Whether clearance of own finished goods manufactured by job-worker against inputs received for job work legally valid

PJ/CASE LAW/2015-16/2582

Case:NATIONAL CONDUCTOR VERSUS COMMR. OF C. EX. & SERVICE TAX, DAMAN

Citation:2014(306) E.L.T 635 (Tri.-Ahmd.)

Brief Facts:These two appeals are directed against O-I-A No. SRP/111-112/DMN/SDMN/2011-12, dated 5-9-2012. Since the issues involved in these two appeals arise out of the same impugned order, they are being disposed of by a common order.
The facts of the case in brief are that during the course of preventive checks in the appellant’s unit it was observed that the appellants had received goods from their principal manufacturers for carrying out job work. The appellants, instead of clearing goods manufactured out of the said raw materials received from their principal manufacturers, cleared their own manufactured finished goods under the cover of job work challans to the principal manufacturers during period from 15-5-2007 to 1-11-2007. A SCN dated 21-7-2011 was issued to the appellants demanding duty of Rs. 12,66,230/- under Sec. 11A of Central Excise Act, 1944 (hereinafter referred to as ‘CEA’) on their own challan along with interest under Sec. 11AB of CEA and imposition of Rules, 2002 (hereinafter referred as ‘CER’) on the grounds that goods cleared without payment of duty. Vide the impugned order, the adjudicating authority confirmed the entire demand along with interest and imposed penalty of Rs. 12,66,230/- on the appellant under Sec. 11AC of CEA read with Rule 25 of CER. Penalty of Rs. 3,17,000/- was also imposed on Shri Dilip C. Modi, partner of the appellant firm under Rule 26 of CER.
Aggrieved by such an order, the appellant preferred the appeal before the First Appellate Authority. The First Appellate Authority after considering the issue raised before him in the personal hearing as well as grounds of appeal, upheld the OIO in respect of the main appellant M/s. National Conductors but reduced penalty on the individual partner of main appellant.

Appellant Contentions:Learned Advocate appearing on behalf of the appellant gave an overall picture of the functioning and the issue in hand. It is his submission that the appellant M/s. National Conductor had received broken and used copper wire from their client under job work challan as per Rule 4(v)(a) of Cenvat Credit Rules, 2004 for conversion into copper rods. It is his submission that the appellant has sent this used copper wire for further job working by following the procedure and received back the same and use them for converting into copper rods. It is his submission that when the Departmental officers visited, the partner of the appellant had specially stated that due to exigency/emergency at the end of the persons who had sent materials for job working, they had cleared their own finished goods which was incidentally the same i.e., copper rods. It is his submission that subsequently the appellant had discharged Central Excise duty on the copper rods which were cleared by them, which were manufactured out of job worked items. It is his submission that there was no evidence of corroborative nature to prove that there has clandestine removal of goods as the finished goods was sent back to main principal manufacturer under job work challan. It is also his submission that when the investigation took place in November, 2007, panchnama, statements were recorded on the same date but show cause notice was issued on 21-7-2011 hence demand cannot sustained for extended period. He would submit that at the most, the appellant can be held to have violated the procedures but for that purpose there cannot be any demand of duty by invoking extended period. For this proposition, he would rely upon the following decisions :
(i)        M/s. Castwell Metal Industries - 2001 (137) E.L.T. 161
(ii)        M/s. Uniworth Textile Ltd. - 2013 (288) E.L.T. 161
(iii)        CCE, Mangalore v. Pals Microsystems Ltd. - 2011 (270) E.L.T .305
(iv)        M/s. Prashant Electrodes - 2006 (196) E.L.T. 297.
It is his submission that demands be set aside and their appeals be allowed.

Respondent Contentions:Learned Departmental Representative on the other hand drew attention to the findings recorded by the adjudicating authority as well as First Appellate Authority. It is his submission that partner of the firm has accepted that they have cleared their own finished goods, manufactured by them under the job work challan.

Reasoning of Judgment:CESTAT have considered the submissions made at length by both sides and perused the records. It was found that the only issue that arises for consideration is whether the main appellant National Conductors could clear finished goods manufactured out of their own raw materials without payment of duty under job work challans.
There is no dispute as to the facts that the appellant had cleared finished goods manufactured out of their own raw material as job work items under job work challans. In Tribunal’s view, the lower authorities were correct in holding that the appellant should discharge the duty liability as the procedure for functioning under the job work is different and clearance of finished goods manufactured in the appellant’s factory from his own raw materials is different. It is statutory requirement that the appellant should record all the production that took place in his factory premises out of his own raw materials in the statutory books of account which were not done so, as it is undisputed that the appellant had cleared the finished goods manufactured out of his own raw materials to their clients. In Tribunal’s considered view, record to be maintained by the appellant for the materials received for job working would show the balance of raw materials while finished to be manufactured were already dispatched. The provisions of job work scheme is totally different, needs to be followed in a manner prescribed which has been not done by the appellant.
Another argument of the learned Advocate as regards Revenue neutrality has to be also discarded as the question of Revenue neutrality would arise only when the activities of clearance takes place within the sister concern or their own units.
As regards the reliance placed by the learned Counsel on the various judgments, It was found that the facts in those judgments were totally different than the facts as mentioned in this case. Hence, the said ratio of the judgments may not applicable in these cases.
In Tribunal’s considered view and foregoing reasons, there are no merits in the appeal. The impugned order is upheld and appeals are rejected.

Decision:Appeal Rejected.

Comment:The crux of this case is that Job worker cannot clear their own finished goods without payment of duty under job work challan. It was correctly concluded by the Tribunal that appellant should discharge the duty liability as the procedure prescribed for functioning as job-worker because the procedure under the job work is different and clearance of finished goods manufactured in the appellant’s factory from his own raw material is different. Apart from this, appellant need to maintain separate accounts for receiving material from Job work and manufacturing own finished goods.

Prepared by: Hushen Ganodwala

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PJ/CASE LAW/2015-16/2582

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