2019 (11) TMI 953 - AT - Central Excise

Valuation - job-work - benefit of N/N. 214/86-CE dated 25.03.1986 denied to the appellant on the ground that principal manufacturers have not complied with the conditions stipulated in the said notification inasmuch as the principal manufacturers have not filed required undertaking - HELD THAT - There is no dispute that the appellant have manufactured Formaldehyde from Methanol supplied by Principal Manufacturers on job work basis. The job worked goods were returned back to the Principal Manufacturer - if it is found that job worked goods were used in the manufacture of final products by the Principal Manufacturer and the said final product is cleared on payment of duty, the appellant is clearly entitled for exemption N/N. 214/86-CE. As regards the undertaking required to be submitted, we find that in the said under taking also the Principal Manufacturer has to undertake that job worked goods will be used in the manufacture of final product which shall be cleared on payment of duty for the home consumption and/ or for the purpose of export. Therefore, on verification, if it is established that final products wherein the job worked goods i.e. Formaldehyde was used, has been cleared on payment of duty in the home consumption and/ or cleared for export without payment of duty under Bond then, appellant s manufacture on job work basis is clearly covered by exemption N/N. 214/86-CE. Since the Adjudicating Authority has not verified the facts regarding nature of clearances of final product by the Principal Manufacturers that, for the home consumption on payment of duty and/ or export under Bond, the matter needs to be remanded for the limited purpose of this verification and all other issues raised by the appellant, are kept open - appeal allowed by way of remand.

Issues:
1. Denial of benefit under Notification No. 214/86-CE due to non-compliance with conditions by principal manufacturers.
2. Invocation of extended period for demand confirmation.
3. Applicability of exemption for job work based on usage of job worked goods in final product clearance.
4. Requirement of filing undertaking by principal manufacturers.
5. Verification of final product clearance for duty payment.

Analysis:

Issue 1: Denial of benefit under Notification No. 214/86-CE
The appellant received Methanol under job work challans and converted it into Formaldehyde, which was returned to principal manufacturers. The department denied the benefit of Notification No. 214/86-CE due to alleged non-compliance by principal manufacturers with the stipulated conditions. The appellant argued that they fulfilled their obligations under the notification as the job worked goods were used in the manufacture of final products cleared on duty payment. The appellant contended that their job work should be exempted under the notification despite the lack of filing of the required undertaking by principal manufacturers.

Issue 2: Invocation of extended period for demand confirmation
The appellant argued against the invocation of the extended period, stating there was no suppression of facts on their part. They highlighted that one supplier had filed the undertaking, and all suppliers had submitted undertakings from 2014. The appellant claimed that the demand for the period before 2014 was incorrectly confirmed. They emphasized that the department did not consider the fact that final products using job worked goods were cleared on duty payment, making the demand unsustainable.

Issue 3: Applicability of exemption for job work based on usage of job worked goods
The Tribunal acknowledged that the appellant manufactured Formaldehyde from Methanol supplied by principal manufacturers on a job work basis. The key contention was whether the job worked goods were used in the manufacture of dutiable final products by principal manufacturers, which were cleared on duty payment. The Tribunal held that if the job worked goods were indeed used in final products cleared on duty payment, the appellant was entitled to exemption under Notification No. 214/86-CE.

Issue 4: Requirement of filing undertaking by principal manufacturers
The Tribunal noted that the undertaking required to be submitted by principal manufacturers specified that job worked goods would be used in the manufacture of final products cleared on duty payment. The Tribunal emphasized that even if the undertaking was not filed, the exemption could not be denied if the job worked goods were used in final products cleared on duty payment. The Tribunal highlighted that the Adjudicating Authority had not verified the nature of clearances of final products by principal manufacturers, necessitating a remand for verification.

Issue 5: Verification of final product clearance for duty payment
The Tribunal directed the matter to be remanded to the Adjudicating Authority for verification of whether final products using job worked goods were cleared on duty payment for home consumption or export under Bond. The Tribunal emphasized the importance of verifying the clearances of final products to determine the applicability of the exemption under Notification No. 214/86-CE. All other issues raised by the appellant were kept open for consideration in the fresh order to be passed by the Adjudicating Authority.

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