2016 (12) TMI 30 - AT - Central Excise

Job-work - CENVAT credit - BHEL have not received back the inputs supplied to job workers fully. It is the case of the department that certain quantity of inputs viz. continuous cast copper rods on which cenvat credit has been availed by BHEL supplied to the job workers has not been fully accounted for and received back by BHEL and hence there is a violation of provisions of Cenvat Credit Rules 2004 - Held that - BHEL have categorically asserted that there will certainly be a process loss and also emergence of scrap in the form of off-cuts and other pieces. BHEL requires the product with a particular specification and length. The generation of such specified intermediate products will result in certain end cuttings and also certain process loss. This much cannot be disputed. It is also not disputed that there will be certain conversion loss as no process can be undertaken on 100 % conversion basis. If the resultant product has to meet the standard specification of the principal manufacturer off-cuts and the copper scrap which is not useable for the intended purpose or further use by the principal manufacturer are retained by the job workers and have been put to profitable use in further manufacture of various other items. These manufactured items have been cleared on payment of proper central excise duty at the job worker s end. This has also not been disputed. In such situation we find that there is no justification for reversal of any credit availed on inputs by BHEL. There is no violation of provisions of Rule 4 (5)(a) of Cenvat Credit Rules 2004 read with provisions of N/N. 214/96-CE. It is also apparent that the resultant off-cuts and scrap cannot be considered as inputs as such at the job worker s end. We find no evidence to that effect in the proceedings before the lower authority. Calculation for quantification of cenvat credit to be reversed by the principal manufacturer has been worked out on some percentage basis with no cross examination of manufacturing process at the job worker s end and the emergence of off-cuts and other waste products which is not useable to the same intended purpose further by the job worker. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether there is a violation of provisions of Cenvat Credit Rules, 2004 due to non-returned inputs supplied to job workers by the principal manufacturer.
2. Whether the job workers retained scrap/off-cuts for further manufacturing and if such retention justifies the availed credit by the principal manufacturer.
3. Whether the off-cuts and scrap generated during the manufacturing process at the job worker's end can be considered as "inputs as such" and if there is a need for quantification of cenvat credit to be reversed by the principal manufacturer.

Issue 1: Violation of Cenvat Credit Rules
The case involved BHEL, a principal manufacturer, supplying copper rods to job workers for further manufacturing. The department alleged that BHEL did not receive back the inputs fully, leading to a demand for recovery of cenvat credit. The impugned order confirmed a demand of cenvat credit amounting to a specific sum for a particular period, along with penalties and confiscation of seized goods at the job worker's premises. The argument centered around the non-returned inputs and the violation of Cenvat Credit Rules.

Issue 2: Retention of Scrap/Off-Cuts by Job Workers
The appellant's counsel argued that as per the Standard Rate Contract, job workers retained waste and scrap generated during job work for further manufacturing, which was duly cleared on payment of central excise duty. The appellant contended that there would be an inevitable loss of metal during the manufacturing process, and the retained scrap was utilized for producing final products. The job workers' use of scrap/off-cuts for further manufacturing, cleared with excise duty payment, was highlighted to justify the retention and utilization of such materials.

Issue 3: Consideration of Off-Cuts and Scrap as Inputs
The Tribunal analyzed the process loss and scrap generation during the manufacturing process at the job worker's end. It was observed that the off-cuts and scrap, which did not meet the principal manufacturer's specifications, were retained by job workers for further manufacturing of different items. The Tribunal found no evidence to consider the resultant off-cuts and scrap as "inputs as such" at the job worker's end. The lack of cross-examination on the manufacturing process and the utilization of waste products for further manufacturing, which attracted excise duty, led to the Tribunal setting aside the impugned order.

In conclusion, the Tribunal allowed the appeals, noting that there was no diversion of inputs or unaccounted clearance, and the retained scrap/off-cuts were utilized for further manufacturing of items subject to excise duty. The decision emphasized the absence of evidence to support the reversal of cenvat credit availed by the principal manufacturer, ultimately setting aside the impugned order.

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