2016 (11) TMI 1087 - AT - Central Excise

Recovery of Cenvat Credit - Captive consumption - manufacture of dies - job work - whether recovery of Cenvat Credit availed on the inputs used for the manufacture of dies and for the purpose of job work on the ground that the job work activities were exempted under N/N.214/86-CE dated 25/03/86, justified? - Held that - reliance placed on the decision of the case Sterlite Industries (I) Ltd., 2004 (12) TMI 108 - CESTAT, MUMBAI where it was held that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. Recovery of CENVAT credit not sustained - appeal allowed - decided against Revenue.

Summary

Issues:
Recovery of Cenvat Credit availed on inputs used for job work, applicability of Notification No.214/86-CE, demand confirmation, penalty imposition, interpretation of Rule 57C of Modvat credit rules, exemption of goods, liability on principal manufacturer, admissibility of credit when inputs are used for exempted goods, application of Rule 6 (1) & 6 (4) of Cenvat Credit Rules, 2004.

Analysis:
The case involved M/s. Bharat Forge Ltd. installing a machine for job work, manufacturing dies, and using inputs and capital goods for job work. Show cause notices were issued for recovery of Cenvat Credit on inputs used for dies manufacture and job work due to job work activities being exempted under Notification No.214/86-CE. The Commissioner (Appeals) confirmed demand in four cases and imposed penalties. However, in one case, the demand was dropped. M/s. Bharat Forge Ltd. appealed against demand confirmation in four cases, and the Revenue appealed against the dropped demand.

The Counsel for M/s. Bharat Forge Ltd. argued citing the Sterlite Industries case that Rule 57C of Modvat credit rules doesn't apply when the principal manufacturer pays duty for job work goods. They contended that goods under exemption are not truly exempted, but the duty is deferred with liability on the principal manufacturer. The AR for the Revenue argued that no credit is admissible when inputs are used for exempted goods, citing Rule 6 (1) & 6 (4) of Cenvat Credit Rules, 2004.

The Tribunal referred to the Sterlite Industries case where the Tribunal rejected Modvat credit but was later reversed by the Supreme Court. The Tribunal emphasized that Rule 57C doesn't apply when duty is paid on the final product. Applying this, the Tribunal held in favor of the assessee. The High Court upheld the Tribunal's decision, stating that when goods are used as inputs for job work under Cenvat Credit Rules, the Sterlite Industries case's ratio applies. Consequently, M/s. Bharat Forge Ltd.'s appeals were allowed, and the Revenue's appeal was dismissed.