Whether credit of input services used in the manufacture of job-worked goods is admissible?

PJ/Case law/2014-15/2274

Case:-M/s JBF INDUSTRIEs Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, VAPI

Citation:- 2014-TIOL-972-CESTAT-AHM

Brief facts:- The factory of the appellant, situated at Sarigam, District Valsad (Gujarat), is engaged in the manufacture of Polyester Chips, Lump Waste, and Polymer Waste falling under Chapter 39 of the Central Excise Tariff Act, 1985 and availing the facility of CENVAT Credit on inputs, capital goods and input services under the provisions of the CENVAT Credit Rules, 2004. Apart from manufacturing their own Polyester Chips, the appellant also manufactured Polyester Chips on job work basis out of raw materials received from their own factory, located at Athola, Silvasa and sent back the same to their Athola factory without payment of central excise duty in terms of Notification No. 214/ 86-CE dated 25.03.1986, which exempts the goods manufactured in a factory on job work basis. The Department entertained a view that the CENVAT Credit of service tax paid on input services, used by the appellant in the manufacture of goods on job work basis, exempted under Notification No. 214/86 CE, was not admissible to the appellant in terms of the provisions of Rule 6 (1) of the CENVAT Credit Rules, 2004. Department also viewed that the appellant had rendered 'Business Auxiliary Service' [Exempt under Notification No. 8/ 2005 ST dated 01.03.2005 to its own factory M/s JBF Industries Limited, Athola inasmuch as the appellant undertook 'production or processing of goods' (working upon raw material supplied by the client) on behalf of the client as mentioned in sub-clause (v) of clause (19) of Section 65 of the Finance Act, 1994, and hence CENVAT Credit of service tax paid on input services used in providing exempted 'Business Auxiliary Service' was not admissible to them in terms of the provisions of Rule 6 (1) of the CENVAT Credit Rules, 2004.

Appellant’s contentions:- Shri W Christian (Adv.) appearing on behalf of the appellant argued that as per ratio laid down in Sterlite Industries (I) Limited Vs. C.C.E. Pune [2005 (68) RLT (CESTAT-LB)] = 2005-TIOL-305-CESTAT-MUM-LB,also upheld by the Hon'ble Bombay High Court[2009 (244) ELT A-89 (Bom.)], the CENVAT Credit with respect to input services availed by the appellant cannot be denied. He also relied upon the followingcase laws in support of his argument that CENVAT Credit of input services is also admissible to the appellant even if goods are clearedunder exemption Notification No. 214/ 86 CE dated 25.03.1986.

(a) Polycab Industries Vs. CCE - [2010 (19) STR 585 (Tri. Ahmd.)].

(b) Laakoonaa Reactions Vs. CCE, Ahmedabad-I - [Final Order No. A/497-498/WBZ/AHD/2010 dated 13.05.2010].

(c) Polyfab Industries Vs. Commissioner of Central Excise and Customs, Daman, Vapi - [Final Order No. A/ 302/ WBZ/ AHD/2009 dated 22.01.2009 & S/258/ WBZ/ AHD/ 2009 dated 22.01.2009].

Respondent’s contentions:- Shri J. Nagori (AR), appearing on behalf of the Revenue argued that when processes undertaken by the appellant amount to manufacture, then no service tax is payable under the 'Business Auxiliary Services'. It was thus his case that service tax credit taken with respect to exempted services (processing of raw materials amounting to manufacture - Non-taxable service) and exempted goods under Notification No. 214/ 86 CE is not admissible, and that the demand has been correctly confirmed against the appellant.

Reasoning of judgment:-The issue involved in the present proceedings is whether the CENVAT Credit of input services taken by the appellant and used by them in the manufacture of job-worked goods (exempt under Notification No. 214/ 86 CE) is admissible to the appellant or not in view of the provisions contained in Rule 6 (1) of the CENVAT Credit Rules, 2004. The demand has been confirmed against the appellant on the grounds that service tax credit proportionate to the services used in the manufacture of exempted goods under Notification No. 214/ 86 - CE dated 25.03.1986, is not admissible. From the case laws relied upon by the appellant, it is observed that the issue is no more res integra and has been decided by the Larger Bench in the case of Sterlite Industries (I) Limited Vs. CCE, Pune (supra) by holding that credit availed by the job worker cannot be denied where inputs were used in the manufacture of goods which were cleared without payment of duty under Notification No. 214/ 86-CE. In this judgment the Larger Bench approved the law laid down by CESTAT in the Case of Jindal Polymers [2001 (43) RLT 680 (Tri- Del.)] = 2002-TIOL-389-CESTAT-DEL. They find that in the matter of Jindal Polymers (supra), a division of Jindal Polyester Ltd., were engaged in the manufacture of polyester/polymer chips falling under chapter 39 on job work basis for Jindal Polyester Ltd. They received main inputs viz. DMT and MEG from Jindal Polyester Ltd. for the purpose of processing/job work in terms of Notification 214/86-C.E., dated 25-3-1986, on which no credit was taken by them. They also procured certain other inputs viz. furnace oil, ammonia, titanium oxide, etc., for use in processing of inputs received from M/s. Jindal Polyester and availed credit on the above inputs. The processed goods i.e. polyester/polymer chips were cleared without payment of duty under the said Notification M/s. Jindal Polyester Ltd. The Department was of the view that credit was not admissible since Rule 57C of the Central Excise Rules provided that MODVAT credit of duty paid on inputs used in the manufacture of final products cleared at nil rate of duty is not admissible if the provisions of Rule 57CC ibid are not followed. Following the ratio of Bajaj Tempo Case [1994 (69) ELT 122] =2002-TIOL-125-CESTAT-MUM, the Tribunal held in this case that the appellants were entitled to MODVAT credit of duty paid on inputs procured on their own account & used in the manufacture of job-worked goods exempted under notification number 214/ 86 CE. This decision of the Tribunal has been affirmed by the Larger Bench decision in the matter of Sterlite Industries (I) Limited Vs. CCE, Pune [2005 (68) RLT (CESTAT-LB)] = 2005-TIOL-305-CESTAT-MUM-LB. Departmental appeal filed against this order of the Larger Bench has been rejected by the Hon'ble Bombay High Court as reported in2009 (244) ELT (A89).

Further, in the cases of Poly cab Industries Vs. CCE, reported as 2010 (19) STR 585 (Tri. Ahmd.) and Laakoonaa Reactions Vs. CCE Ahmedabad- I (Final Order NO. A/ 497-498/ WBZ/ AHD/ 2010 dated 13.05.2010), the Tribunal has held that CENVAT Credit of input serviceswas admissible to the job worker clearing goods to principal manufacturer under notification number 214/ 86 CE. In view of the above, theyhold that the provisions of Rule 6(1) of the CENVAT Credit Rules, 2004 cannot be invoked for denying CENVAT Credit of input services usedby the appellant factory for manufacture of job-worked goods under Notification No214/86 CE. Though the Larger Bench judgment in the caseof Sterlite Industries (I) Ltd. was delivered with respect to Rule 57C of the Central Excise Rules, 1944, but the ratio of the same has beenheld to be applicable to the service tax credit availed by the job worker under Notification No. 214/ 86- CE as per the decisions of thisBench in the case of Polycab Industries Vs. CCE, Daman (supra), and Laakoonaa Reactions Vs. CCE, Ahmedabad-I (supra).

The Revenue has also argued that the production or processing of raw materials, which amounted to manufacture in terms of Section 2 (f) of the Central Excise Act, 1944, was an exempted or non-taxable service during the material period as per Rule 2 (e) of the CENVAT Credit Rules, 2004, and hence CENVAT Credit of input services was not available to the appellant for rendering non-taxable or exempted output service viz. 'production or processing of raw materials' amounting to manufacture. In this context they find that the job work activity of the appellant is amounting to manufacture and is not one of providing any 'service'. The appellant factory cannot be both a 'manufacturer' and a 'service provider' at the same time in relation to a particular activity. It is settled proposition in central excise matters that a job worker is a 'manufacturer' and hence the appellant factory cannot be treated as a service provider rendering exempted/ nontaxable service for the manufacturing activity. Therefore, there is no force in the Revenue's contention that the appellant had rendered exempted/ non-taxable service to its sister concern located at Athola.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that the CENVAT Credit of input services taken by the appellant and used by them in the manufacture of job-worked goods (exempt under Notification. No. 214/ 86 CE) is admissible to the appellant in view of the decision of Bombay High Court in the case of Sterlite Industries. Moreover, another important analogy that is drawn from this case is that the job worker is a manufacturer and so for the same activity, the job worker cannot be alleged to be a service provider of exempted services. Accordingly, the contention of the revenue department that the job worker has rendered exempted service and so the provisions of Rule 6 are attracted does not hold good.

Prepared by: Monika Tak

Comments

PJ/Case law/2014-15/2274

Post a Comment

Query