating such inter utilization of inputs as prohibited. Also, Modvat/Cenvat Credit Rules permits utilization of inputs for any final product of the manufacturer. One to one co-relation - Revenue contended that there is no one to one co-relation of input and output - Held that - under the rules there is no requirement of one to one correlation of inputs and output so long as inputs are not used for manufacture of exempted goods. Within the factory, for manufacture, the inputs can be utilised irrespective for whom the goods are manufactured. Removal within factory is not removal for home consumption from factory which alone invites reversal of credit or payment of duty. Therefore, the impugned order is set aside and also demand and penalty is set aside. - Decided in favour of appellant with consequential relief

Issues:
1. Whether appellants are manufacturers of the same product on their own account and on job work basis, and whether the inputs in question are common?
2. Whether the use of such common inputs is prohibited under the erstwhile Rules?
3. Whether invoking the extended period of time limit and imposition of penalty justified?

Analysis:

*Issue 1: Manufacturers of the same product and common inputs*
The case involved the appellant appealing against the disallowance of modvat credit by the Commissioner (Appeals). The appellant manufactured goods on job work for another company and used inputs common for both job work and own manufacturing. The revenue alleged diversion of inputs without following proper procedures. The Tribunal found that there was no prohibition on inter-utilization of inputs for different manufacturing purposes within the factory. The rules permitted the utilization of inputs for any final product of the manufacturer. The appellant's submissions were accepted, and the impugned order was set aside with duty demand and penalty also set aside.

*Issue 2: Prohibition on the use of common inputs*
The Tribunal clarified that there was no requirement for a one-to-one correlation of inputs and output as long as the inputs were not used for manufacturing exempted goods. The removal of inputs within the factory for different manufacturing purposes did not constitute removal for home consumption, which would trigger credit reversal or duty payment. The appellant's argument was supported by a reconciliation statement showing the proper issuance and return of raw materials. The Tribunal found no evidence to counter the appellant's submissions and set aside the order with consequential relief.

*Issue 3: Extended time limit and penalty imposition*
The Tribunal did not find justification for invoking the extended period of time limit or imposing a penalty. The appellant's compliance with the rules regarding input utilization and the lack of evidence of diversion or improper use of inputs led to the setting aside of the duty demand and penalty. The Tribunal's decision was based on the lack of prohibition on inter-utilization of inputs and the absence of one-to-one correlation requirements under the rules.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the Commissioner's order and providing relief from duty demand and penalty. The judgment emphasized the permissibility of utilizing common inputs for different manufacturing purposes within the factory as long as proper procedures were followed and no diversion or misuse was evident.

← Previous Next →