2017 (12) TMI 266 - AT - Central Excise

Liability of duty on intermediate goods - job-work - who is liable, job-worker or principal manufacturer? - Rule 4 (5) (a) and Rule 4 (6) of CCR - N/N. 214/86-CE dated 25.3.1986 - whether job-worker is exempt from duty on intermediate goods when principal manufacturer discharges such duty? Held that - the fact remains is that neither the goods after jobwork were cleared as such on payment of duty nor were used in manufacture of dutiable final products by the Principal manufacturer. Hence the duty liability would be on the real manufacturer of goods i.e the Jobworker. Since the Principal manufacturer pays the duty on the product arising out of manufacture even at the jobworkers end, he is eligible to avail credit. The Rule 4 (5) (a) thus is a facility to the principal manufacture to send goods for jobwork on which cenvat has been availed. It is nothing to do with the duty payment of goods - Rule 4 (6) is a facility to the Principal manufacturer to clear the goods directly from the premises of jobworker after payment of duty. Notably it is not the case of the appellant that the Principal manufacturer paid duty at anytime as the goods manufactured by him were exempted from duty. Thus the liability for payment of duty on such intermediate goods manufactured by the Jobworker is on jobworker only. The Jobworker, M/s Thermax being manufacturer of excisable goods is liable to pay duty on the intermediate goods manufactured by him on jobwork basis which supplied to their principal M/s Thermax Babcock - appeal dismissed - decided against appellant.

Issues Involved:
1. Liability of duty on job worker under Rule 4(5)(a) of the Cenvat Credit Rules, 2001 and 2002.
2. Applicability of Notification No. 214/86-CE dated 25.3.1986.
3. Interpretation of Rule 4(6) of the Cenvat Credit Rules, 2001 and 2002.
4. Exemption from duty for job workers and principal manufacturers.
5. Precedents and judicial interpretations regarding duty liability on job workers.

Detailed Analysis:

1. Liability of Duty on Job Worker:
The core issue was whether the job worker (Thermax) is liable for payment of duty on intermediate goods manufactured for the principal manufacturer (Babcock) when the latter clears the final product without payment of duty. The Tribunal analyzed Rule 4(5)(a) of the Cenvat Credit Rules, 2001 and 2002, which allows the principal manufacturer to clear inputs to a job worker and avail cenvat credit thereon. The Tribunal emphasized that the rule does not oblige the job worker to pay duty on intermediate goods, provided the principal manufacturer follows the necessary procedures.

2. Applicability of Notification No. 214/86-CE:
Notification No. 214/86-CE exempts job workers from paying duty on intermediate goods if the principal manufacturer undertakes to discharge the duty liability on the final products. The Tribunal noted that in the case under reference, neither the principal manufacturer (Babcock) nor the job worker (Thermax) followed the procedure prescribed by the notification. Consequently, the exemption was not applicable, and the job worker was liable to pay duty on the intermediate goods.

3. Interpretation of Rule 4(6):
Rule 4(6) permits the clearance of final products by a job worker from its factory, with the permission of the Central Excise Commissioner. The Tribunal clarified that this rule applies when the principal manufacturer discharges the excise duty on the finished goods manufactured by the job worker. In the present case, since the principal manufacturer did not pay duty on the final products, the job worker could not claim exemption under Rule 4(6).

4. Exemption from Duty for Job Workers and Principal Manufacturers:
The Tribunal discussed various judgments and circulars, including the CBE&C Circular No. 306/22/97-CX, which clarified that duty liability is required to be discharged by the principal manufacturer and not by the job workers. However, the Tribunal concluded that in the absence of compliance with Notification No. 214/86-CE, the job worker is liable to pay duty on the intermediate goods.

5. Precedents and Judicial Interpretations:
The Tribunal reviewed several precedents, including the cases of Mukesh Industries Ltd. Vs. CCE, Ahmedabad, and Dhana Singh Synthetics Pvt. Ltd. Vs. CCE, Vapi, which held that job workers are exempt from duty if the principal manufacturer follows the due procedure. The Tribunal also considered the decisions in M. Tex & D.K. Processors (P) Ltd. Vs. CCE, Jaipur, and Essar Steel Ltd. Vs. CCE, which supported the view that job workers are not liable for duty if the principal manufacturer discharges the duty liability. However, in the present case, since the principal manufacturer did not pay duty, the job worker was held liable.

Conclusion:
The Tribunal concluded that the job worker, M/s Thermax, being the manufacturer of excisable goods, is liable to pay duty on the intermediate goods manufactured for the principal manufacturer, M/s Thermax Babcock, when the latter does not follow the procedure prescribed by Notification No. 214/86-CE. The Tribunal directed the registry to place the appeals before the referral bench for appropriate orders.

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