2020 (5) TMI 150 - AT - Central Excise

CENVAT Credit - input services - exempt services or not - denial for the reason that the activity of machining operations is an exempted service as per Notification No.25/2012-ST dt. 20.06.2012 (Sl.No.30) - HELD THAT - When the semi finished gods are received by the job worker under challans as per Rule 4 (5) (a), it can be understood that the activity undertaken by the appellant is also part of the manufacturing activity. In other words, the job worker manufactures on behalf of the principal manufacturer. The notification No.214/86 helps to decide as to who has to pay Central Excise duty on the finished goods when manufacturing activity is carried out using job work facility. Since the appellants are doing part of the manufacturing activity, it cannot be said that the activity undertaken by them is service which is exempted under Notification No.25/2012-ST. Even if the process carried out by the appellant does not amount to manufacture , when N/N. 214/86 comes into application it has to be understood that the job worker is undertaking part of the manufacturing activity on behalf of the principal manufacturer. The Tribunal in the case of M/S. SHREE ORGANO CHEMICALS AHMEDABAD P. LTD VERSUS COMMISSIONER OF CENTRAL EXCISE ST, AHMEDABAD 2019 (2) TMI 852 - CESTAT AHMEDABAD had occasion to consider a similar situation and has held that the credit availed in respect of job work activities would be eligible to the assessee. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Eligibility of credit on input services for machining operations
- Interpretation of Notification No.25/2012-ST
- Application of Notification No.214/86 for job work activities

Eligibility of credit on input services for machining operations:
The case involved the appellants, engaged in machining operations on a job work basis for their principal manufacturer, availing credit on inputs and input services used for such operations. The department contended that the credit on service tax paid for input services was not eligible due to the machining operations being considered an exempted service under Notification No.25/2012-ST. The original authority confirmed the demand, interest, and penalty, which was upheld by the Commissioner (Appeals), leading to the appeal.

Interpretation of Notification No.25/2012-ST:
The appellant argued that as job workers for the principal manufacturer, the machining operations should be considered part of the manufacturing activity of the principal manufacturer. They highlighted that the finished products had already suffered excise duty, making the service tax inapplicable. The appellant relied on previous tribunal decisions to support their claim that the credit availed on input services for manufacturing finished products was legitimate and not for providing exempted services as alleged by the department.

Application of Notification No.214/86 for job work activities:
The department argued that the machining operations conducted by the appellants did not amount to 'manufacture' and thus fell under the exempted service category as per Notification No.25/2012-ST. However, the tribunal found that the job worker's activities, even if not amounting to 'manufacture', were part of the manufacturing process on behalf of the principal manufacturer. Referring to Notification No.214/86, the tribunal concluded that the denial of cenvat credit on input services was unjustified, allowing the appeal with consequential reliefs.

In conclusion, the tribunal ruled in favor of the appellants, emphasizing that the denial of cenvat credit on input services for machining operations was unjustified. The decision highlighted the importance of considering job work activities as part of the manufacturing process, even if they did not amount to 'manufacture', and referenced previous tribunal judgments to support the eligibility of the appellants for the credit on input services.