Precision Moulds and Dies Vs Commissioner of Central Goods and Service Tax (Allahabad High Court)
Summary: The Allahabad High Court dismissed the Central Excise Appeal filed by M/s Precision Moulds and Dies against the order dated 4 September 2024 passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, which had upheld the demand of central excise duty amounting to Rs. 27,88,702 along with penalty. The appellant was engaged in manufacturing moulds and plastic articles falling under Chapters 84 and 39 of the Central Excise Tariff Act, 1985, and was availing CENVAT Credit Rules 2004: inputs and capital goods” target=”_blank” rel=”noopener”>CENVAT credit on capital goods and inputs used in manufacturing finished products. During an audit, the Department discovered that the appellant had transferred moulds manufactured in its factory to another factory for job work without payment of excise duty. A show-cause notice was issued alleging suppression of facts and demanding duty on the cleared moulds. The appellant contended that the moulds were returned after completion of job work and subsequently consumed in its own factory for manufacturing finished goods. It therefore claimed exemption under Notification No. 67/95-CE dated 16 March 1995. However, the Additional Commissioner confirmed the demand and imposed penalty on 14 March 2017. The Commissioner (Appeals) rejected the challenge on 27 April 2018, and CESTAT dismissed the subsequent appeal on 4 September 2024, leading to the proceedings before the High Court.
Before the High Court, the appellant argued that the Tribunal had incorrectly denied the benefit of Notification No. 67/95-CE despite the moulds ultimately being returned and utilised in manufacturing finished goods. According to the appellant, the temporary removal of moulds for job work should not defeat the exemption because the goods were eventually consumed within its manufacturing operations. It further invoked the principle of revenue neutrality, submitting that even if excise duty had been paid on the moulds at the time of clearance, the corresponding amount would have been available as CENVAT credit. Consequently, the appellant maintained that there would have been no effective revenue loss and that the demand was unjustified. The Revenue opposed these submissions, pointing out that the moulds had been cleared without payment of duty under challans, without issuance of invoices and without recording the manufactured goods in the daily stock account. It argued that Notification No. 67/95-CE applied only where goods manufactured within a factory were used for manufacturing finished goods within that same factory. Once the moulds were removed to another factory, even for job work, the exemption ceased to apply. The Revenue also contended that accepting revenue neutrality merely because credit might subsequently become available would undermine the statutory scheme requiring payment of duty at the time of clearance.
The Division Bench comprising Chief Justice Arun Bhansali and Justice Kshitij Shailendra upheld the concurrent findings of the adjudicating authority, Commissioner (Appeals) and CESTAT. The Court held that Notification No. 67/95-CE was applicable only to goods manufactured and used in the manufacture of finished goods within the factory of production. Since the appellant had removed the moulds from its factory for job work, the exemption was unavailable, notwithstanding their subsequent return and use in manufacturing operations. The Court further rejected the plea of revenue neutrality, observing that the possibility of claiming CENVAT credit could not justify non-payment of excise duty otherwise payable at the time of clearance. Accepting such an argument would render the statutory duty-payment mechanism ineffective, as every assessee could avoid payment by asserting an eventual entitlement to credit. The Court found no justification for interfering with the reasoned order of the Tribunal or the concurrent conclusions of the authorities below. Accordingly, by its judgment dated 24 February 2025 in Central Excise Appeal Defective No. 1 of 2025, Neutral Citation No. 2025:AHC:26925-DB, the Allahabad High Court dismissed the appeal, affirming the denial of exemption and rejection of the revenue-neutrality defence.
FULL TEXT OF THE ALLAHABAD HIGH COURT ORDER
1. This appeal is directed against the order dated 04.09.2024 passed in Excise Appeal No. 70728 of 2018 passed by Customs, Excise & Services Tax Appellate Tribunal, Allahabad, whereby the appeal filed by the appellant against the order in appeal dated 27.04.2018 passed by Commissioner (Appeals), Central Tax and GST, Greater Noida, has been dismissed.
2. Appellant is engaged in manufacture of moulds and plastic articles falling under Chapters 84 and 39 of the Central Excise Tariff Act, 1985. The appellant was availing the benefit of CENVAT Credit of duty paid on capital goods and inputs used in manufacture of its finished goods. During the course of audit, it was observed that appellant had transferred moulds to another factory for job work without payment of duty. A show-cause noticed was served alleging suppression of facts and demand of duty amounting to Rs. 27,88,702/- on the moulds sent for the job work. The appellant submitted a reply contesting the allegations and claiming that it was not liable to pay any duty, as the goods in questions were returned to the appellant after job work and were consumed in the factory itself. The Addl. Commissioner confirmed the demand of duty and imposed penalty by order dated 14.03.2017. The appeal filed by the appellant before Commissioner (Appeals) came to be rejected by order dated 27.04.2018 and the appeal filed before the Tribunal also came to be rejected on 04.09.2024. The present appeal has been filed against the three concurrent orders.
3. Learned counsel for the appellant made vehement submissions that Tribunal was not justified in dismissing the appeal. Submissions were made that the undisputed facts found were that though the moulds manufactured by the appellant were cleared without payment of duty to other factory under the cover of challans, the same were returned back after job work and were consumed for manufacture of finished goods and, therefore, the appellant was entitled to the benefit of the Notification No. 67/95CE dated 16.03.1995.
4. Further submissions were made that the present was a case of revenue neutrality inasmuch in case the amount of duty was paid by the appellant, the same would be available to it as CENVAT Credit of such capital goods and, therefore, the Tribunal was not justified in rejecting the plea raised. Submissions were made that the substantial questions of law arise from the order passed by the Tribunal and, therefore, the appeal be admitted.
5. Learned counsel for the revenue supported the orders impugned. Submissions were made that it is undisputed that the appellant had manufactured moulds and cleared them without payment of duty under cover of challans and without issuing any invoice, the manufactured goods had not been accounted for in the daily stock account, which was done only with a view to avoid payment of duty. The Notification No. 67/95CE dated 16.03.1995 has no application. Further submissions were made that if only on account of assessee being entitled to CENVAT Credit, if the requirement to pay the duty at first instance is given a go-bye, the scheme of CENVAT Credit would become redundant and every assessee for non payment of service tax or central excise duty on inputs/input services/capital goods would invoke the said proposition and, therefore, the orders impugned do not call for any interference.
6. We have heard the submissions made by counsel for the parties and have perused the material available on record.
7. All the three authorities, i.e., the adjudicating authority, the appellate authority and the Tribunal have concurrently found that the appellant was not entitled to any relief based on the plea sought to be raised pertaining to the fact that as claimed the moulds, which were cleared without payment of duty for getting the job work done, were returned back and consumed in the appellant’s factory and on account of the purported revenue neutrality. Exhaustive discussions and reasons have been indicated for negating the plea as raised by the appellant. The Tribunal, after going through the Notification, relied on by the appellant, came to the conclusion that the same was not applicable, as the same applies only to those goods which are produced in the factory and used in the manufacture of finished goods within the factory of production. Once the goods leave the factory even for job work, the Notification had no applicability. The finding recorded in this regard cannot be faulted inasmuch merely because the goods in question, which were cleared without payment of duty, were again used by the appellant for production of finished goods, the fact that the same could be finished goods also cannot be ruled out and, therefore, the submissions made in this regard have rightly been negated.
8. Plea of revenue neutrality, based on the fact that the appellant would be entitled to CENVAT Credit, has also rightly been denied by the Tribunal, as accepting the said proposition would negate the very scheme of CENVAT Credit as every assessee for non payment of duty would claim that on account of entitlement to claim CENVAT Credit, the duty was not paid. Once the plea raised pertains to revenue neutrality, the same plea is sufficient for holding the appellant guilty inasmuch there was no reason in the given case not to pay the duty at the time of clearance of the goods when they were being sent for job work, as required under the law.
9. In view of the above discussion, we do not find any reason to interfere with the well reasoned order of the Tribunal upholding the concurrent findings recorded by the adjudicating authority and appellate authority. There is no substance in the appeal. The same is, therefore, dismissed.
