JOB WORK EXEMPTION NOT DENIABLE FOR GETTING JOB WORK DONE FROM SISTER UNIT

[Mr. M. GOVINDARAJAN]

Rule 2(n) of CENVAT Credit Rules, 2004 defines the term 'job work' as processing of working upon of raw material of semi-finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression 'job worker' shall be construed accordingly.

Rule 16A of Central Excise Rules, 2002 provides that any inputs received in a factory may be removed as such or other being partially processed to a job worker processing or testing, repairs,  re-conditioning or any other purpose subject to the fulfillment of condition specified in this behalf by the Commissioner of Central Excise having jurisdiction.

CENVAT credit Rules, 2004 allows the manufacturer of final products or provider of output service to avail the central excise duty paid for input used for manufacturing final products or providing output service against the payment of central excise duty or service tax to the credit of central government. Availing CENVAT credit is subject to the conditions specified in Rule 4 of CENVAT Credit Rules, 2004.

Rule 4(1) provides that the CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service. The proviso to this sub section provides that in respect of final products, namely, articles of jewellery falling under heading 7113 of the First Schedule to the Excise Tariff Act, the CENVAT credit of duty paid on inputs may be taken immediately on receipt of such inputs in the registered premises on his behalf, on job work basis, subject to the condition that the inputs are used in the manufacture of such final product by the job worker.

The main question to be discussed in this article is whether the sister unit is eligible to work as job worker. In 'Upadhyay Valves Manufacturers P. Limited V. Commissioner of Central Excise, Kolkatta- II' 2010 -TMI - 78067 - (CESTAT, KOLKATA) the Tribunal elaborately discussed the said question and gives a solution to the same. The facts of the case run as follows:

The appellants are having four units (Unit I, Unit II, Unit III and Unit IV). Units I, II, III fall under the jurisdiction of same range/division coming under Kolkatta - III Commissionerate while Unit IV comes under a different commissionerate. Unit II is having the facility for casting. Unit I, III and IV were receiving duty paid inputs like pig iron, iron scrap and took credit under Rules 57AB and later under CENVAT Credit Rules, 2002 and CENVAT Credit Rules, 2004. Unit II using the said inputs received from other units manufactured CI Valves, CI pipes and pipe fittings and cleared the final products without payment of duty to the unit which has supplied the inputs.

The Department issued show cause notice alleging that Unit II have wrongly availed the benefit of Notification No. 214/86-CE, dated 25.3.1986. It was alleged that the Unit II and the supplying units being part of the same legal entity the unit II cannot be treated as a job worker inasmuch as they were not getting job charges for the alleged job work undertaken by them. The appellant filed reply to the show cause notice. The Commissioner held that the appellants were not eligible for exemption under Notification No.214/86-CE, dated 25.3.1986 and that the final products cleared from unit II should to pay the duty. The Commissioner confirmed the demand of duty along with interest. He also imposed penalty of equal amount under Sec. 11AC read with 173Q(1)(a) of Central Excise Rules, 2001 and Central Excise Rules, 2002.

The appellant submitted the following before the Tribunal:

·  They have intimated the jurisdictional Central Excise Authorities about the removal of the inputs for the purpose of undertaking job work through their sister unit namely Unit II;

·  Rule 57AC (5)(a) of the Central Excise Rules, 1944 clearly envisaged removal of inputs on which credit has been taken for the purpose of processing or any other purpose to a job worker and bringing back the same to the units from which Cenvatable materials were removed;

·  The fact that the job worker was not a legal entity independent from the supplying units is of no consequences;

·  The benefit available when the same inputs were removed to a third party cannot be denied when the same is removed to another unit of the same manufacturer, being the same legal entity;

·  The provisions of Rule 4(5)(a) of CENVAT Credit Rules, 2004 also similarly permit such clearances and receiving back the goods without payment of duty from the job working Unit ;

·  There is no dispute that the inputs sent by Unit I, III and IV have been processed by unit II and final products have been received back in the respective units and the said final products discharged duty liability as per law;

·  Therefore there is no basis for demanding of duty holding that Unit II has wrongly availed exemption under Notification No. 214/86-CE.

The Department contended that the sister unit cannot be considered as a job workers as no payment of job work charges are involved.

The Tribunal found that the CENVAT Credit Rules permit manufacturer to take credit of duty paid on inputs/capital goods. The four units are different units of the same company and, therefore, they are same manufacturer as a legal entity. However for the purpose of excise law each of the unit is required to register separately and discharge their duty liability when the goods are removed from the respective units.  In fact captive consumption of goods manufactured in any unit used in the very same unit is also liable to duty unless specifically exempted. In other words, each of the unit is treated, for all practical purposes, as if an independent company for the purpose of levy, exemption, extending of CENVAT Credit etc., in accordance with law. The present dispute, the Tribunal held, requires to be issued in the above context. The payment of job charges cannot be the criteria for levy or exemption from excise duty. In cases of captive consumption, obviously, no payment is involved and still levy is attracted. On the same analogy the benefit of exemption available to a job worker (a different legal entity) cannot be denied when another unit of the manufacturer undertakes similar functions.