Whether cenvat credit can be denied to recipient if duty paid by job worker is undisputed ?

PJ/Case Law /2016-17/3439

Case - NEW BHARAT FIRE PROTECTION SYSTEM P. LTD. versus COMMR. OF C. EX., THANE-I
Citation- 2017 (345) E.L.T. 137 (Tri. - Mumbai)

Brief Facts - The fact of the case is that the appellant has availed Cenvat credit on receipt of duty paid job work. Cenvat credit was denied on the ground that job worker should have carried out job work under Rule 4(5)(a) of Cenvat Credit Rules, 2004, hence was not supposed to pay the duty. The activity of job work i.e. filling of CO₂ gas into cylinder is not amount to manufacture therefore job worker is not suppose to pay the duty and the appellant was not entitled for the Cenvat credit. Against the said denial of Cenvat credit by the Adjudicating Authority, appellant filed appeal before the Commissioner (Appeals) who also upheld the Order-in-Original and rejected the appeal of the appellant, therefore appellant is before Tribunal.
Appellant’s Contention- Appellant submits that job worker is a manufacturer of CO₂ gas which is excisable commodity. The appellant have supplied cylinder and valve to the job worker, the job worker on the valve of CO₂ gas cylinder and valve paid excise duty as a manufacturer of CO₂ gas and filling into cylinder is amount to manufacture. Therefore the job worker has correctly paid the duty which appellant has availed as Cenvat. He submits that the dispute is related to payment of duty on the job work goods for which officer of the appellant have no jurisdiction to raise any question in respect of the activity carried out by the job worker. No show cause notice issued to the job worker regarding the payment of duty by them therefore the assessment of duty made by the job worker is not under dispute. For this reason at the recipient end i.e. appellant, Cenvat credit cannot be denied. He submits that assessment of the duty paid by the job worker cannot be re-opened at the recipient’s end i.e. appellant.
Respondent’s Contention- Revenue reiterates the findings of the impugned order.

Reasoning of Judgment – Cenvat credit was denied to the appellant only for the reason that on the job work goods supplied by the job worker for the reason that the job worker was not liable to pay the duty therefore duty so paid by the job worker cannot be allowed as Cenvat credit to the appellant as a recipient. Firstly the manufacture of CO₂ gas and filling it into cylinder is an activity of manufacture and duty is required to be paid. Secondly, even if it is accepted that activity of job worker is not amount to manufacture but job worker after receipt of duty paid material can avail Cenvat credit and pay the duty in terms of Rule 16 of Central Excise Rules, 2002 which is reproduced below :
RULE 16. Credit of duty on goods brought to the factory. -(1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules.
(2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be.
[Explanation.- The amount paid under this sub-rule shall be allowed as CENVAT credit as if it was a duty paid by the manufacturer who removes the goods.]
(3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re-made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject to such conditions as may be specified by the [Principal Commissioner or Commissioner, as the case may be].
From the above clear provisions, even though the job worker’s activity is not a manufacture, they are entitle to avail the Cenvat credit and clear the goods on payment of duty equal to the amount of Cenvat credit availed and duty so paid by the job worker is available as Cenvat credit to the recipient. Also with submission of the ld. Counsel that once the duty payment at the job worker’s end has not been disputed, the dispute cannot be raised on at the appellant’s end for disputing Cenvat credit of such duty. As per my above discussion, I do not find any reason why the Cenvat credit should not be allowed to the appellant on the duty paid legally. I, therefore, set aside the impugned order and allow the appeal.

Appeal allowed.
Comment – The gist of the case is that the activity of job work i.e. filling of CO₂ gas into cylinder is amount to manufacture under section 2(f) of Central Excise Act, 1944. [Para 5]. Also from the provisions under Rule 16 of Central Excise Rules, 2002, even If the job worker’s activity is not a manufacture, they are entitle to avail the Cenvat credit and clear the goods on payment of duty equal to the amount of Cenvat credit availed and duty so paid by the job worker is available as Cenvat credit to the recipient. It also stated that duty paid by job worker is not disputed (as no show cause notice issued to him) so taking of cenvat credit at recipient end can not be denied. Hence appeal is allowed.
Prepared by- Alakh Bhandari

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PJ/Case Law /2016-17/3439

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