2024 (3) TMI 67 - AT - Central Excise

Reversal of Cenvat Credit - Job work - Availment of credit of duty paid on procurement of goods without being reversed on transfer to the contracted manufacturer under procedure prescribed in rule 4(5)(a) of CENVAT Credit Rules, 2004 - finished goods not having been returned to supplier - availment of credit of tax paid on goods that were not received in premises of appellant - HELD THAT - The CENVAT credit scheme rests upon availment of credit and its continued existence till utilization; there is, therefore, threshold entitlement flowing from rule 3 of CENVAT Credit Rules, 2004 and retention eligibility flowing from rule 4 and rule 6 of CENVAT Credit Rules, 2004. The threshold entitlement of credit of ₹ 2,67,44,448 is not in dispute and it is only its continued retention, after the goods were dispatched to contracted entities, which has been sought to be disallowed owing to the finished goods not having been returned to the appellant or, in the alternative, its actual deployment in the finished product having been demonstrated. In doing so, the adjudicating authority has discarded the permission accorded by jurisdictional office for clearance from the premises of the contracted entity and, that too, by disclaim of job worker status. The availment of credit of ₹ 2,41,49,130 rests upon rule 3 of CENVAT Credit Rules, 2004 which is predicated upon discharge of duty liability and upon conformity with inputs in rule 2 thereof. The denial has been grounded on non-receipt at premises of the appellant. In doing so, the adjudicating authority has not examined the implied extending of the premises of manufacturer to that of job-worker which is implicit in the excise duty liability revolving on job-worker that becomes eligible credit in the account of the principal manufacturer upon bearing incidence of duty liability. That the impugned order has discarded claim of job-worker status, and inadequately so, precluding consideration of this eligibility hinders us from deciding thereto warrants rectification. The dispute warrants fresh determination within the framework of the observations - the impugned order set aside - matter remanded back to the adjudicating authority for fresh disposal.

Summary

Issues involved:
The judgment involves issues related to the initiation of proceedings against a company for availing ineligible credit, the dispute regarding credit availed on goods procurement, and the determination of the appellant's business model as a contrived arrangement.

Proceedings Initiated Against Company:
The central excise authorities initiated proceedings against the company for availing ineligible credit based on the business model involving the supply of goods to contracted manufacturers and subsequent supply of finished goods to customers, leading to the contrived arrangement.

Dispute Regarding Credit Availed on Goods Procurement:
The dispute pertains to the availment of credit of duty paid on goods procurement without being reversed on transfer to contracted manufacturers, as prescribed in rule 4(5)(a) of CENVAT Credit Rules, 2004. The impugned order directed recovery of amounts for non-reversal of credit and tax paid on goods not received at the premises of the appellant.

Business Model Determination:
The central excise authorities alleged that the appellant's contracted manufacturers were erroneously shown as job workers to avail ineligible credit on goods used for production. The authorities claimed that the goods supplied were not used for conversion but as requirements of vendors portrayed as job workers. The appellant defended its business model, stating that the goods were transferred against delivery challans, and compliance with CENVAT Credit Rules was maintained.

Legal Interpretation and Conclusion:
The judgment analyzed the legal framework of the Central Excise Act, 1944, and CENVAT Credit Rules, 2004, emphasizing the definitions of job worker and vendor. The adjudicating authority's conclusions were scrutinized for adherence to tax laws and the correct interpretation of job work arrangements. The judgment highlighted the importance of compliance with the CENVAT credit scheme and directed a fresh determination of the dispute within a specified timeframe.

Separate Judgment by Judges:
The judgment was delivered by Hon'ble Mr. C J Mathew, Member (Technical), and Hon'ble Mr. Ajay Sharma, Member (Judicial) of the Appellate Tribunal CESTAT Mumbai.