2014 (3) TMI 203 - AT - Central Excise

Cenvat Credit - Job Work under Rule 4(5)(a) of Cenvat Credit Rules, 2004 - Job worker paid the duty - Appellant took the Cenvat Credit of the duty paid by the job workers. The Department was of the view that by this modus operendi, the Appellant availed Cenvat Credit in respect of the same inputs twice - first at the time of receiving the inputs in their factory before sending the same to job workers and thereafter second time at the time of receiving intermediate products from the job workers on which the job workers had paid duty on the value which included the value of the free supply inputs. Held that - Logically, the ground on which the Cenvat Credit is sought to be denied is totally incorrect. There is no condition in Rule 4(5)(a) of the Cenvat Credit Rules, 2004 that job worker should necessarily avail of full duty Exemption under Notification No.214/86-CE. This exemption being a conditional exemption, is not required to be compulsorily availed by job-workers. When the inputs, in question, have suffered twice, first in the hand of input manufacturers from whom the Appellant had procured the inputs and second time in the hand of job workers who at the time of clearance of intermediate products made out of the inputs paid duty on value which included the cost of the inputs, the credit of the duty paid on the intermediate product cannot be denied when such intermediate were made out of those inputs, even if the Appellant had earlier taken the Cenvat Credit in respect of inputs while receiving the same. The intermediate products made out of inputs are different from inputs and just because the Appellant have availed Cenvat Credit in respect of the inputs, the Cenvat Credit of duty, if any paid on the intermediate products by the job-workers, cannot be denied to the principal manufactures. - Decided in favor of assessee.

Summary

Issues:
- Availing Cenvat Credit twice on the same inputs
- Interpretation of Rule 4(5)(a) of the Cenvat Credit Rules, 2004
- Denial of Cenvat Credit on intermediate products

Analysis:

Availing Cenvat Credit twice on the same inputs:
The Appellant, a manufacturer of Turbine and Electricity Generating Sets, availed Cenvat Credit on inputs and capital goods used in manufacturing their final products. The dispute arose as the Appellant sent duty paid inputs to job workers without reversing the Cenvat Credit, leading to a contention that Cenvat Credit was availed twice - first when receiving the inputs and again when receiving the intermediate products from job workers. The Department issued two Show Cause Notices seeking recovery of credit amounts and imposed penalties. The Commissioner confirmed the demands and penalties, leading to the appeal.

Interpretation of Rule 4(5)(a) of the Cenvat Credit Rules, 2004:
The Appellant argued that Rule 4(5)(a) allows sending inputs to job workers for processing without reversing the Cenvat Credit, provided the processed inputs are returned within 180 days. The job workers processed the inputs, paid duty on intermediate products, and cleared them to the Appellant under invoices. The Appellant contended that the duty paid by job workers on intermediate products should not deny them Cenvat Credit, as the inputs had already suffered duty twice - once at procurement and again at processing.

Denial of Cenvat Credit on intermediate products:
The Department contended that availing Cenvat Credit twice on the same inputs is against the law. However, the Tribunal found this argument flawed, emphasizing that there is no condition in Rule 4(5)(a) requiring job workers to avail full duty exemption. The Tribunal held that since the intermediate products are different from inputs and had already suffered duty, denying Cenvat Credit on duty paid by job workers would be incorrect. The impugned order was set aside, and the appeal along with the stay application was allowed.

This judgment clarifies the interpretation of Rule 4(5)(a) regarding availing Cenvat Credit on inputs sent for processing and emphasizes that the duty paid on intermediate products should not be denied as long as the inputs have undergone processing and duty payment at different stages.