2017 (7) TMI 897 - AT - Central Excise

CENVAT credit - job-work - denial on the ground that appellant had used capital goods exclusively in manufacture of Aluminium components on job work basis in terms of Rule 57R (1) of erstwhile CER 1944 - Held that - It is seen that on the matter of component washing machine the appellant has been crying hoarse right from the initial adjudication proceedings that the said item was a new concept conceived and developed by them that the same was under development the design of the same was not yet frozen and therefore said machine was not a completely manufactured machine. We find merit in this contention. There is no allegation by department that the appellant had earlier manufactured and sold such component washing machines or for that matter whether the said item found in the premises being utilized in the regular manufacturing operations. The averment of the appellant that it was only a prototype under development has also not been adequately countered by any of the lower authorities. It would not be just and fair to tax the appellant for an attempt at innovation especially when that attempt was still in process and had not culminated in manufacture of a complete and fully functional machine. Appeal allowed - decided in favor of appellant.

Summary

Issues: Alleged diversion of capital goods for manufacturing exempted goods, falsification of documents, denial of cenvat credit, demand of differential excise duty on component washing machine, imposition of penalties.

Analysis:
1. The case involved the appellants, manufacturers of Plastic Injection Moulding Machines, who were found manufacturing Aluminium components for another company on job work basis without informing the Department and claiming duty exemption without maintaining proper records. The appellants were also accused of diverting machine tools for manufacturing exempted goods and falsifying documents related to the machinery. A show cause notice was issued proposing disallowance of cenvat credit, demand of differential duty, confiscation of seized goods, and imposition of penalties under Central Excise law.

2. The original authority confirmed the proposals, leading to confiscation of goods, imposition of penalties, and a subsequent dismissal of appeal by the Commissioner (Appeals). The appellants challenged the jurisdiction of the visiting officers, which was countered by clarifications from the Department regarding permission for the visit. The matter was advised to be argued on merits.

3. During the hearing, the appellants argued on various grounds, including the existence of additional premises known to the Department, lack of evidence on exclusive use of capital goods for exempted goods, and the status of the component washing machine as still under development and not marketable. The Department supported the impugned order, emphasizing the use of capital goods for exempted goods, the demand for the washing machine based on valuation, and discrepancies in challans.

4. The Tribunal analyzed the contentions and evidence presented. It noted the appellant's challenges to the allegations of using capital goods exclusively for exempted goods and the status of the washing machine as a prototype under development. The Tribunal found merit in the appellant's arguments, especially regarding the innovation process and the lack of evidence of completed sales or regular use of the washing machine.

5. Ultimately, the Tribunal ruled in favor of the appellant, setting aside the impugned order, allowing the appeal, and providing consequential relief as per the law. The decision was based on the lack of sufficient evidence to support the allegations of diversion of capital goods, the status of the washing machine, and the technical nature of the challan discrepancies within the prescribed return period.

6. The judgment was pronounced on 25.07.2017 by the Appellate Tribunal CESTAT Chennai, with detailed analysis and considerations of the arguments presented by both parties, ultimately leading to a favorable outcome for the appellant based on the lack of substantial evidence supporting the Department's claims.