Whether credit on moulds and dies admissible if sent to another manufacturer occasionally ?

PJ/CASE LAW/2014-15/2543

Case:-JBM MA AUTOMOTIVE PVT. LTD. Vs COMMISSIONER OF CENTRAL EXCISE, PUNE-I

Citation:-2015 (315) E.L.T. 234 (Tri. - Mumbai)

Brief Facts:- The appeal arises against Order-in-Original No. 03/CEX/2012, dated 19-1-2012, passed by the Commissioner of Central Excise, Pune-1.
Vide the impugned order the learned adjudicating authority has disallowed Cenvat credit amounting to 2,76,35,315/- to the appellant M/s. JBM MA Automotive Pvt. Ltd. He has also demanded recovery of interest on the said amount apart from imposing equivalent amount of penalty. The reason for denial of Cenvat credit and penal liability is that the appellant cleared moulds, dies, etc., on which Cenvat credit has been taken, to vendors who manufactured certain motor vehicle parts for the appellant under Rule 4(5)(a) procedure and the said rule at the relevant period of time did not permit clearance of moulds/dies to vendors who is not a job-worker. Aggrieved by the same, the appellant is before Tribunal.

Appellant contentions:- The learned counsel for the appellant submits that the goods were in fact cleared under Rule 4(5)(b) procedure and the mentioning of Rule 4(5)(a) in the challans is a mistake. Under Rule 4(5)(b) procedure moulds and dies could be cleared to job-worker for production of goods on behalf of principal manufacturer. He further submits that the said Rule 4(5) was subsequently amended w.e.f. 27-2-2010, which provided for sending of jigs, fixtures, moulds and dies to another manufacturer for the production of the final products so as to take care of problems arising in the automobile industry. Therefore, sending of these moulds and dies to the vendor cannot result in denial of credit. He also submits that the appellant has also been using the said moulds and dies in his own factory for the manufacture of excisable goods. He also placed reliance on the decision of this Tribunal in the case of Monica Electronics v. Commissioner of Central Excise, New Delhi - 2000 (123) E.L.T. 1047 and Karamchand Appliances Pvt. Ltd. v. Commissioner of Central Excise, Chandigarh - 2010 (251) E.L.T. 67 wherein it has been held that Cenvat credit should not be denied on moulds sent to a job-worker under challans erroneously mentioning Rule 4(5)(a) and not returned to the factory within 180 days since in respect of the moulds sent under Rule 4(5)(b) there was no condition of return within 180 days. Accordingly he prays for setting aside the impugned demand and allowing the appeal.

Respondent Contentions:- The learned Additional Commissioner (AR) appearing for the Revenue submits that the job-worker has been defined under Rule 2(n) of the Cenvat Credit Rules, as per which ‘job-work’ means :

“processing or working upon of raw material or semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression ‘job worker’ shall be -construed accordingly.”

Therefore, to be a ‘job-worker’, he should receive materials from the principal manufacturer and undertake work on those materials. In the present case, the vendor is not a ‘job-worker’ in the sense that the appellant does not supply any raw materials and the vendor procures the raw materials himself and manufactures the goods and for such manufacture, the appellant has sent the moulds and dies. He also submits that there is no finding in the order as to the effect that whether the appellant is using these dies and moulds in his factory in the manufacture of excisable goods. In the absence of a specific provision in the Cenvat Credit Rules for removal of moulds and dies to vendors without reversal of credit, the impugned demand is sustainable and accordingly he pleads for upholding the impugned order.

Reasoning of Judgment:-We have carefully considered the submissions made by both the sides. It is not in dispute that the appellant has sent the moulds and dies to the vendor and has brought back the same. The only point of dispute is whether the vendor is a job-worker or not? As per the definition under Rule 2(n) it is clear that the vendor who procured the raw material himself is not a job-worker as defined in law and prior to 27-2-2010, there was no specific provision for sending the moulds and dies to another manufacturer. Therefore, the procedure of sending moulds and dies to a vendor who is not a ‘job-worker’ was not envisaged under the Cenvat Credit Rules. However, the question remains whether the appellant should be denied benefit of Cenvat credit if he was also utilising these moulds and dies in his factory for manufacture of excisable goods. From the show cause notice and from the impugned order, this issue appears not to have been examined by the adjudicating authority. If the appellant was also utilising the same moulds and dies, which was also occasionally sent to the vendors, the appellant could not have been denied the benefit of Cenvat credit. In such a situation, the only infraction the appellant could be attributed is only procedural infraction which only merits imposition of penalty rather than denial of credit, as provided for in the law. Since this issue has not been examined by the adjudicating authority, we are of the view that the matter has to go back to the adjudicating authority for de novo consideration. The appellant is also entitled to lead evidence in support of their contention that they have also been using these moulds and dies in their own factory for the manufacture of excisable goods. The adjudicating authority shall consider all the evidences and pass a fresh order in accordance with law.

Thus, the appeal is allowed by way of remand.

Decision:-Case remanded.

Comment:- The crux of the case is that if the appellant also utilizes the same moulds and dies, which are also intermittently sent to the vendors, the department could not have denied the benefit of Cenvat credit. Also, there is no specific provision for sending the moulds and dies to another manufacturer in Cenvat Credit Rules. In such a situation, the only violation the appellant could be attributed is only procedural violation which only merits imposition of penalty rather than denial of credit, as provided for in the law. So, the case was remanded back to adjudicating authority.

Prepared By:Meet Jain

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PJ/CASE LAW/2014-15/2543

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