Job worker enjoying exemption under Notification No. 214/86 not liable to reverse Cenvat credit as the duty on job worked goods ultimately paid by principal manufacturer
(Arising out of Order-in-Original No. 42/MS (31)/Commr/Rgd/ 06-07 dated 29.03.2007 passed by Commissioner of Customs & Central Excise, Raigad)
Brief of the case :
- The CESTAT Mumbai in the case of Precision Metals vs. CCEx held that as per the special procedure prescribed in Notification no. 214/86 job worker can get duty exemption in respect of job worked goods cleared to principal manufacturer but this exemption donot make the goods as exempt from duty because ultimately duty got paid at the principal manufacturer send at the time of clearance of job worked goods.
- Therefore, the Cenvat credit on inputs used by job worker cannot be said to be used in the manufacture of exempted goods.
Facts of the case:
- The assessee is engaged in the manufacture of iron and steel products falling under Chapter 73 of the Central Excise Tariff Act, 1985 and is availing and utilizing credit of duty paid on inputs and capital goods as well as credit of service tax paid on input services.
- The adjudicating authority confirmed the demand in respect of wrongly availed Cenvat credit i.e. 10% of the value of the goods manufactured and cleared under Notification No. 214/86 on the ground that the goods so manufactured on jobwork basis is exempted from payment of excise duty therefore in terms of Rule 6 of Cenvat Credit Rules, 2004 the appellant is liable to pay 10% of the value of exempted goods. Aggrieved assessee is in appeal before the tribunal.
Contention of the Assessee:
- The learned counsel for the assessee submitted that the assessee received the raw material from the principal supplier under Rule 4(5)(a) of the Cenvat Credit Rules, 2002 without payment of duty on the said raw material manufacturing is carried out.
- As per Notification no.214/86 when the principal manufacturer undertakes to pay duty on final manufactured product received from job worker, then the job worker enjoys exemption in respect of goods cleared after job work. But this does not that the becoming exempt rather they are liable to duty when cleared by principal manufacturer.
- Consequently provisions of payment of 10% of the value of such goods as provided under Rule 6(3)(b) has no application.
Issue before the CESTAT:
Whether CENVAT credit on the input used by the job worker for the manufacture of goods on jobwork basis under Notification No.214/86-CE is admissible or not , when the duty on job worked goods is payable by the principal manufacturer?
Held by CESTAT Mumbai:
- Tribunal observed that notification no. 214/86 was not issued for exempting the goods manufactured on job work basis rather an option has been given whereby the job worker enjoys exemption of duty on job worked goods but duty is payable on same by the principal manufacturer by including the value of job worked goods in its assessable value.
- Therefore, it cannot be said that the Cenvat credit claimed by job worker is going into exempted goods. Therefore, Rule 6(3)(b) which is applicable only on the clearance of exempted goods shall not apply in the case of the goods manufactured on jobwork basis under Notification 214/86.
- Tribunal concurred with the case of Mahindra & Mahindra Ltd. relied on by the assessee’s learned counsel wherein the tribunal held that as per the special procedure prescribed duty did not get paid at the job worker s end at the time of clearance of goods, but ultimately got paid at the principal manufacturer s end.
- Thus, duty gets paid on the job-worked goods at a later stage and, therefore, such goods cannot be categorized as exempted goods. Consequently , no reversal is warranted under Rule 6 of the Cenvat credit rules,2004.
- In result the demand and interest was set aside and accordingly assessee’s appeal was allowed.