Cenvat credit on Inputs used in Jobwork

PJ/Case Laws/2010-11/1050

Case: Commissioner of Central Excise v/s Happy Forging Ltd.

Citation: 2011-TIOL-34-HC-P&H-CX

Issue:- Whether goods cleared without payment of duty under Notification no. 214/86-CE, dated 25.03.86 are not ‘exempted goods’ as mentioned in the Rule 6 of the Cenvat Credit Rules, 2004?

Whether provisions of Rule 6 of the Cenvat Credit Rules, 2004 regarding disallowance of Cenvat Credit on the inputs used in the manufacture of final product which are exempt from duty are not attracted in case of goods cleared without payment of duty under Notification no. 214/86-CE, dated 25.03.86?

Brief Facts:- The assessee availed Cenvat Credit as per Cenvat Credit Rules, 2004 in respect of inputs in manufacture on job work basis. The department raised an objection that the Cenvat Credit was not permissible on the inputs used in the manufacture of exempted goods in view of Rule 6(1) of the Rules. Accordingly, proceedings were initiated under section 11A of the Act. Stand of the assessee was that under notification No. 214/86-CE, dated: 25.03.86, exemption was available subject to the condition that supplier of raw material will either use the goods in manufacture of final product or clear the goods on payment of appropriate excise duty. Reliance was placed on a Larger Bench judgment of the Tribunal in Sterlite Industries Ltd. versus CCE, Pune [2005 (68) RLT 25] and judgment of the Supreme court in Escorts v/s CCE [2004 (171) ELT 145] and also decision of Commissioner (A) in another case. The Adjudicating Authority upheld the objection of the assessee.

The Commissioner (A) had already in an another case of the Noticees relating to earlier periods allowed their appeals vide order–in–appeal and set aside the order in original demanding reversal of credit. The same view is also taken in the case of Modi Sales, Ludhiana vide Order–in–Appeal no. 350-351/CE/Appl/Ldh/04 dated 19.04.2004.

In addition to this, the Assistant Commissioner has already in case of M/s Ludhiana Steel Rolling Mills, Ludhiana dropped the demand under similar set of circumstances vide order–in–original no. 75/CE/AC/LDH-I/05 dated 30.12.2005. In view of these judgments, the SCN does not stand and the same merits to be dropped. The view of Adjudicating Authority was upheld by the Commissioner (A) and the Tribunal.

Appellant’s Contention:- Appellant submitted that Cenvat Credit has been availed by the assessee in violation of Rule 6 (1) of the Rules and the adjudicating authority was not justified in dropping the proceedings. The Commissioner (A) as well as the Tribunal erred in upholding the view taken by the adjudicating authority. Reliance has also been placed on judgment of the Supreme Court in CCE, v. Ballarpur Industries Ltd [(2007) 8 SCC 89].

Respondent’s Contention:- Respondent relied upon the decision of this court in the case of CCE, v/s Hindustan Sanitary ware & Industries [(2002) 7 SCC 515], wherein in respect of this very Notification, this court has held that so long as duty is paid on the final product, the mere fact that duty was not paid on the intermediate product would not disentitle to manufacture from the benefit of Notification No. 217/86-CE. In that case, the input was plaster of Paris, the intermediate product was moulds are identical to the facts of the present case.

Reasoning of the Judgment:- While there is no dispute under Rule 6 (1) of the Rules, Cenvat Credit cannot be availed in respect of inputs used in manufacture of exempted goods, the same has to be read with the notification referred to above.

Appellant is not able to assail the finding that under the notification, availing of Cenvat Credit is permissible by job worker, subject to the final manufacturer paying the duty.

In cases of manufacturers like the appellants, the final product is the tractor. The intermediate product would be parts which are manufactured for being used in another factory of the appellants would not be the final product. Thus Rule 57-C would have no application. The mere fact that the parts are cleared from one factory of the appellants to another factory of the appellants would not disentitled the appellants from claiming benefit of the Notification No. 217/86-CE, dated 02.04.1986.

In this view of the matter, the High Court set aside the impugned judgment and the order of the commissioner of Central Excise. It is held that the appellants will be entitled to MODVAT credit on duties paid for the inputs used for the manufacture of parts, so long as the parts are used in the manufacture of tractors on which duty is paid. The High Court clarified that in respect of parts which are sold in the open market and/ or used for manufacture of tractors on which no duty is paid, the benefit of Notification No. 217/86-CE may not be available.

As regards the judgment of the Supreme Court in Ballarpur Industries Ltd., therein the issue was not of effect of the notification dated 25.03.1986, which has been invoked in the present case. The said judgment is distinguishable.

Decision:- Appeal dismissed.

Comments:- Earlier also the matter has been decided by Mumbai High Court in case of Sterlite Industries as well as Tata Iron and Steel Limited. Now this decision has also supported the same. The matter has not gone in Apex court and as such these decisions are final. But the department is keeping these matters in call book and issuing the demands in further periods. This should be avoided and demands should be dropped so that unnecessary litigation can be avoided.

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PJ/Case Laws/2010-11/1050

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