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2016 (12) TMI 984 - AT - Central ExciseReversal of CENVAT credit - job-work - inputs sent to job-worker not received fully - Held that - We find that BHEL have categorically asserted that there will certainly be a process loss and also emergence of scrap in the form of off-cuts and other pieces. BHEL requires the product with a particular specification and length. The generation of such specified intermediate products will result in certain end cuttings and also certain process loss. This much cannot be disputed - If the resultant product has to meet the standard specification of the principal manufacturer, off-cuts and the copper scrap, which is not useable for the intended purpose or further use by the principal manufacturer, are retained by the job workers and have been put to profitable use in further manufacture of various other items - In such situation, we find that there is no justification for reversal of any credit availed on inputs by BHEL. There is no allegation of diversion of inputs or unaccounted clearance of the same either at the BHEL side or at the end of the job work- manufacturer - We find that there is no violation of provisions of Rule 4 (5)(a) of Cenvat Credit Rules, 2004 read with provisions of Notification No.214/96-CE. - no merit in the impugned order and the same is set aside - appeal allowed - decided in favor of assessee.
Issues:
1. Non-return of inputs by job workers to the principal manufacturer. 2. Alleged violation of provisions of Cenvat Credit Rules, 2004. 3. Recovery of cenvat credit and imposition of penalties. Analysis: Issue 1: Non-return of inputs by job workers The case involved M/s. Bharat Heavy Electricals Ltd. (BHEL) engaging job workers for manufacturing excisable goods. BHEL procured raw materials and supplied them to job workers for conversion into intermediate products. The department alleged that BHEL did not receive back the inputs fully, specifically continuous cast copper rods, leading to a demand for recovery of cenvat credit. The job workers retained scrap/off-cuts for further manufacturing, which were cleared after paying central excise duty. BHEL argued that there would be process loss and scrap generation during manufacturing, which the job workers utilized for further production. The Tribunal observed that the off-cuts and scrap were not diverted or unaccounted for, and were used in manufacturing other items with proper duty payment. No evidence suggested misappropriation or unaccounted clearance, leading to the dismissal of the allegation. Issue 2: Alleged violation of Cenvat Credit Rules The department contended that the inputs sent to job workers were not fully returned to BHEL, contravening Cenvat Credit Rules. However, BHEL explained the process loss and scrap generation inherent in manufacturing, which the job workers utilized effectively. The Tribunal noted that the off-cuts and scrap were not considered inputs at the job worker's end and were further processed for other products with excise duty payment. The absence of evidence regarding diversion or misuse of inputs led to the rejection of the department's claims. Issue 3: Recovery of cenvat credit and penalties The impugned order demanded the recovery of cenvat credit and imposed penalties on BHEL and the job worker. However, the Tribunal found no justification for reversing the credit availed by BHEL, as there was no evidence of diversion or unaccounted clearance. The Tribunal scrutinized the manufacturing process and observed that the off-cuts and waste products were utilized for further production with proper duty payment. Consequently, the impugned order was set aside, and the appeals were allowed, highlighting the lack of merit in the department's claims. In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the legitimate utilization of scrap/off-cuts by job workers and the absence of evidence supporting the department's allegations of non-compliance with Cenvat Credit Rules.
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