2017 (2) TMI 671 - AT - Central Excise

Confiscation - Cenvat credit - Notification No. 214/86 - Penalty - Held that - We find that the cenvat credit has not been rejected on the ground that the said inputs have not been used for the manufacture of said products. It is in fact the entire notice is based on the assertion that certain goods have been supplied by Mahindra & Mahindra to the appellant for manufacturing of sub-assemblies and duty on said sub-assemblies have been demanded under these proceedings.. It is seen that the goods were chargeable to Central Excise duty and there was no exemption to the goods. The appellants were required to pay duty on these goods however the appellants were engaged in manufacture and clearance of goods without payment of duty in these circumstances confiscation of the goods his fully confiscated. The goods were seized and released on provisional basis and therefore it cannot be said that the goods were not available for confiscation. Appeal partly allowed.

Issues:
1. Interpretation of Cenvat Credit Rules and Notification No. 214/86 for exemption from duty.
2. Classification of assembly process as manufacturing and its exemption from duty.
3. Applicability of Notification No. 214/86 for job work and liability transfer.
4. Denial of Cenvat credit on inputs and procedural compliance.
5. Confiscation of goods, imposition of redemption fine, and penalties.

Analysis:

1. The appellants argued for exemption from Central Excise duty under Rule 4(5) (a) of Cenvat Credit Rules and Notification No. 214/86. They contended that cess paid on excisable goods entitled them to benefits. However, the Tribunal clarified that the term "exempted goods" refers to goods exempt from duty of excise or charged at nil rate, not all duties. Thus, even if cess was paid, the exemption under Notification No. 214/86 was not applicable due to the nature of duty on final products.

2. The assembly process of 'Rear Axle Carrier sub-assembly' was debated for classification as manufacturing and exemption from duty. The Tribunal noted the precision assembly of various parts into a marketable sub-assembly used in tractors. The entry in the notification exempted parts used within the factory for manufacturing tractors, indicating no exemption for parts manufactured outside. Therefore, the assembly process was considered manufacturing and not exempt from duty.

3. The appellants sought the benefit of Notification No. 214/86 for goods manufactured on a job work basis. However, the Tribunal emphasized that the notification applies when the principal manufacturer undertakes duty liability. The failure to file a declaration under this notification was deemed substantive, not procedural, as it shifts duty liability from job worker to the main manufacturer. Thus, the benefit of the notification was not extended due to non-compliance.

4. Cenvat credit denial on inputs was challenged by the appellants, citing procedural compliance. The Tribunal clarified that the denial was not due to non-use of inputs but based on the duty demand for supplied goods. If the appellants could prove the inputs were used in manufacturing sub-assemblies, credit should be allowed with proper documentation, even if in the name of the principal manufacturer.

5. The confiscation of goods, redemption fine, and penalties were upheld due to the chargeability of goods to Central Excise duty. The penalties imposed on the appellants were considered excessive and reduced. The penalties were based on the appellants' awareness of duty exemption for tractors but continued clearance without payment. The confiscation, fine, and penalties were upheld with reduced amounts in light of the excessive penalties.

In conclusion, the Tribunal partly allowed the appeals, emphasizing compliance with duty liabilities, proper documentation for Cenvat credit, and adherence to procedural and substantive requirements for duty exemptions and job work arrangements.

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