2017 (1) TMI 223 - AT - Central Excise

Job work - Liability of duty - Denial of exemption Notification No. 3/2001-CE - denial on the ground that Babcock is clearing boilers in CKD form and not the complete boiler - Held that - In the appellant s own case i.e. Thermax Babcock & Wilcox Ltd v. Commissioner OF Central Excise 2015 (5) TMI 631 - SUPREME COURT and Commissioner of Central Excise v. Thermax Babcock & Wilcox Ltd 2005 (1) TMI 145 - CESTAT, MUMBAI on the issue of classification in respect of removal of pressure parts of boiler, it was held that the manufacture and removal of boiler in part consignments shall be regarded as boiler in complete form - the boiler even if cleared in CKD/SKD condition to the customers site, the same is regarded as boiler and is eligible for exemption. CENVAT credit - job-work - inputs sent to job-worker - Rule 4(5)(a) of the Rules - Held that - the appellant are paying 8% on the clearance of boiler under Rule 6 of the CENVAT Credit Rules, 2002. Therefore, they are entitled for CENVAT credit in respect of inputs used in the manufacture of exempted boiler - demand of CENVAT credit on the inputs sent for job-work by Babcock is not sustainable. Liability of duty - whether Thermax is liable to pay duty on the parts manufactured on job-work basis and cleared to the principal Babcock is liable for duty? - Held that - in the said notification, there is a condition that job-worked goods should be used in the manufacture of final products of the principal and the principal, on the final products so manufactured out of the job-worked intermediate goods, should pay duty on the final product. In the present case, the principal cleared the final products i.e. boiler without payment of duty under exemption Notification No.3/2001-CE dated 01/03/2001. Therefore, even if Notification No. 214/86-CE dated 25/03/1986 is not applicable, it is very clear that any manufacturer, whether on job-work basis or otherwise, manufactures any goods, being the manufacturer of such goods, is liable to pay duty. Payment of duty can only be avoided only when there is an exemption notification on the said goods. In the appellants case, the parts of boiler manufactured by the job-worker undoubtedly dutiable goods. When the principal manufacturer is not discharging excise duty on the boiler, the job-worker, Thermax, is liable to pay duty on the parts manufactured by them and supplied to Babcock. Whether there is any provision for exemption from payment of duty in the case of job-worker under Rule 57F(4) or otherwise? - Held that - there are contrary views on the issue as to dutiability on the job-worker, for resolving the conflict it is desirable to refer the particular issue to the Larger Bench - who is liable to pay duty, matter referred to Larger Bench

Summary

Issues Involved:
1. Eligibility of exemption under Notification No. 3/2001-CE for boilers cleared in CKD form.
2. Disallowance of CENVAT credit on inputs sent for job-work under Rule 4(5)(a).
3. Liability of job-worker (Thermax) to pay duty on parts manufactured and supplied to the principal (Babcock).

Detailed Analysis:

1. Eligibility of Exemption for Boilers Cleared in CKD Form:
The primary issue was whether Babcock was entitled to exemption under Notification No. 3/2001-CE for boilers cleared in CKD form. Babcock argued that all parts removed constituted a complete boiler, and thus, even if cleared in unassembled form, the exemption should apply. The Tribunal referenced multiple judicial precedents, including Thermax Babcock & Wilcox Ltd v. Commissioner of Central Excise 2015 (320) ELT 32 (SC) and Commissioner of Central Excise v. Thermax Babcock & Wilcox Ltd 2005 (182) ELT 336 (Tri.-Mumbai), which held that boilers cleared in CKD/SKD condition should be regarded as complete boilers and eligible for exemption. The Tribunal also cited the Central Board of Excise & Customs (CBEC) Section 37B Order No. 4/92 dated 19/05/1992, which clarified that boilers cleared in CKD/SKD conditions are entitled to exemption if they form part of a complete device. Based on these precedents and clarifications, the Tribunal concluded that Babcock's boilers, cleared in CKD form, were eligible for the exemption under Notification No. 3/2001-CE.

2. Disallowance of CENVAT Credit on Inputs Sent for Job-Work:
The second issue involved the disallowance of CENVAT credit on inputs sent by Babcock to Thermax for job-work under Rule 4(5)(a). Babcock contended that since they were paying 8% on the clearance of boilers under Rule 6 of the CENVAT Credit Rules, 2004, they were entitled to CENVAT credit for inputs used in the manufacture of exempted boilers. The Tribunal agreed with this argument, noting that the payment of 8% on the clearance of boilers entitled Babcock to the CENVAT credit for inputs, even if those inputs were ultimately used in the manufacture of exempted goods. Consequently, the demand for disallowance of CENVAT credit on inputs sent for job-work was deemed unsustainable.

3. Liability of Job-Worker (Thermax) to Pay Duty:
The third issue was whether Thermax, as the job-worker, was liable to pay duty on parts manufactured and supplied to Babcock. The Tribunal examined Rule 4(5)(a) of the CENVAT Credit Rules, which allows for the movement of inputs for job-work but does not grant exemption from duty payment. Generally, job-workers are exempt from duty under Notification No. 214/86-CE, provided the principal manufacturer discharges duty on the final product. In this case, Babcock cleared the final product (boiler) without payment of duty under an exemption notification. Since Notification No. 214/86-CE was not applicable, the Tribunal held that Thermax, as the manufacturer of parts, was liable to pay duty on those parts. The Tribunal referenced multiple judgments, including Mukesh Industries Ltd v. Commissioner of Central Excise Ahmadabad 2009 (248) ELT 203 (Tri.-Ahmd.) and M Tex & D K Processors (P) Ltd v. Commissioner of Central Excise, Jaipur 2001 (136) ELT 73 (Tri-Del.), but found that these did not support exemption from duty for job-workers under the given circumstances. Consequently, the Tribunal referred the issue to a Larger Bench for resolution, specifically to determine whether a job-worker is liable for duty when the principal manufacturer clears the final product under an exemption notification.

Conclusion:
The Tribunal concluded that Babcock's boilers cleared in CKD form were eligible for exemption under Notification No. 3/2001-CE. It also ruled that the disallowance of CENVAT credit on inputs sent for job-work was unsustainable. However, the Tribunal found that Thermax, as the job-worker, was liable to pay duty on the parts manufactured and supplied to Babcock, and referred this specific issue to a Larger Bench for final resolution.