2016 (7) TMI 549 - AT - Central Excise

Categorisation of grey fabrics - Job work - cenvat credit - duty demand - Held that - The categorisation of grey fabric will need to be done with reference to the final products cleared from the hands of appellant-assessee. It is not in dispute that the ultimate products which has been exported by the appellant-assessee are processed fabrics and the appropriate duty has been paid at that stage by them. Keeping this in view, we have no hesitation in categorising the grey fabrics as input/ intermediate products. Rule 4(5)(a) of the Cenvat Credit Rules permits such goods to be sent to the job worker for further processing. Under the permission granted by the Commissioner under Rule 4(6), the processed fabric has been cleared directly for export from the premises of the job worker, by the appellant - assessee on payment of appropriate duty. Under the circumstances, we find that the view taken by the Commissioner to consider these goods as finished goods is totally erroneous and the demand of duty itself is without the sanction of law. We accordingly set - aside the order dated 28.09.2007 of the Commissioner. - Decided in favour of assessee.

Summary

Issues:
1. Categorization of grey fabrics as inputs or finished products.
2. Liability of excise duty on grey fabrics cleared for job work.
3. Justification for demanding duty at the intermediate stage.

Analysis:
1. The primary issue in this case revolves around the categorization of grey fabrics as either inputs or finished products. The appellant, engaged in manufacturing man-made blended yarn and fabrics, sent grey fabrics to a job worker for processing. The Commissioner considered grey fabrics as finished products, leading to the demand for excise duty on them. However, the Tribunal analyzed that grey fabrics should be categorized based on the final products cleared for export, which were processed fabrics. As the duty was already paid on the processed fabrics, the Tribunal categorized grey fabrics as input/intermediate products, allowing their clearance for job work under Rule 4(5)(a) of the Cenvat Credit Rules.

2. The second issue pertains to the liability of excise duty on grey fabrics cleared for job work. The Commissioner ordered the recovery of the duty amount from the appellant, contending that grey fabrics, being finished products, should not have been cleared without duty payment. However, the Tribunal disagreed, emphasizing that since duty was paid on the final processed fabrics cleared for export, demanding duty on grey fabrics at the intermediate stage was unjustified. The Tribunal overturned the Commissioner's order, ruling that the demand for duty on grey fabrics was without legal sanction.

3. The final issue concerns the justification for demanding duty at the intermediate stage. The Revenue also filed an appeal challenging the Commissioner's decision to recover only the difference in duty amounts. The Revenue argued that full duty on grey fabrics should have been demanded. However, the Tribunal upheld the appellant's position, stating that the duty payment on processed fabrics made demanding duty on grey fabrics redundant. The Tribunal set aside the Commissioner's order, ruling in favor of the appellant and rejecting the Revenue's appeal.

In conclusion, the Tribunal's judgment clarified the categorization of grey fabrics as input/intermediate products based on the final exported products. It deemed the demand for duty on grey fabrics as unwarranted, given the duty payment on the processed fabrics. The appellant succeeded in the appeal, while the Revenue's appeal was dismissed.