2018 (3) TMI 397 - AT - Central Excise

Reversal of CENVAT credit - job-work - case of Revenue is that as the said jobwork is exempted in terms of N/N. 214/86 hence the Appellant are liable for reversal of 8/10% amount of the value of jobwork goods i.e. exempted goods in terms of Rule 6 (3) of CCR - Held that - the issue settled in the case of STERLITE INDUSTRIES (I) LTD. Versus COMMISSIONER OF CENTRAL EXCISE, PUNE 2004 (12) TMI 108 - CESTAT, MUMBAI , where it was held that Modvat credit of duty paid on the inputs used in the manufacture of final product cleared without payment of duty for further utilisation in the manufacture of final product, which are cleared on payment of duty by the principal manufacturer, would not be hit by provision of Rule 57C. The issue involved stands settled in favour of assessee as credit is available on the inputs used in jobwork activity undertaken in terms of N/N. 214/86-CE - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availment of cenvat credit on inputs used in jobwork activity.
- Reversal of cenvat credit on consumables used in jobwork.
- Interpretation of Rule 57C of the Central Excise Rules.
- Applicability of Notification No. 214/86-CE on jobwork activities.

Analysis:
1. The case involved the Appellants engaged in manufacturing excisable goods and receiving goods from their sister concern for jobwork. The issue was the reversal of cenvat credit availed on consumables used in jobwork activity, as alleged in the show cause notice. The Appellant contended that cenvat credit is available on inputs used by the jobworker, citing relevant legal precedents.

2. The Tribunal referred to the Larger Bench decision in the case of Sterlite Industries Ltd., establishing that the credit on inputs used in jobwork activity is permissible. Rule 57C was analyzed, emphasizing that it debars taking credit if the final product is exempted from excise duty or chargeable to nil rate of duty. The Tribunal clarified the interpretation of "exempted" and "chargeable to nil rate of duty" in this context.

3. The Tribunal further supported its decision by citing similar views in cases like Shakti Insulated Wires Ltd. and Noorani Textiles Mills. It contrasted a case involving Escorts Ltd., where the Tribunal initially rejected Modvat credit but was later reversed by the Supreme Court. The Supreme Court clarified that Rule 57C does not apply if duty is paid on the final product, even if intermediate products are involved.

4. The Tribunal upheld the Larger Bench decision, which was also endorsed by the High Court of Mumbai, confirming that credit is available on inputs used in jobwork activities under Notification No. 214/86-CE. Consequently, the demands against the Appellants and penalties were deemed unsustainable, leading to the appeal being allowed with consequential reliefs.

This comprehensive analysis of the judgment highlights the key legal issues, interpretations of relevant rules, and the application of legal precedents to resolve the matter in favor of the assessee.