Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/025

04 January 2010

Case Study

Prepared by: - CA. Pradeep Jain

Sukhvinder Kaur, LLB(FYIC)

Deepak Mohnot

Introduction

Job Work has an assortment of complexities like what option the principal manufacturer has to opt at the time of removal of the goods to the Job worker i.e. whether he has cleared the goods from his premises by paying Excise Duty or under Rule 4 (5) (A) of the Cenvat Credit Rules, 2004 or under Notification No. 214/86-CE. On the other hand a substantial factor which further makes the issue more complex is what option has been exercised by the job worker at the time of removal from his premises i.e. whether he has cleared the goods by paying excise duty or he has charged service tax or neither charged excise duty nor service tax?

Now the department has raised one more point of litigation that the Cenvat credit is not allowable to the job worker on the inputs which are purchased by him for completing the job. Their contention is that as the Job worker has removed the goods from his premises without payment of duty he will not be allowed to avail the Cenvat (this is because Cenvat credit is available only if removal of goods is on payment of duty.)

TATA MOTORS LTD V/s UNION OF INDIA

[2009-TIOL-665-HC-MUM-CX]

Brief Facts of The Case

In the instant case, the appellant has processed the goods as a job worker. At the time of processing of such goods received for job work, he used some of his own inputs on which he availed the Cenvat Credit. However, the department contended that the Cenvat credit is not permissible as the appellant has cleared the goods to the principal manufacturer under challan without payment of duty and therefore according to Rules “Cenvat credit will not be allowable to the Assessee if the goods removed are exempt from payment of the duty.” When the appellant approached the Tribunal, at the pre-deposit and stay stage, the Tribunal directed the petitioners to deposit the full amount of duty. Aggrieved by this order of the Tribunal, appellant-assessee have approached the High Court.

Appellant Contention

- Appellant argued that the removal cannot be called as removal of the goods under exemption because the principal manufacturer will be paying the duty at the time when he will be removing such finished goods from his factory.

- The appellant further relied upon the judgment of Sterlite Industries (I) Ltd V/s Commissioner of Central Excise, Pune case it was decided by the Larger Bench of the Hon’ble Tribunal that Cenvat credit in respect of other inputs received directly and used by him in manufacturing of said goods is permissible.

Question of Consideration

The question for consideration before the Hon’ble High Court of Bombay was: -

Whether the Cenvat Credit is allowable on his own inputs used by the job worker in completing the job?

Order of the High Court

v The High Court observed that an appeal was filed by Revenue against the judgment given in Sterlite Industries case before the High Court. The High Court had observed in that appeal that the Tribunal had relied upon the judgment in Escorts Limited v/s Commissioner of Central Excise, Delhi [2004 (174) ELT 145 (SC)] and had held that no question of law had arisen and accordingly, had dismissed the appeal.

v The High Court further noted that another appeal of the Revenue in the High Court in the case of Commissioner of Central Excise v/s M/s Mahindra Ugne Steel Co. Ltd was dismissed in the light of the Larger Bench judgment in the case of Sterlite Industries case.

v Thus, the High Court held that the law was settled that even in respect of jobwork where the final product is dutiable, Cenvat credit can be availed of.

v The High Court held that the issue which was before the Tribunal was in issue in Sterlite Industries case, which has been upheld by this Court.

v In the judgment of Amrit Paper v/s CC, Ludhiana [2008 (12) STR 536 (SC)] which was considered by the Tribunal at the pre-deposit stage, the final product was exempt from duty and consequently, the Apex Court has held that the final product was exempt from duty and that the manufacturer could not have availed of Cenvat credit. The issue of a job work was not in issue in this case. Prima facie, the law laid down in Amrit Paper case could not have been applied in a case of jobwork and more so at the stage of pre-deposit.

v The High Court further held that the approach of the learned Tribunal is not understandable. The Judgments of higher courts considering judicial discipline have to be followed by the Courts subordinate to the higher court. Failure to do so would result in judicial mayhem. Subordinate courts are bound to follow the judgment unless there be a subsequent judgment of Higher Court which has taken a view different from the view earlier expressed. In this case, the High Court found that the judgment in the case Amrit paper case couldn’t be said to have decided the controversy of availing of the Cenvat Credit for job work.

v In the light of that, The High Court further held that considering the Judgments of this court, as the petitioner have strong prima facie case, and the law decided by the Supreme Court was of pre-deposit, the impugned order is set aside. There will be no pre-deposit. The petitioners are directed to give bond for the amount. Rule made absolute accordingly.

Decision of the High Court

Bombay High Court allowed the Petition in favour of the Assessee.

Comments & Conclusion

The Decision of Hon’ble High Court clearly provides that the job worker is eligible to take Cenvat credit on the own inputs which are used by him for completing the job process. The High Court passed the decision relying on the case of Sterlite Industries (I) Ltd V/s Commissioner of Central Excise, Pune in which the Tribunal (Larger Bench) clarified that as the principal manufacturer is paying duty on the goods receive back by him from the job worker, hence the contention of the respondent is not justifiable and the job worker can avail the CENVAT Credit. The departmental appeal before the Hon’ble High Court was dismissed. Hence the aforesaid decision has become final.

Conclusively, the Apex Court decision in case of Escorts Ltd. has held that Cenvat/Modvat credit of duty paid on inputs used in manufacture of product cleared without payment of duty by job worker for further utilization in manufacture of final product, which are cleared on payment of duty by principal manufacturer, is not hit by provisions of Rule 57C of erstwhile Central Excise Rules, 1944 and hence the CENVAT is allowed to the Job Worker.

Thank God. The poor job worker has got the relief. We will come up with an article on this issue. We have come up before a situation where the poor job worker has taken the credit of Rs. 30,000 only on oil and lubricants and demand of Rs. 65 Lakhs has been raised against him. Please visualize the situation of poor job worker. This is the reason that the aforesaid decision is irritating us. But in the last the poor man has got the relief.

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PJ/CASE STUDY/2009-10/025
04 January 2010

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