2017 (3) TMI 353 - AT - Central Excise

Job-work - N/N. 214/86-CE dated 25th March 1986 - use of granules in the manufacture - demand of duty on the ground that the assessee had not fulfilled the condition of the notification, namely, the supplier availing of credit u/r 57A gives an undertaking to the jurisdictional Assistant/Deputy Commissioner of the factory of job-worker that goods will be used in or in relation to manufacture of final products and produces evidence of such usage besides discharging duty on the finished products. Held that - the appellant is in receipt of raw materials supplied under cover of challans issued by their principals and that the goods produced out of these have been received by principals. These goods have, after further processing, been cleared on payment of duty by the principals. We also do not find any allegation in the notice, or finding in the adjudication order, that this was not so. There has been substantive compliance of the procedure under the erstwhile Central Excise Rules, 1944 and the successor CENVAT Credit Rules - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Liability of duty on goods produced using materials supplied by principal for job-work.
2. Compliance with conditions of notification no. 214/86-CE dated 25th March 1986.
3. Interpretation of rules regarding duty payment by job-workers.
4. Applicability of circular no. 306/22/97-CX dated 20th March 1997.
5. Judicial precedent on duty payment by job-workers.

Analysis:
1. The case involved the liability of duty on goods produced using materials supplied by the principal for job-work. The Central Excise authorities alleged non-compliance with conditions of notification no. 214/86-CE dated 25th March 1986, which required the supplier to give an undertaking for the usage of goods in manufacturing final products and discharge duty on finished products. The demand for duty amounting to &8377; 1,68,70,451/- for the period from December 2001 to March 2005 was made.

2. The impugned order by the Commissioner of Central Excise held that the exemption available to goods produced by a job-worker is governed by notification no. 214/86-CE dated 25th March 1986. The non-compliance with conditions was attributed to the job-worker for failing to verify the status of raw materials supplied by the principal. Consequently, the demand for duty and penalty was confirmed.

3. The appellant contended that the products manufactured for principals were not excisable in their semi-finished form and required further processing. They argued that raw materials were supplied under specific rules of Central Excise and CENVAT Credit Rules, supported by certificates from suppliers and proof of duty payment. The circular no. 306/22/97-CX dated 20th March 1997 was cited to validate their actions.

4. The Tribunal noted certificates from suppliers and challans indicating compliance with CENVAT Credit Rules. Audit reports confirmed regular scrutiny of job-work contracts. The goods produced were received by principals, further processed, and duty was paid. Substantive compliance with Central Excise Rules and CENVAT Credit Rules was observed.

5. Referring to a judicial precedent, the Tribunal analyzed the interpretation of Rule 57F regarding duty payment by job-workers. The judgment highlighted that duty liability on goods returned by job-workers to principals only arises if the goods are removed for home consumption by principals. The Tribunal found no basis for presuming duty payment by job-workers at the time of returning processed goods to principals.

6. The Tribunal referred to a decision upheld by the Supreme Court, where the Attorney General conceded that circular no. 306/22/97-CX covered the facts of the case against Revenue. Consequently, the impugned order was set aside, and the appeal was allowed.