Case Law Details
Venkateswara Steel & Springs (India) Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, allowed the appeal filed by Venkateswara Steel & Springs (India) Pvt. Ltd. against the Commissioner of GST & Central Excise in a dispute concerning applicability of Rule 6(3) of the CENVAT Credit Rules, 2004 (CCR).
The appellant was engaged in payment of service tax under reverse charge mechanism for GTA services and also carried out job work activities involving coiling of steel wires supplied by principal manufacturers such as Lakshmi Machine Works (LMW) and Bharat Heavy Electricals Ltd. (BHEL). The department alleged that the appellant had not paid service tax on job work charges under the category of “Business Auxiliary Service” prior to 30.06.2012 and as taxable service from 01.07.2012 onwards while claiming exemption under Notification No. 8/2005-ST dated 01.03.2005.
The Revenue further alleged that the appellant had availed CENVAT credit on common input services such as GTA and consultancy services but had not paid 5% or 6% of the value of exempted services as required under Rule 6(3)(A) read with Rule 6(2) of the CENVAT Credit Rules, 2004 during the period from 2010-11 to 2013-14.
A Show Cause Notice dated 19.10.2015 was issued proposing recovery of amounts calculated at 5% of the value of exempted services for the period 2010-12 and 6% for the period from 2012-13 onwards. The Original Authority confirmed the demands through Order-in-Original dated 25.01.2016 and also imposed penalty under Section 78 of the Finance Act, 1994 read with Rule 15(3) of the CCR, along with applicable interest under Section 75 of the Finance Act read with Rule 14 of the CCR. The First Appellate Authority upheld the order, leading to the present appeal before the Tribunal.
The Tribunal identified the central issue as whether demand of 5% or 6% on the job work charges under Rule 6(3) of the CENVAT Credit Rules was justified.
The appellant argued that the principal manufacturers, namely LMW and BHEL, had supplied goods under Rule 4(5)(a) of the CCR and had discharged excise duty on the finished products. It was submitted that the appellant’s activities involved several specialized manufacturing processes and not mere coiling of steel wires. These processes included straightening, cutting, winding into spring form, bending, trimming, grinding, tempering, oil application, hardening, gap opening, shot peening, final tempering, and quality checks.
According to the appellant, these cumulative processes converted steel wire into identifiable spring components, which were thereafter returned to the principal manufacturers under delivery challans issued in terms of Notification No. 214/86-CE dated 25.03.1986. Therefore, the appellant contended that such job work clearances could not be treated as “exempted goods” because excise duty was ultimately paid by the principal manufacturers on the finished products.
The appellant relied on decisions including Sagittarius Metals Private Ltd. v. CCE & ST Bangalore, Challenge v. CGST & Central Excise, Chennai, and Tiara Advertising v. Union of India in support of its argument that Rule 6 of the CCR would not apply to job work activities or intermediate goods where final products were dutiable and duty had been discharged by the principal manufacturer.
The Revenue relied upon the findings of the lower authorities and supported the demands confirmed in the impugned orders.
After considering the rival submissions, the Tribunal observed that the issue involved in the present appeal had already been settled by earlier judicial decisions. The Tribunal specifically relied on the Bangalore Bench decision in Sagittarius Metals Private Ltd., which in turn referred to the Supreme Court judgment in Escorts Ltd. v. CCE, Delhi.
The Tribunal reproduced the Supreme Court’s observation that the purpose of the relevant rules and notifications was to streamline payment of duty and avoid cascading effect where duty could otherwise be levied both on inputs and finished goods. The Supreme Court had held that even if an intermediate product emerged during manufacture and no duty was paid on such intermediate product because it was exempt or subject to nil rate of duty, CENVAT credit would still be available so long as duty was paid on the final product.
Relying on these precedents, the Tribunal held that there was no bar on a job worker availing CENVAT credit. It further observed that exemption under Notification No. 8/2005-ST was available where central excise duty was paid by the principal manufacturer on the finished goods. The Tribunal also referred to the Larger Bench decision in Sterlite Industries (I) Ltd., later approved by the Bombay High Court, which held that Rule 6 had limited applicability in such circumstances.
The Tribunal found that the Revenue was unable to distinguish the cited precedents either on facts or law. Consequently, it held that the demand raised under Rule 6(3) of the CENVAT Credit Rules lacked merit.
Accordingly, the impugned order was set aside and the appeal was allowed with consequential benefits as per law.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Facts in brief which are relevant insofar as the issue involved in this Appeal is concerned, as could be gathered from the Order-in-Original dated 25.01.2016 are that the Appellant was paying the service tax under reverse charge mechanism for GTA services etc., is also engaged in coiling of the steel wires supplied by some principal manufacturers like M/s.Lakshmi Machine Works (LMW), M/s.Bharat Heavy Electricals ltd. (BHEL); however, they did not pay the service tax on the job work charges despite collecting job charges. It was also found that the Appellant was availing CENVAT credit of tax paid on various taxable services viz. GTA, Consultancy etc.
2. It is the case of the Revenue that the Appellant did not pay the service tax under ‘Business Auxiliary Service’ (BAS, for short) till 30.06.2012 and as taxable service from 01.07.2012 by claiming exemption under Notification No.8/205-ST dated 01.03.2015. Further, in respect of availment of CENVAT credit of tax paid on common input services, they have also not paid 5% / 6% of the value of the exempted services and thereby have contravened the provisions of Rule 6 (3) (A) read with Rule 6 (2) of Cenvat Credit Rules, 2004 during the period 2010-11 and 2013-14. The above resulted in the issuance of Show Cause Notice dated 19.10.2015 and after considering the reply / explanation filed by the Appellant, the Original Authority vide Order-in-Original No.01/2016 (ST-Adj.) dated 25.01.2016 confirmed the proposals made in the SCN i.e. confirmed the demand being 5% of the value of exempted services for the period 2010-12 and 6% of the value of exempted services from 2012-13 onwards as required to be made under Rule 6 (3) of the Cenvat Credit Rules, 2004 (CCR, for short), apart from imposing penalty under Section 78 of the Finance Act, 1994 read with Rule 15 (3) of CCR 2004 along with applicable interest under Section 75 of the Finance Act, 1994 read with Rule 14 of CCR. The Appellant appears to have filed an Appeal before the First Appellate Authority, who also vide impugned Order-in-Appeal No.289/2016 dated 22.12.2016 having upheld the demand, the present Appeal is filed before this forum.
3. Heard Ms. P. Varshini, ld. Advocate along with Shri Barathi Vel, ld. Advocate for the Appellant and Shri N. Satyanarayana, ld. Departmental Representative for the Revenue, perused the orders of Original Authority as well as First Appellate Authority and other documents placed along with the Appeal Memorandum. I have also gone through the decisions relied upon during the course of arguments. Upon hearing both sides, I find that the only issue to be decided is, ‘whether the demand of 5% / 6% on the job charges under Rule 6 (3) of CCR is justified ?’
4. It is the case of the Appellant that their principal manufacturer i.e., LMW & BHEL, who sent the goods under Rule 4 (5) (a) of CCR, have been paying Excise duty on their finished products; the activity undertook by the Appellant was not mere coiling of steel wires, but also a series of specialized processes carried out on such steel wires received from their principal manufacturers and the job work challans issued in terms of Rule 4 (5) (a) ibid. The Appellant’s activity of job work includes straightening, cutting, winding into spring form, bending, trimming, grinding, tempering and oil application; thereafter sent for hardening and only subsequently received back for further processes like gap opening, final tempering, shot peening, oil application and quality checks. These processes would thus cumulatively result in conversion of steel wire into identifiable spring components which are only thereafter returned to the principal manufacturer under delivery challan issued in terms of Notification No.214/86-CE dated 25.03.1986. It is thus contended that such job work clearances could never be treated as ‘exempted goods’ when duty is ultimately paid by the principal manufacturer. Ms. Varshini, ld. Advocate would, in this context, rely on an order of Bangalore Bench in the case of Sagittarius Metals Private Ltd. Vs CCE & ST Bangalore [2022 (3) TMI 1215 – CESTAT Bangalore = 2022 (65) G.S.T.L 230 (Tri.-Bang.)] in support, to buttress her contention that Rule 6 of CCR would have no application to job work activities or intermediate goods when the final products are dutiable and duty stood discharged by the principal manufacturer. She would also rely on Challenge Vs CGST & Central Excise, Chennai [2025 (6) TMI 121-CESTAT Chennai] and Tiara Advertising Vs Union of India, Ministry of Finance, Department of Revenue [2019 (10) TMI 27-Teleangana and AP High Court = 2019 (30) GSTL 474 (Telangana)] in support.
5. Per contra, Shri N. Satyanarayana, ld. Assistant Commissioner relied on the findings of the lower authorities.
6. I have carefully considered the rival contentions and upon carefully going through the decided cases relied upon by Ld. Advocate, I find that almost identical issue has been decided in those cases and hence, I am of the view that the issue raised in the present Appeal stands settled as on date. Therefore, I am tempted to follow the ratio laid down in the above decisions since Revenue is unable to distinguish the above case law either on facts or on law. It is apt to reproduce relevant portion of Tribunal’s order in Sagittarius Metals Private Ltd. supra which is as under :
“6. In the case of Escorts Ltd. v. CCE, Delhi [2004 (171) E.L.T. 145 (S.C.)] relied upon by the Learned Advocate, the Hon’ble Apex Court has held as under :-
8. It is to be seen that the whole purpose of the Notification and the Rules is to streamline the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rule 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been paid on the intermediate product as it is exempted from whole of the duty or is chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product.
and thus, there is no bar for a service provider of job-work to avail Cenvat credit, and the same is the settled position in law. Further, exemption under Notification No. 8/2005-S.T. is available only in respect of goods on which central excise duty is paid by the principal manufacturer, which when read harmoniously with Rule 3 of CCR, would make it clear that the job-worker could use the cenvatable input and input services. Scope of Rule 6 therefore is to be of limited applicability in such a scenario, as held by the Learned Larger Bench of CESTAT in the case of Sterlite Industries (I) Ltd. – 2005 (183) E.L.T. 353, which order was later-on approved by the Hon’ble Bombay High Court, in 2009 (244) E.L.T. A89. This very decision has been followed in a number of cases by various benches and hence, I find that this issue does not require any further deliberations.”
Following the same, I do not find any merit in the impugned order which requires to be set aside.
7. Resultantly, the impugned order is set aside and the Appeal is allowed with consequential benefits, if any, as per law.
(Order pronounced in open court on 24.04.2026)
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