Whether credit on capital goods be denied to job worker manufacturing intermediary goods for EOU?

PJ/Case Law /2016-17/3273

Case:- S.K.S. MILLS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, SALEM

Citation:- 2016 (42) S.T.R. 367 (Tri. - Chennai)

Brief Facts:-It is explained by the appellant that the capital goods which were acquired domestically did not enjoy capital goods credit at the time of acquisition since no duty was paid as the appellant was an EOU. When the appellant was de-bonded to forego the EOU status, appellant paid appropriate duty on the capital goods so de-bonded. The excise duty so paid on the de-bonding of capital goods was claimed as capital goods credit. The capital goods after de-bonding were used to manufacture goods on job work basis. The goods so job worked were intermediary product. Such intermediary products were again subject to processing by the principal manufacturer. The principal manufacturer making a value addition to the intermediary cleared part of them domestically and discharged excise duty thereon. The rest of the goods manufactured were exported. On such material facts Department has alleged that appellant was not entitled to the capital goods credit since it had manufactured exempted goods. But, appellant did not at all manufacture exempted goods since any clearance made as a job worker shall not be treated as goods exempt from duty or chargeable to nil rate of duty as has been held by the Hon’ble Madras High Court in the case CCE, Chennaiv. CESTAT, Chennai - 2015 (322) E.L.T. 697 (Mad.). Therefore, denial of capital goods credit is contrary to law.

Appellant’s Contentions:-It is explained by the appellant that the capital goods which were acquired domestically did not enjoy capital goods credit at the time of acquisition since no duty was paid as the appellant was an EOU. When the appellant was de-bonded to forego the EOU status, appellant paid appropriate duty on the capital goods so de-bonded. The excise duty so paid on the de-bonding of capital goods was claimed as capital goods credit.

Respondent’s Contentions:-Revenue on the other hand says that the appellant was engaged in the manufacture only as a job worker and it had not paid any duty for which it is not entitled to enjoy any capital goods credit since the goods were covered under Notification No. 30/2004, dated 9-7-2004 as exempted goods. To submit so, they rely on Para 10 of the decision in Arthanari Loom Centre (Textiles) Pvt. Ltd.- 2014 (313) E.L.T. 943 (G.O.I.). In a revision order it was held that capital goods credit is not available when the goods are cleared from factory under Notification No. 30/2004, dated 9-7-2004.

Reasoning Of Judgement-The Tribunal heardboth the sides and perused the records.
So far as material facts placed by learned counsel is concerned, that remained undisputed by Revenue. Further added fact that came to record is that the principal manufacturer who assigned the job work to the appellant was an EOU. Part of the goods manufactured by the appellant were processed and exported by that EOU. The rest of the goods were domestically cleared making payment of duty. Hon’ble High Court of Madras in the case cited (supra) has held that clearance of the goods by a job worker if exempt from duty that does not disentitle the job worker to the Cenvat credit. Appellant says that it had not made clearance under Notification No. 30/2004, dated 9-7-2004 but made clearances to an EOU.

The capital goods of the appellant were used to manufacture intermediary goods for the EOU which suffered duty partly on the value addition thereto by the principal manufacturer when cleared in DTA. Therefore, denial of capital goods credit to the appellant is unwarranted. Accordingly, all the three appeals are allowed.

Decision:-Appeal allowed.

Comment:- The gist of the case is that since capital goods in question are used to manufacture goods for an EOU and the EOU, after processing such goods, partly cleared them to DTA on payment of duty by making value addition thereto. Therefore , denial of capital goods credit to the job worker is not justified .

Prepared By- Praniti Lalwani

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PJ/Case Law /2016-17/3273

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