2023 (11) TMI 364 - AT - Central Excise

Process amounting to manufacture - process of conversion of metal into Engine Components carried out by the appellant - exemption from payment of duty under the job work Notification No. 214/86-CE dated 25.3.1986 - availment of CENVAT credit on the basis of debit notes which are not the prescribed document under Rule 9 of the CCR, 2004 - revenue neutrality - extended period of limitation. Whether the process involved in the job work contract with M/s Rockman amounts to manufacture? - HELD THAT - M/s Rockman in terms of the contract supplied the raw material, i. e., Aluminium Ingots to the appellant, who processed them by using specific moulds and dies supplied by M/s. Rockman, whereby the product Aluminium Die Casting Components were produced - It is a settled principle of law as interpreted in catena of decisions that the definition of the term manufacture is an inclusive definition and has to be given wider import, so any person who is engaged in any activity as specified in the clauses of section 2(f) would fall in the category of a manufacturer and would be liable to pay the excise duty unless exempted - it is opined that the activity carried out by the appellant who happens to be a job worker amounts to manufacture, more particularly when it says that the word 'manufacture' shall also include any person, who engages in their production or manufacture on his own account. From careful reading of Section 66 D(f) of the Finance Act, 1994, there is no ambiguity that the statute does not envisage levy of service tax on any process amounting to manufacture or production of goods - the payment of service tax by the appellant on the job charges collected on Die Casting of Components from Aluminium Metal was totally unwarranted and against the spirit of the law as quoted above. In fact, the appellant was required to pay central excise duty on the said activity which amounts to manufacture and was not required to pay service tax. The Notification No 214/86 has been the subject matter of interpretation in various decisions of the Tribunal as well as of the Supreme Court. The condition of submitting an undertaking by the principal manufacturer or the supplier of the raw material as provided in the notification has been held to be a substantive condition and not merely a procedural one for the reason that it shifts the burden of the tax liability from the job worker to the supplier of raw materials or semi-finished goods. It has also been held that the above procedure set out in the notification is a pre-requisite and it being the mandate of law that unless such an undertaking is given, the benefit of exemption notification shall not be attracted and the job worker only is liable to discharge the duty liability at the time of clearance of the said goods from the premises of the job worker - There is no dispute that the principal manufacturer had neither given any such undertaking nor paid the excise duty. Consequently, the appellant cannot escape the liability to pay the excise duty on the goods manufactured by them on job work basis. Levy of interest and the penalty - HELD THAT - The appellant has deliberately indulged in evading the duty liability in as much as he has been paying the excise duty in respect of the supply of the same goods to other customers, which shows that the appellant is aware of the duty liability - The appellant cannot be allowed to pick and choose what is beneficial to him and discard the conditions specified. That the ingredients of willful suppression of facts so as to avoid the payment of central excise duty exists. The Authorities below are justified in imposing penalty under the provisions of Section 11 AC of the Act, relying on the decision of the Apex Court in the case of SEBI VERSUS SHRIRAM MUTUAL FUND 2006 (5) TMI 191 - SUPREME COURT that mens rea is not an essential element for imposing penalty - the Adjudicating Authority has rightly imposed the penalty equal to the duty amount - Similarly, interest under Section 11AA has also been rightly imposed as the appellant knowingly and deliberately evaded payment of excise duty. Whether the appellant is entitled to take cenvat credit on the strength of debit notes, which is not the document prescribed under Rule 9(1) of the CCR, 2004 to avail the cenvat credit? - HELD THAT - The issue is no longer res-integra and has been decided by the High Court of Rajasthan in the case of COMMISSIONER OF CENTRAL EXCISE JAIPUR-1, JAIPUR VERSUS BHARTI HEXACOM LTD. 2018 (6) TMI 435 - RAJASTHAN HIGH COURT . The Division Bench decided the issue after considering the long line of decisions, where same issue was considered and decided infavour of the party and against the Revenue. The learned Counsel for the appellant had filed the supplementary paper book on 3rd June 2022, where at Serial No.4, he has annexed the copies of the debit notes along with the chart showing the details of the debit notes. On perusal of the debit notes, it is found that they contain all the particulars and details, as are required to be mentioned in the invoice to avail the cenvat credit. Consequently, the appellant is entitled to claim the cenvat credit and the Authorities below have erred in denying the same. Both the Adjudicating Authority as well as the Appellate Authority have rejected the claim for cenvat credit on the ground that the debit notes were not a proper document as prescribed under Rule 9 of CCR, 2004 for availing cenvat credit and, therefore, did not examine the particulars given therein in terms of Rule 4A of Service Tax Rules. Matter remanded to the Adjudicating Authority, however, in the facts of the present case, when the Department has not raised any objection to the debit notes in any respect, it would be a futile exercise. The documents, i.e., debit notes produced are self-explanatory as to the details, which are required under Rule 4A of the ST Rules and, therefore, unnecessarily dragging the party all the way again to the litigation is not justifiable, moreso when the departmental authorities had adopted a very callous attitude in not considering even the contents of the documents in the light of the decisions of the Tribunal. Hence the demand of Rs 6,75,737/- along with interest and penalty is not sustainable. Revenue Neutrality - HELD THAT - Reference placed to a latest decision of this Tribunal in M/s Parvatiya Plywood Pvt. Ltd. Vs. Commissioner of Customs, Central Excise and Service Tax, Meerut-II 2022 (12) TMI 451 - CESTAT NEW DELHI , where the explanation added in section 4(1) after clause (b) of the Act (w.e.f.) 14.05.2003 was considered to say that where excise duty have not been collected separately by the manufacturerseller, the price charged shall be treated as cum-duty, excluding the sales tax and other taxes, if any actually paid - matter remanded to the Adjudicating Authority to re-compute the duty liability in terms thereof and determine the actual duty liability of the appellant. Extended period of limitation - HELD THAT - The period in dispute is from February 2015 to March 2016. Since the show Cause Notice has been issued on 28.4.2017, the delay as pointed out by the Department is of merely two months, i.e. February and March, which also, in the facts of the case, are covered by virtue of the extended period of limitation. The appellant is liable to pay the excise duty as determined along with interest and penalty. On the other issue, the appellant is entitled to claim the cenvat credit on the basis of debit notes and, therefore, the interest under section 11 AA of Central Excise Act and penalty under Rule 15 (3) CCR, 2004 read with section 11 AC of the Act are not leviable thereon - the matter is remanded to the Adjudicating Authority for the purpose of recomputation only. Appeal allowed in part.

Summary

Issues Involved:

1. Whether the process of conversion of metal into Engine Components carried out by the appellant amounts to manufacture and if so, whether the appellant is entitled to avail exemption from payment of duty under the job work Notification No. 214/86-CE dated 25.3.1986.
2. Whether the appellant can avail cenvat credit on the basis of debit notes which are not the prescribed document under Rule 9 of the CCR, 2004.

Summary:

Issue 1: Manufacture and Exemption under Notification No. 214/86-CE

The Tribunal examined whether the appellant's process of converting Aluminium Ingots into Aluminium Die Casting Components amounts to manufacture. It was concluded that the activity does constitute manufacture as defined under Section 2(f) of the Central Excise Act, 1944. This was supported by the fact that the appellant was paying excise duty when selling the same product to other customers, indicating that the goods were marketable. Consequently, the appellant is liable to pay excise duty and not service tax, as the activity falls under the negative list of services under Section 66D(f) of the Finance Act, 1994.

Regarding the exemption under Notification No. 214/86-CE, the Tribunal noted that the principal manufacturer, M/s Rockman Industries Ltd., did not provide the required undertaking to pay excise duty on the final products. The notification's conditions were not met, making the appellant liable for excise duty. The Tribunal referenced the Larger Bench decision in Thermax Babcock & Wilcox Ltd., which clarified that the job worker must pay duty if the principal manufacturer does not comply with the notification's conditions.

Issue 2: Availment of Cenvat Credit on Debit Notes

The Tribunal addressed whether the appellant could avail cenvat credit based on debit notes, which are not prescribed documents under Rule 9(1) of the CCR, 2004. The Tribunal referred to several decisions, including the Rajasthan High Court's ruling in Commissioner of Central Excise, Jaipur -1 Vs. Bharti Hexacom Ltd., which allowed cenvat credit on debit notes if they contain all required details. The Tribunal found that the appellant's debit notes contained all necessary particulars and details as required under Rule 4A of the Service Tax Rules, 1994, and thus, the appellant is entitled to claim cenvat credit.

Conclusion:

The Tribunal partly allowed the appeal, holding that the appellant is liable to pay excise duty, along with interest and penalty, but is entitled to claim cenvat credit on the basis of debit notes. The matter was remanded to the Adjudicating Authority for recomputation of the duty liability.