Whether cenvat credit of duty paid by the job-worker deniable on the ground that job worker was not liable to pay duty?

PJ/CASE LAW/2015-16/2878

Case:- COMMISSIONER OF C. EX., PUDUCHERRY VERSUSKOHINOOR PRINTERS PVT. LTD.

Citation:- 2015 (321) E.L.T. 448 (Mad.)

Brief facts:--C.M.A. No. 2752/2008 is preferred as against the final order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), South Zonal Branch, Chennai, in No. 102/2008, dated 13-2-2008, raising the following substantial questions of law :
“(a)      Whether the CESTAT is right in giving relief of Rs. 8,32,966/- to the assessees without considering the procedure laid down in the Notification No. 214/86-C.E. (as amended), dated 25-3-1986?
(b)       Whether the CESTAT is right in holding that Modvat credit availed by an assessee was exactly equivalent to the amount of Excise duty paid by the input manufacturer without availing exemption, the consequence being revenue neutral and hence there could be no demand for reversal of the credit, in the light of the case law of RosaSugar Worksv. CCE, Lucknow [2006 (194)E.L.T.456 (Tri.-Delhi)], wherein, it was held that “Credit of charges paid to job worker for setting up/constructing vacuum pan is not admissible as credit is admissible on goods and not on labour charges or job work charges?”
The assessee/first respondent in CMA 2752/2008, is the manufacturer of printed cartons falling under the Heading 4819 of First Schedule to the Central Excise Tariff Act, 1985. They availed Cenvat credit of duty paid on inputs under the Cenvat Credit Rules, 2004. Evidently, the assessee was sending semi-finished printed sheets to its sister Unit by name Kohinoor Printers Private Limited (Unit-I), for conversion into three ply corrugated printed sheets. It is stated that at Unit-I, the corrugated paper was pasted on the printed sheets and this process was called E-fluting. After processing, the same were sent to Unit-II. Thus, the Revenue treated Unit-I as job worker. Independently, Unit-I had remitted duty on the job of conversion. On this, the first respondent/assessee availed Cenvat credit for the inputs used. The Revenue viewed that under Notification No. 214/86-C.E., dated 25-3-1986, the job work done by them, was exempted from payment of duty and as exemption is granted absolutely from payment of duty, Unit-II, the assessee herein, ought not to have claimed Cenvat credit. Consequently, a show cause notice was issued to the assessee proposing recovery of Rs. 8,32,966/- in terms of Rule 14 of the Cenvat Credit Rules, 2004, along with interest leviable under Section 11AB of the Central Excise Act, 1944. The assessee resisted the notice and placed reliance on the decisions of the CESTAT. The contention of the assessee was however, rejected, quoting that the assessee was ineligible to avail Cenvat credit on goods received after processing, which are exempted under the Notification referred to above. Aggrieved by this, the assessee went on appeal before the Commissioner of Central Excise (Appeals), who confirmed the reasoning of the adjudicating authority. However, the Commissioner viewed that what was paid by Unit-I could not be considered as duty of Excise eligible for taking Cenvat credit. While confirming the demand under Rule 14 of the Cenvat Credit Rules along with interest under Section 11AB and penalty under Section 11AC of the Central Excise Act, 1944, the Commissioner thought it fit to set aside the penalty of Rs. 1 lakh imposed under Rule 15(1) of the Cenvat Credit Rules, 2002.

Appellant’s contention:- Learned Standing Counsel appearing for the Revenue, pointed out that under the Notification, the job worker was not entitled to claim exemption and merely on the remittance of duty by the job worker, the assessee was not entitled to Cenvat credit. They do not agree with the submission of the learned Standing Counsel for the Revenue. It is not denied by the Revenue that assessee had received the materials given to the job worker, and no proceedings were taken to set right the mistake committed by the job worker in remitting the duty. As rightly observed by the Tribunal, when the Modvat credit availed by the assessee, was exactly the same or equivalent to the amount of Excise duty paid by the input-manufacturer, the consequence would be revenue neutral. Hence, they do not find any justification to allow the appeal filed by the Revenue.

Respondent’s contention:- The assessee preferred a further appeal before the Customs, Excise and Service Tax Appellate Tribunal. The Tribunal, after considering the decision of the Delhi Tribunal reported in 2006 (194)E.L.T.456 (Rosa Sugar Works v. Commissioner of Central Excise, Luknow), as well as the decision of the Apex Court reported in 2005 (179)E.L.T.276 (Commissioner of Central Excise & Customs, Vadodara v. Narmada Chematur Pharmaceuticals Ltd.), and the decision of the Punjab and Haryana High Court reported in 2006 (203)E.L.T.213 (Commissioner of Central Excise, Chandigarh v. Ranbaxy Labs. Ltd.), held that the benefit availed by the assessee, of Cenvat credit of the duty paid on the input by the sister concern was not liable to be denied to the assessee on the strength of the Notification No. 214/86-C.E., dated 25-3-1986. The Tribunal further observed that the assessee could also claim the benefit in terms of the decision of the Supreme Court in the case of Ranbaxy Labs Ltd. (cited supra), wherein, it was held that where the amount of Modvat credit wrongly availed by an assessee was exactly equivalent to the amount of Excise duty paid by the input-manufacturer without availing exemption, the consequence was Revenue-neutral and hence there could be no demand for reversal of the Cenvat credit. Aggrieved by this, the present appeal by the Revenue.

Reasoning of judgment:-Quite apart, in the decision reported in 2005 (179)E.L.T.276 (cited supra), the Supreme Court considered similar issue and held that what had been availed of by the assessee by way of Modvat credit, was in respect of the duty paid by the input-manufacturer not availing the exemption, and the fact being the revenue neutral, the question of reversing the claim made by the assessee did not arise. Applying the said decision, they have no hesitation in rejecting the appeal filed by the Revenue.
In the result, C.M.A. No. 2752/2008 is dismissed. No costs.
The issue raised in C.M.A. No. 456/2009, which has arisen from the order of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai in No. 816/2008, dated 1-8-2008, is exactly identical to the one raised in C.M.A. No. 2752/2008, and applying the above decision in C.M.A. No. 2752/2008, they dismiss this appeal. No costs.

Decision:-Appeal dismissed

Comment:-The essence of the case is that there is no embargo in availing the cenvat credit of excise duty paid by the job-worker even if no duty was required to be paid as per provision of the notification no. 214/86. This is for the reason that as far as duty has been paid, the cenvat credit to the purchaser cannot be denied as it is revenue neutral situation.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2878

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