2009 (2) TMI 185 - AT - Central Excise

Job Work non return of by product generated by the job worker - The appellant paid the applicable Central Excise duty with interest. However, on adjudication and appeal proceedings, the penalty of Rs. 3,07,173/- under Section 11AC was imposed. held that - even before Commissioner (Appeals), the appellant had not contested the demand for duty and interest. The Commissioner (Appeals) had observed in Para 5.1 in the instant case, the appellant have not contested the demand for duty which has already been paid by them with interest. Even in the memorandum of appeal filed, only penalty had been challenged and not the duty and interest, which was already paid - penalty imposed on the appellants is set aside

Summary

Issues:
Penalty imposition under Section 11AC on principal manufacturer for non-payment of duty by job workers on bye product Hydrochloric Acid.

Analysis:
The appellants, engaged in manufacturing Phosphorus Acid Crystal, sent inputs to job workers resulting in the production of Hydrochloric Acid, which the job workers cleared without paying duty. The appellants paid the Central Excise duty with interest, but a penalty of Rs. 3,07,173/- under Section 11AC was imposed, leading to the appeal against the penalty.

Submission by Appellant:
The appellant argued that post-amendment of Rule 57AC of Cenvat Credit Rules, there is no obligation for the principal manufacturer to pay duty on scrap generated at job workers' end. Citing the Rocket Engineering case, it was contended that the duty exemption extends to bye products, thus challenging the penalty imposition.

Submission by Respondent:
The Respondent highlighted that the liability to pay duty and avail Cenvat credit remains with the manufacturer, not the job worker, even if a new product emerges. The law allows clearance of goods directly from job worker's premises, with duty payment by the manufacturer. Several judgments supported this position, emphasizing the duty liability on the principal manufacturer.

Court's Decision:
The Court considered that the appellant did not contest the duty demand and interest before the Commissioner (Appeals). Referring to the Rocket Engineering case, it was held that the principal manufacturer is not obligated to pay duty on scrap not returned by job workers. Consequently, the contention that no penalty is imposable was upheld. The penalty was set aside, as the duty and interest already paid by the appellants were deemed final under Section 11A(2B).

Conclusion:
The judgment clarifies the duty liability of the principal manufacturer in cases where job workers clear goods without paying duty. It underscores the importance of legal provisions and precedents in determining penalty imposition under Section 11AC. The decision provides guidance on the responsibilities of manufacturers and job workers in excisable goods clearance, ensuring compliance with Central Excise rules and regulations.