Whether cross-utilisation of inputs in job work and own manufacture permissible?

PJ/CASE LAW/2016-17/3160

Case:-M/s COVESTRO (INDIA) PVT LTD VS COMMISSIONER OF CENTRAL EXCISE, PONDICHERRY

Citation:- 2016-TIOL-1363-CESTAT-MAD

Brief Facts:-The appellants manufacture goods namely thermoplastic polyurethane called Desmopan on job work for M/s Bayer Industries Ltd (called M/s BIL). M/s BIL supplied inputs for desmopan for job work manufacture by the appellants. Obviously, the inputs are common for manufacture on appellants own account and for manufacture by them on job work. The inputs are stocked together and usually the Appellant uses the materials supplied by BIL for manufacturing the goods on job work basis for BIL while for manufacturing goods on its own behalf it uses its own inputs which are received in packages marked BSPL (Bayer Sanmar Private Ltd.) However if there is an urgent requirement of the inputs while manufacturing the final products and the same is not readily available in the BSPL Stock, the appellant sometimes borrows from the inputs supplied by BIL and uses the same for manufacture of its final product. This movement of inputs is duly recorded in what is known as Goods Receipt Notes (GRN). As and when the Appellant receives the inputs in question in its own stock, it promptly replaces the quantity taken from the BIL stock. At this stage it does not avail any credit on the inputs received. The revenue issued notice to the appellants for alleged diversion of such inputs without following the procedure under erstwhile rule 57AC or 57F (3) and without payment of duty or paying an amount equal to credit taken on such diverted inputs. Penalty was also sought to be imposed under erstwhile Rule 173Q. After the order of adjudication passed by the Additional Commissioner confirming the demand proposed in the show cause notice and imposing penalty, an appeal was filed which was also rejected leading to the filing of an appeal before this Tribunal which was remanded vide Final Order No. 768/2004 dated 08.09.2004.

Appellant’s Contention:- The main reason for confirmation of demand by lower authorities is that the inputs supplied to the job worker and those procured on their own account for manufacture have been inter utilised whenever required by the appellants, that the inputs meant for manufacture on job work cannot be utilised for manufacture on their own account and vice versa. Such removal according to revenue would be construed as diversion of inputs or removal outside the factory for home consumption inviting reversal of credit or payment of duty. There is no provision in the Act or Rules or in Cenvat Credit Rules treating such inter utilization of inputs as prohibited. On the other hand, Modvat/Cenvat Credit Rules permits utilization of inputs for any final product of the manufacturer.
Under the rules there is no requirement of one to one correlation of inputs and output so long as inputs are not used for manufacture of exempted goods. Within the factory, for manufacture, the inputs can be utilised irrespective for whom the goods are manufactured. Removal within factory is not removal for home consumption from factory which alone invites reversal of credit or payment of duty.

Respondent’s Contention: - The respondent reiterated the findings of the lower authorities.

Reasoning Of Judgment:- With regard to the inter utilisation of inputs, for job work and for their own use, the appellants submission has not been countered with more forceful submissions and better material to prove to the contrary. With regard to the second submission, that there is no one to one co-relation of input and output, as stated earlier, there is no allegation that the same has been used in the manufacture of the exempted goods. However, the Ld. Counsel has drawn my attention to the reconciliation statement filed in the course of hearing showing the date-wise issuance of the raw material and its return thereof. For both the reasons, enumerated above, the impugned order is set aside with consequential relief, if any. Duty demand set aside. Penalty also set aside.

Decision: -Appeal allowed.

Comment:- The gist of the case is that since there is no provision in the Act or Rules or in Cenvat Credit Rules treating inter utilization of inputs by the assessee as prohibited, the allegation to reverse cenvat credit on inputs diverted is totally erroneous. As there is no one to one correlation required for utilisation of inputs, the appeal was allowed.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3160

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