Whether permission to job work under Rule 4(6) denied on the ground that the goods are cleared to another factory of the same manufacturer?

Case:-CCE, TIRUNELVELI Vs M/s STERLITE INDUSTRIES (I) LTD

Citation:- 2013-TIOL-545-CESTAT-MAD

Brief Facts:- The respondent has one factory at Tuticorin and other factories at Silvassa, Chinchpada and Pipara falling under the jurisdiction of Central Excise Commissioner, Vapi . Respondent manufactures copper anode, copper cathode and continuous copper wire at their Tuticorin factory. They sought permission from the Deputy Commissioner of Central Excise, Tuticorin Division vide letter dated 12-03-2012 for removal of copper anode to their units at Silvassa, Chinchpada and Pipara under Rule 4 (6) of Cenvat Credit Rules, 2004 for converting it to cathodes or copper wire. The Deputy Commissioner refused the permission due to reason that M/s. Sterlite Industries (I) Ltd., Silvassa is not a job worker. It is their own unit and Copper anode is neither an input nor partially processed input so as to qualify for movement under Rule 4(5A), the preceding Rule of Rule 4(6) of CENVAT Credit Rules, 2004. Aggrieved by the order, the Respondent filed an appeal with Commissioner (Appeal). The Commissioner (Appeal) allowed the request of the Respondent on the grounds that Copper anode needs to be considered as a semi-processed input in the manufacture of copper cathode and continuous copper wire rods. The other ground is that the same unit of a manufacturer can be considered as a job worker as per board's letter No. 12/91-Cx. 8 dated 28.2.1991 and The instructions of the Board in Circular No. 643/34/2002-CX issued from file F. No. 6/39/2000-CX.1 dated 1.7.2002 regarding the valuation of the goods captively consumed / not involving sale is not relevant to the permission granted under Rule 4(6) of the CENVAT Credit Rules, 2004. Aggrieved by the order of Commissioner (Appeal), Revenue has filed this appeal. In para 19 of the order the Commissioner (Appeal) further ordered as under:-

"19. It may made very explicit that allowing this appeal shall in no way preclude the department from reviewing the permission granted on grounds not considered and decided upon in this order."

The respondent is aggrieved by this portion of the order of the Commissioner (Appeal). So they have filed a cross objection praying that this part of the order should be set aside. In the cross objection the respondent also prays that the Commissioner should have granted the permission himself rather than directing the lower authority to grant such permission.

Appellant’s Contention:-The Appellant submits that in the factory of the respondent at Tuticorin they start manufacturing process from copper concentrate as input. They manufacture copper anode out of the said input and the said final product of the manufacturing processes, that is, copper anode is a marketable commodity and they are in fact selling copper anode on payment of excise duty. The contention raised is that when the product is a dutiable finished product, the respondent cannot remove it from their factory to another factory, without payment of duty under provisions of Rule 4 (6) of the Cenvat Credit Rules, 2004. This rule reads as under:

"(6) The Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable , is to be paid, allow final products to be cleared from the premises of the job-worker."

The appellant submits that thus his contentions are basically two fold. Firstly that copper anode is a dutiable final product. He submits that respondents themselves claimed copper anode to be their final product. For this he pointed out para 83 of the cross objection filed by the respondent. Further he relies on the decision of this Tribunal Vide Final Order No. 353-376/2004 dt. 12-4-2004 reported at 2005(191) ELT 401. It is decided, in this case, that the role of copper concentrate as input ends in the smelter after giving finished product namely copper anode.

The second argument of the Revenue is that Rule 4(6) will not apply to a dutiable final product since it can no longer be considered as an intermediate product. In this matter, he relies on the decision of the Tribunal in CCE Meerut Vs . Tehri Girders Ltd. – 2010 (253) ELT 327 (Tri-Del). The appellant points out that Commissioner (Appeal) did not give any reason for not following the decision of the Tribunal in the case of Tehri Girders Ltd.

The appellant argues that Rule 4 (6) of Cenvat Credit Rules permit clearance of inputs, on which Cenvat credit has been taken, as such from the factory or for removal of intermediate goods. There is no doubt that copper anode is not an input on which the respondent had taken credit. The other category of goods that can be removed is partially processed goods. But the counsel argues that anodes cannot be considered as partially processed goods because these are goods which are being sold by the respondents as final product. So Rule 4 (6) cannot be applied considering the goods as "partially processed inputs". There is a ground in the appeal memorandum that one manufacturer cannot be job-worker for himself in another factory. It was submitted by Revenue that they would submit decisions to that effect. Later it was confirmed that they are not able to produce any such decision.

The appellant further submit that Rule 4 (6) of Cenvat Credit Rules, 2004 gives a discretion to the executive authority to permit or deny such removal and higher appellate authorities should not interfere with such discretion. He relies on the decision in the case of Jaypee Rewa Cement - 2006 (198) ELT 498 (Del)and Sam Turbo Industries Ltd Vs . CCE -2006 (200) ELT 87 (Tri-Chennai).

Respondent’s Contention:- The Respondent submits that they have been manufacturing Anode, Cathode and all downstream products at both Tuticorin factory and the factories at Vapi since 2002. They have been given permission to remove anodes without payment of duty from Tuticorin factory to other factories since 2002. This arrangement was resulting in lower payment of excise duty at Tuticorin Commissionerate about which the central excise officials there were unhappy because they wanted to show higher collections in their Commissionerate. According to him, such an approach has resulted in the genesis of the problem at hand, though actually there is no Revenue loss to the exchequer because the duty if paid at Tuticorin would have resulted in lesser collections for the same amount at Vapi.

The respondents had taken up this issue with CBEC and CBEC had clarified vide letter F. No. 267/63/2002-Cx-8 dated 27-02-2003 as under:

"Subject: Permission under Rule 4(6) of CENVAT Credit Rules, 2002 - request by M/s. Sterlite Industries India Ltd., Tuticorin - regarding.

Sir,

I am directed to refer to your letter C. No. IV/16/272002/T-2 dated 14.2.2003 on the representation made by M/s. Sterlite Industries India Ltd. seeking permission under Rule 4(6) of CENVAT Credit Rules, 2002. It is observed that in case the request for amendment in Registration Certificate to include Copper Cathode as final product of Tuticorin unit is acceded to, Copper Anodes which are sought to be cleared from Tuticorin unit become eligible to be cleared directly from the premises of the job worker at Silvassa after necessary job-work. Further, Rule 4(6) states that the Commissioner having jurisdiction over the manufacturer sending inputs or partially processed inputs may allow such movement directly from the premises of the job worker subject to such conditions including the manner of payment of duty, as may be prescribed by him. Thus, it may be seen that the rule does not prohibit the payment of duty at the principal manufacturer's end when the goods are being cleared from the premises of job worker. Therefore, necessary action may please be taken in the light of the clarification given above."

The respondent submits that Revenue is trying to deny a facility which CBEC itself approved as far back as 2003.

Coming to the merits of the issue, the respondent argues that at Tuticorin factory they are manufacturing cathodes and copper wire for which copper anode is a raw material. If the manufacturing process starting from copper concentrate to copper anode to copper cathode is considered, copper anode is an intermediate product. The argument that copper anode cannot be considered as an intermediate product can apply only in a situation where no downstream products are manufactured in the factory at Tuticorin. This is not the position. In this matter, the facts of the case of Tehri Girders Ltd are different from the facts of the present case because Tehri Girders Ltd. were manufacturers of M.S. Ingots and Alloy Steel Ingots only. They were wanting to clear alloy steel ingot to another manufacturer to get alloy steel bars manufactured. The facts of the case at hand are different because copper anode is an intermediate product in the process of manufacture of copper cathode at Tuticorin factory.

The respondent pleaded regarding the argument that the discretion vested on executive authorities should not be questioned in appeal proceeding the Counsel submits that all such discretion is to be exercised judiciously. When the discretion is not exercised judiciously it can always be challenged in appeals. He points out that the issue that goods which may be final products for one factory may be intermediate product for another factory. He relies on a plethora of decisions in respect of Rule 57 F (4) which had provisions corresponding to those in Rule 4(6) of the present Rules. He relies especially on the following decisions:

(i) Eveready Industries Ltd. Vs. CCE - 2005 (186) ELT 570 (Tri-Bang)

(ii) Tega India Ltd Vs. CCE - 1999 (112) ELT 1061 (Tribunal).

The Respondent further submits that though there are very many decisions in the context of Rule 57 F (4), he is not able to point out any decision in the context of Rule 4 (6). But he argues that there is no reason why these decisions will not apply to rule 4 (6) because the issue in dispute is essentially same.

The Respondent also draws attention to the definition of job-worker as given at rule 2 (n) of Cenvat Credit Rules, 2002 as under:

(n) "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;

The respondent further argues that no part of this definition can be interpreted to mean that the expression "job-worker will not cover another factory of the same manufacturer to which goods are sent for doing certain processes.

Reasoning of Judgment:- The Tribunal heard both the parties and finds that anode is both final product as well as intermediate product at their factory at Tuticorin . It is final product when it is cleared on payment of duty. It is intermediate product when it is further used in the manufacture of cathode or wire rods. Once the goods are recognized to be intermediate product there is no reason to deny the benefit Rule 4 (6) of Cenvat Credit Rules, 2004. That is what was advised to the respondent by CBEC. That is what is decided by Tribunal in very many decisions given in the context of erstwhile rule 57 F( 4) which provision was replaced by Rule 4 (6) in the new Rules. Tribunal does not see any reason to unsettle this settled position. The facts of the case Tehri Girders Ltd. is different from the facts of this case because for them the product they were trying to remove under Rule 4(6) was not an intermediate product in the factory from which it was sought to be removed.

The tribunal also finds that the order of the Tribunal in Appeal Nos. 353-376/2004 of the same assessee was given at a stage when the appellants were manufacturing no downstream products from anodes at Tuticorin factory as is evident from para 3 of the order. The issue whether copper anode can be considered as an intermediate product for further manufacture of cathodes or copper wire is not examined in the order because such an issue had no bearing on the issue in dispute in that appeal. So Tribunal do not consider it necessary to dwell on that issue in this appeal.

The tribunal did not agree with the argument that this is a matter to be left to the discretion of the executive authority. Any executive authority has to exercise the discretion within the frame work of the laws giving him the power and also judiciously, The decision in the case of Jaypee Rewa Cement - 2006 (198) ELT 498 (Del) relied upon by Revenue was in the context of pre deposit ordered under section 35F of the Central Excise Act and the order was challenged in a writ petition. The Court held that no adequate cause was shown why the order should be interfered with. The second case relied upon by Revenue is that of Sam Turbo Industries Ltd Vs CCE-2006 (200) ELT 87 (Tri-Chennai). The matter involved in this case was the quantum of penalty to be imposed under Rule 8 of the Central Excise Rules and not whether the penalty was imposable. In the facts of the case that case the Tribunal decided that the Tribunal should not interfere with the penalty imposed. In the very same case the first appellate authority had reduced the penalty from Rs. 6 lakhs imposed by adjudicating authority to Rs. 1 lakh. This reduction in penalty was also not interfered with. It is wrong to hold that discretion exercised by quasi-judicial authorities should not be scrutinized in appeal proceedings to see whether it is exercise as per provisions of law and whether the power was exercised judiciously. Both proposition can only lead to arbitrary abuse of power. One sentence from an order cannot be interpreted to mean judicial axiom.

The Tribunal also finds that in the matter of prayer in the cross objection that the Commissioner (Appeal) should have extended the facility himself rather than directing the lower authority to do so, Tribunal do not see much substance because it is only a matter of semantics. The order of the adjudicating authority is set aside and direction is given to grant the facility and there is no reason why it should be refused. If such facility is not yet allowed, the prayer should be for implementation of the order no such prayer was made during hearing. In the matter of para 19 of the impugned order contested by the Respondent in their cross objection, Tribunal do not see any merit. As per Rule 6 (4), the permission is to be renewed each financial year. Each financial year the facts available with the authority should be taken into consideration as also the laws laid down in the facts of the case of previous year. As argued by the respondents themselves such exercise has to be exercised judiciously. And the decisions given by higher forums for the previous period is necessarily to be taken into account while reviewing such permission during every year.

Therefore the appeal filed by Revenue is rejected. The cross objection by respondent also is rejected.

Decision:- The appeal filed by Revenue is rejected.

Comment:- The substance of this case is that once the goods that are removed to the factory of job worker are recognized to be intermediate product, there is no reason to deny the benefit Rule 4 (6) of Cenvat Credit Rules, 2004 merely on the fact that such intermediate goods are cleared to the another factory of the assessee. The contention that one manufacturer cannot be job-worker for himself in another factory does not has force.

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PJ/Case Laws/2012-13/1553

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