2005 (5) TMI 152 - AT - Central Excise

Manufacturer - Job worker - whether under the CENVAT rules, the dispatch of inputs and process undertaken by the job worker on and resulting in the emergence of Laminated fabrics which are not covered by Notification 214/86 would result in duty demands to be made on the job worker as manufacturer of Laminated fabrics? - Held that - we set aside the duty demand on the job worker, especially where the laminated fabrics have been received back by the input supplier; if the fabrics have not been received back, the principal manufacturer is required to reverse the credit and the job worker will be liable to duty on the laminated fabrics on his own liability. For the fabrics received back by the principal manufacturer the liability to duty will be on him with benefit of credit on inputs - matter remitted back to the original authority to re-determine only demands - appeal allowed by way of remand.

Summary

Issues: Whether dispatch of inputs and process by job worker resulting in emergence of Laminated fabrics not covered by Notification 214/86 would lead to duty demands on job worker as manufacturer of Laminated fabrics.

The Tribunal considered the issue in light of the CENVAT rules and previous decisions. The appellant argued that duty liability on fabrics processed by job worker and returned to principal manufacturer should not be on the job worker. The Departmental Representative (DR) contended that previous decisions were under the erstwhile Rule 57F of the Modvat Scheme, not under CENVAT rules. The Tribunal analyzed the Cenvat Credit Rules and found that while the rules allow removal of inputs for processing by job worker, duty credit must be recovered if processed inputs are not returned within stipulated period. The Tribunal highlighted the risk of duty evasion and credit misuse if duty liability on processed inputs is shifted to job worker. Consequently, the duty demand on job worker was set aside, with the principal manufacturer liable for duty if fabrics are received back, and job worker liable if fabrics are not returned. The order was remitted to the original authority for re-determination following the decision relied upon by the appellant.

The Tribunal's decision emphasized the importance of maintaining tax compliance and preventing duty evasion in cases involving job workers processing inputs. By setting aside the duty demand on the job worker and outlining the duty liability scenarios based on whether fabrics are received back by the principal manufacturer, the Tribunal aimed to ensure proper accountability and duty payment in line with the CENVAT rules. The decision serves to clarify the responsibilities of job workers and principal manufacturers in such situations, safeguarding revenue interests and upholding the integrity of the tax system.