2019 (1) TMI 660 - AT - Central Excise

100% EOU - CENVAT Credit - removal of inputs to job-worker - specific permission granted earlier was withdrawn - applicability of sub-rule (5) of Rule 3 of the CENVAT Credit Rules, 2004 - Held that - Sub-rule (5) of Rule 3 deals with the situation of payment of equal amount of CENVAT credit availed in respect of inputs, when the same were removed as such from the factory of the manufacturer. Sub-rule (5a) of Rule 4 allowed a manufacturer to retain the CENVAT credit in respect of inputs removed as such or after it partially processed, when the same are sent to a job-worker for further processing. The said sub-rule mandates that the inputs or the resultant product manufactured therefrom have to be received back by the manufacturer within 180 days of their being sent from the factory. In the present case, it is undisputed fact that the appellant had removed the raw materials from the bonded warehouse to its job-worker, namely, M/s. Svizera Labs Pvt Ltd for manufacture of finished excisable goods under sub-contracting basis. Since the raw material/inputs were removed by the appellant for further manufacture of the finished goods, the case of the appellant falls under the purview of sub-rule (5)(a) of Rule 4 of the Rules. The permission letter for removal of raw material withdrawn subsequently by the department with effect from 29/01/2007 cannot be the ground to deny the CENVAT benefit inasmuch as availment of CENVAT credit is permissible on the basis of receipt of inputs in the factory. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against order passed by Commissioner of Central Excise and Service Tax
- Availing CENVAT credit on raw materials and capital goods
- Removal of raw materials to job-worker without permission
- Show cause proceedings for Central Excise duty demand
- Interpretation of sub-rule (5)(a) of Rule 4 and sub-rule (5) of Rule 3 of CENVAT Credit Rules, 2004
- Justification of duty demand confirmation
- Applicability of CENVAT benefit in case of removal for job-work basis

Analysis:
The appeal was filed against the order passed by the Commissioner of Central Excise and Service Tax, LTU, Mumbai. The appellant, a 100% EOU engaged in manufacturing pharmaceutical formulations, availed CENVAT credit on raw materials and capital goods used in the manufacturing process. During a specific period, the appellant removed raw materials to a job-worker for further processing without obtaining permission, leading to the initiation of show cause proceedings for Central Excise duty demand confirmation. The department alleged that the appellant was liable to pay an amount equal to the credit availed on the inputs under sub-rule (5) of Rule 3 of the CENVAT Credit Rules, 2004. Additionally, a redemption fine and penalty were imposed on the appellant in the impugned order dated 26/06/2009.

The advocate for the appellant argued that the provisions of sub-rule (5)(a) of Rule 4 are applicable when goods are sent for job-work, not sub-rule (5) of Rule 3. On the other hand, the Authorized Representative for the revenue contended that the duty demand confirmation was justified under sub-rule (5) of Rule 3 since no permission was obtained for the removal of raw materials. The Tribunal analyzed the provisions of sub-rule (5) of Rule 3 and sub-rule (5)(a) of Rule 4. It was established that the appellant had sent raw materials to a job-worker for further processing, falling under the purview of sub-rule (5)(a) of Rule 4. The rule did not require permission from the Central Excise officer for removal for job-work basis, and the withdrawal of permission subsequently could not deny CENVAT benefit as credit availment is based on input receipt in the factory.

The Tribunal concluded that the original authority was not justified in confirming the duty demand on the appellant. Therefore, the impugned order was set aside, and the appeal was allowed in favor of the appellant. The judgment emphasized the distinction between the applicability of sub-rule (5)(a) of Rule 4 and sub-rule (5) of Rule 3 in cases of removal for job-work purposes, ensuring the rightful availment of CENVAT benefits in such scenarios.