Cenvat credit on Input services to jobworker clearing intermediate goods

Cenvat credit on Input services is available to jobworker clearing the intermediate goods without payment of Excise duty in terms of Notification No. 214/86-CE dated March 25, 1986

JBF Industries (the Appellant) was engaged in the manufacture of Polyester Chips, Lump Waste, and Polymer Waste falling under Chapter 39 of the Central Excise Tariff Act, 1985 and was availing Cenvat Credit on Inputs, Capital goods and Input services in terms of the Cenvat Credit Rules, 2004 (Credit Rules). The Appellant along with manufacturing activity was also doing job work activity on the raw materials received from their own factory, located at Silvasa. In respect of job work activity, the Appellant was availing the benefit of the Notification No. 214/86-CE dated March 25, 1986 (Notification No. 214/86) and cleared the intermediates goods, without payment of Excise duty.

The Department took a view that the Cenvat credit of Service tax paid on Input services, used by the Appellant in the manufacture of goods on job work basis, exempted under Notification No. 214/86 was not admissible to the Appellant in terms of the provisions of Rule 6(1) of the Credit Rules.

Further, the Department also took a view that the Appellant had rendered Business Auxiliary Service to his own factory which was exempted under Notification No. 8/2005-ST dated March 1, 2005 and in terms of the Credit Rules, Cenvat credit on Input services used for provisioning of exempted Business Auxiliary Service was not admissible to the Appellant.

Accordingly, the Department confirmed the demand of wrongly availed Cenvat credit in respect of job work done, which was further upheld by the Adjudicating Authority. Being aggrieved, the Appellant preferred an appeal beforethe Hon’ble CESTAT, Ahmadabad.

The Hon’ble CESTAT, Ahmadabad relied upon the following case laws:

• Sterlite Industries (I) Ltd. Vs. CCE [Order No. A/1787/2004-WZB/C-I, dated 17-12-2004]
• Jindal Polymers Vs. CCE [(2001) taxmann.com 1302 (CEGAT – New Delhi)]
• Bajaj Tempo Ltd Vs. Collector of Central Excise [(1993) taxmann.com 475 (Mum. – CEGAT)]
• Polycab Industries Vs. CCE [(2011) 33 STT 268/14 taxmann.com 175 (Ahd. – CESTAT) (“Polycab Industries”)
• Laakoonaa Reactions Vs. CCE [(2010) 3 taxmann.com 400 (Ahd.–CESTAT)] (“Laakoonaa Reactions”)
• Polyfab Industries CCE&C [Final Order No.A/302/WBZ/AHD/2009 dated January 22, 2009]

And held that Rule 6(1) of the Credit Rules cannot be invoked for denying Cenvat credit on input services availed by the Appellant for manufacturing of job work goods cleared under Notification No. 214/86.

It was further held that the job work activity of the Appellant is amounting to manufacture and is cannot be treated as service. The Appellant cannot be a manufacturer and a service provider at the same time in relation to a particular activity. It is settled proposition in the Central Excise matters that a job worker is a ‘manufacturer’.

Accordingly,the Hon’ble Tribunal set aside the order of the Adjudicating Authority and allowed the Cenvat credit availed by the Appellant in relation to job work activities.