2007 (10) TMI 151 - AT - Central Excise

Procurement of inputs by job worker in name of assessee appellants have engaged job-worker for same so credit can t be denied on ground of non-compliance with procedural requirement u/r 12B(4) or by saying that assessee hasn t undertaken mfg. of final good

Issues Involved:
1. Denial of CENVAT credit on inputs.
2. Compliance with Rule 12B of the Central Excise Rules, 2002.
3. Procedural requirements under Rule 12B(4).
4. Maintenance of proper accounts regarding consumption of fabrics.

Issue-wise Detailed Analysis:

1. Denial of CENVAT credit on inputs:
The Commissioner denied CENVAT credit on inputs to the appellants on three grounds: (a) the input was not received in the factory of the appellants; (b) the appellants did not manufacture the garments; and (c) discrepancies in the documents indicating excess production vis-a-vis the quantity of fabrics purchased. The appellants claimed refund of an amount equal to the CENVAT credit on the ground that the entire quantity of the final product had been exported. The Tribunal found that the appellants were entitled to take CENVAT credit of the duty paid on the fabrics procured in their name by M/s. CFL and used for conversion into garments for export. The Tribunal held that the Commissioner's order for recovery of the amount from the appellants was bad in law.

2. Compliance with Rule 12B of the Central Excise Rules, 2002:
Rule 12B provides for job work in textile and textile articles. Sub-rule (1) mandates that a person who gets garments manufactured on his account, on a job work basis, shall obtain registration, maintain accounts, pay duty leviable on such goods, and comply with all relevant provisions of the Central Excise Rules as if he is an assessee. In the present case, the appellants and M/s. CFL were acting under sub-rule (2) of Rule 12B. The Tribunal noted that the fabrics procured by M/s. CFL in the name of the appellants were retained for conversion into garments and the garments so manufactured on a job work basis were cleared for export from the premises of the job worker. The Tribunal found that sub-rule (3) of Rule 12B permitted the fabrics (input), procured in the name of the appellants, to be allowed to be retained by the job worker.

3. Procedural requirements under Rule 12B(4):
The Tribunal addressed the argument that the appellants had not fulfilled the requirement of supplying input to the job worker under cover of the requisite document in terms of sub-rule 4. The Tribunal agreed with the appellants' counsel that where there is no movement of goods, the provisions of sub-rule 4 are not applicable. Similarly, sub-rules (5) and (6) were also found to be inapplicable in the absence of movement of goods from the premises of the appellants to those of the job worker. The Tribunal held that the provisions of sub-rule 4 are not applicable where there is no movement of goods to the job worker's premises from the premises of the person who has engaged the job worker under Rule 12B.

4. Maintenance of proper accounts regarding consumption of fabrics:
The Tribunal examined the department's allegation that the appellants were not maintaining proper accounts regarding the consumption of fabrics during the period August 2003 to March 2004. The department's data suggested that the consumption of fabrics was several times more than the quantity of fabrics purchased. The appellants argued that the total purchase of fabrics during the entire period of dispute should be compared with the total consumption of fabrics during such period, which showed a minimal difference. The Tribunal found merit in this argument and noted that the small difference could be explained with reference to various factors. The Tribunal concluded that the appellants were entitled to the CENVAT credit and, as their final product was exported, they were also entitled to claim a refund of the unutilized credit.

Conclusion:
The Tribunal set aside the order passed by the Commissioner, allowed the appeal, and held that the appellants were entitled to the CENVAT credit in question and the refund of the unutilized credit as their final product was exported. The operative portion of the order was pronounced in open court on 12-10-2007.

← Previous Next →