Cenvat Credit – process not amounting to manufacture – processed machinery sent to the manufacturer on payment of duty

PJ/Case Laws/2012-13/1024

Cenvat Credit – process not amounting to manufacture – processed machinery sent to the manufacturer on payment of duty – whether credit of duty admissible?

Case: OWENS BILT LTD. V/s COMMISSIONER OF CENTRAL EXCISE, PUNE

Citation: 1998 (101) S.L.T. 642 (Tribunal)

Issue:- Cenvat Credit – process not amounting to manufacture – processed machinery sent to the manufacturer on payment of duty – whether credit of duty admissible?

No objection on payment of duty raised by Jurisdictional Commissioner – whether Commissioner at recipient of machinery has jurisdiction to raise objection and deny credit on said machinery?

Order passed on grounds different than grounds raised in the Show cause notice – whether sustainable?

Brief Facts:- Appellant is a manufacturer located at Pune of glass and glassware. It uses, for manufacture, among other machinery individual section machines. In November 1995, the appellant sent to M/s. Shamvik Glasstech Limited, Mumbai three such machineries which had been installed in its factory for about 25 years for renovation and reconditioning. M/s Shamvik carried out the renovation or reconditioning using, in the course of such renovation or reconditioning component parts manufactured in its factory. It cleared the machines after paying duty at 15% on the component parts used and 10% on what is described as the apportioned cost of the machines. The duty so paid amounted to Rs. 47.46 lacs (approximately). On receipt and installation of these machines from M/s Shamvik, the appellant took credit of the duty paid in terms of sub-rule (1) of Rule 57T.

Subsequently the Assistant Commissioner issued notice to appellant on ground that credit taken was inadmissible and proposing to recover the credit taken. The ground in the notice was that the machines had been again repaired and reconditioned, whereas sub-rule (3) of Rule 57T, which had been invoked by the manufacturer allowed credit of specified duty on capital goods paid by a contractor or a job worker who undertakes the initial setting up of a plant. Appellant replied to the notice raising various contentions. Among these the contention was that the Commissioner at Pune had no jurisdiction to decide whether duty had been correctly paid or not at Mumbai and that, once duty had been paid, credit cannot be refused.

The Assistant Commissioner held that credit would be available on those newly manufactured parts which were incorporated in the machines by M/s Shamvik and allowed credit to that extent. He disallowed the remaining credit amounting to Rs. 31.56 lacs (approximately).

Aggrieved by the said order, appellant is in appeal before the Tribunal.

Appellant’s Contention:- Appellant asserted that the assessment with regard to the duty paid by M/s Shamvik at Mumbai has been completed by the jurisdictional Assistant Commissioner. If it is to be held that duty was not payable and had therefore been wrongly paid, it was for the Commissioner having jurisdiction over that Assistant Commissioner at Mumbai to have the assessment order set aside, and have orders passed by the appropriate authority that duty was not payable. Only then the Commissioner, Pune can decide upon the entitlement to credit. He has no jurisdiction to sit in judgment on the assessment made by the Assistant Commissioner at Mumbai.

Respondent’s Contention:- Revenue contended that the goods were received, and Modvat credit taken, in the territorial jurisdiction of the Commissioner of Central Excise, Pune. That Officer therefore has jurisdiction to decide on the eligibility of credit to be taken, and thus was within his rights in saying that credit was wrongly taken. Revenue further contends that the machines were 25 years old and duty would have been paid on them much before 1st March, 1994. The goods had also been received in the appellant’s factory before 16 March, 1995. Therefore, application of Rule 57Q prohibited taking of credit on these goods. Revenue further contends that the provisio to sub-rule (3) to Rule 57T makes it clear that in cases where there is any renovation etc. carried out by a job worker or a contractor, the credit is limited to the extent of duty paid on the capital goods provided by the job worker or the contractor for renovation, and credit cannot be taken on the duty paid on the machines so renovated by the job worker or the contractor. The Commissioner has thus correctly restricted the credit to the extent of the duty paid on the parts manufactured and provided by M/s Shamvik.

Reasoning of Judgment:- The Tribunal held that the show cause notice did not propose disallowing the credit on the ground that the machinery had not been received in the appellant’s factory after a particular date or that duty had not been paid after a particular date. The imputation in the notice was that the provision of sub-rule (3) of Rule 57T would not apply because this was not a case of initial setting up of the plant. It is evident that the notice has overlooked the fact that the proviso also applied in cases of renovation, modernisation or expansion of the plant. The contention that the proviso would not apply in case of renovation and would only apply in the cases of initial setting up of the plant is therefore erroneous. The Commissioner’s order could not go beyond the allegations in the notice. On this basis alone the order would have to be set aside.

Excise duty is a duty on manufacture. It is only when goods are manufactured, that excise duty is payable. The provisions relating to repair or renovation of machinery are contained in Rule 173H. The Tribunal perused the provisions of Rule 173H and noticed that it is clear from Sub-rule (4) that if the process of repair, reconditioning, remaking or refining or such similar process amounts to manufacture, the goods can only be cleared on payment of duty. This is made more explicit in Rule 173L which provides for refund to be paid of the duty paid on goods when they are first manufactured, if such goods are cleared or brought into a factory or cleared after reconditioning, remaking etc. on payment of duty. Therefore, if the processes undertaken by M/s Shamvik on the machines in question did not amount to manufacture, no duty was payable. Since it had paid the duty on the goods, it must have concluded that the process undertaken amounted to manufacture. When the Superintendent approved the RT-12 memorandum with regard to the assessment on the duty he signified his acceptance of this view that the processes undertaken amounted to manufacture and that duty had been correctly paid. If the processes undertaken by M/s Shamvik amounted to manufacture it could not be said that the machines which were originally received by the appellant continued to retain their identity. The same machine cannot be manufactured twice over. It would be reasonable to conclude that in the process of renovation carried on these machines which was so extensive as to amount to manufacture; the identity of the machines on which such renovation was undertaken was lost. If this view is correct, it would answer the point that the goods were received in the appellant’s factory and duty paid before the dates specified in Rule 57Q.

On the question that who is the competent authority to decide whether the renovation carried out by M/s Shamvik amounted to manufacture and hence required payment of duty or not?, the Tribunal noted that once the Superintendent has, by approving the RT 12 return, held that the processes amounted to manufacture, it could not be said that it did not amount to manufacture unless his order was set aside by the competent authority. The Commissioner of Central Excise, Pune, had no jurisdiction to initiate action to have the order set aside. Therefore, when the Commissioner says in his order that duty ought not to have been paid, he is in effect exercising jurisdiction of the Commissioner of Central Excise, Mumbai III so of his officers. This he is not permitted to do.

The Tribunal further held that Revenue’s argument with regard to scope of proviso to sub-rule (3) to Rule 57T did not have any relevance as this proviso is an exception to the provision of sub-rule (3) that no credit shall be taken in the absence of documents such as invoice, or Bill of Entry evidencing payment of duty. The exception contained in the provision applies to cases in which the goods are received by a job worker or a contractor, carrying out renovation, or setting up etc. of an assessee’s plant. In such cases, the goods could be consigned, not to the manufacturer of excisable goods, but to the job worker or contractor and an objection could legitimately be raised that these documents did not constitute the documents specified, or provided for, in sub-rule (3). The appellant has itself erroneously invoked the provisions of sub-rule (3). M/s Shamvik was neither a job worker nor a contractor, nor did it undertake the initial setting up, renovation, modernisation or expansion of the plant on behalf of the appellant. It carried out renovation of machinery which formed part of the plant. The relationship between the appellant and M/s Shamvik was not that of contractor or job worker and the employee of a contractor or job worker, but on principal to principal. The appellant has erroneously taken recourse to the provision of sub-rule (3).

The Tribunal held that decision in KeralaStateElectronic Corpn. v. CCE, Kochi [1996 (84) E.L.T. 44] is of significance. It was held in that case that the recipient of the input was entitled to take Modvat credit of the duty paid on the inputs received by it, and the credit could not be restricted by the authority having jurisdiction over the recipient of the inputs on the ground that the duty paid was in excess of the duty actually payable. The bench said “Even in cases there is any short or excess collection of duty on the inputs, the assessees are entitled to credit as specified in the duty paying documents.” It pointed out that there was provision to vary the credit taken to the duty payable found to be incorrect by resorting to Rule 57E. In this case too, if the Commissioner of Central Excise, Pune was of the view that credit could not be taken for the reason that the duty was not payable, he ought to have advised the Commissioner of Central Excise, having jurisdiction over Shamvik to initiate action under law to ensure that the appropriate authority pronounced that duty was not payable, take action to refund such duty, and thereafter resort to sub-rule (4) of Rule 57R, for ordering appropriate adjustment to vary the credit. None of these steps has been taken. Thus, it was held that credit was rightly taken.

Decision:- Appeal allowed.

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PJ/Case Laws/2012-13/1024

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