2010 (1) TMI 421 - AT - Central Excise

Cenvat- Job work- the Appellant was engaged in the manufacture of Dyes and Dyes Intermediates falling under Chapter 32 of the Schedule to CETA 1985 and are having a Central Excise registration. They are also availing the facility of CENVAT credit of duty paid on inputs used in the manufacture of their final products. They are also importing raw materials required in the manufacture of their final products.

Issues Involved:
1. Utilization of CENVAT credit on inputs cleared as such.
2. Alleged violation of Export-Import Policy and Customs notifications.
3. Recovery of penalty and adjustment from rebate claims.
4. Applicability of Rule 4(5) of CENVAT Credit Rules, 2004.
5. Dual benefit contention by the department.
6. Relevance of Supreme Court and Tribunal decisions to the case.

Detailed Analysis:

1. Utilization of CENVAT Credit on Inputs Cleared as Such:
The Appellant was engaged in the manufacture of dyes and dyes intermediates, availing CENVAT credit on duty paid inputs. The issue arose when the Appellant cleared imported raw materials like Beta Napthol under job work challans without further processing. The investigation revealed that these materials were not returned after job work but were received as finished goods under invoices with applicable duties paid. This led to the contention that the Appellant utilized CENVAT credit not available to them once the inputs were cleared as such.

2. Alleged Violation of Export-Import Policy and Customs Notifications:
The investigation suggested that the Appellant violated conditions under the Export-Import Policy and relevant Customs notifications by clearing imported materials without processing, thus breaching the terms of the advance authorization scheme and target plus scheme that granted Customs duty exemptions.

3. Recovery of Penalty and Adjustment from Rebate Claims:
A Show Cause Notice was issued, and after adjudication, the impugned order demanded CENVAT Credit of Rs. 21,78,003/- with interest and imposed a penalty equal to the duty demanded. The Appellant's appeal and stay petition were delayed due to tribunal scheduling issues. Despite notifying the Assistant Commissioner, the penalty amount was adjusted from the rebate claim. The Tribunal decided to hear the matter immediately due to these special circumstances.

4. Applicability of Rule 4(5) of CENVAT Credit Rules, 2004:
The Appellant argued that Rule 4(5) of CENVAT Credit Rules, 2004, which requires reversal of credit if goods are not received back within 180 days, was followed. They contended that the job worker paid duty on the final product, and the credit taken was legitimate. The Tribunal noted that the rule does not require prior permission for clearing goods and found no evidence that Beta Napthol was not returned after processing.

5. Dual Benefit Contention by the Department:
The department argued that the Appellant derived dual benefits by not reversing the credit and taking credit again on the duty paid by the job worker. The Tribunal found no dual benefit, stating that the credit taken was of the actual duty paid, and the job worker's choice to pay duty was to avoid complications. The Tribunal emphasized that the rules do not bar job workers from paying duty and that the Appellant's actions were within the legal framework.

6. Relevance of Supreme Court and Tribunal Decisions to the Case:
The Appellant cited the Supreme Court decision in M/s International Auto Ltd. v. CCE, Bihar, and the Tribunal decision in CCE Aurangabad v. M/s Somaiya Organo Chem, arguing that these decisions support their case. The Tribunal agreed, noting that the facts were similar and the Appellant's case was covered by these precedents. The Supreme Court had clarified that the manufacturer of the final product is entitled to MODVAT credit adjustments, and the intermediate product manufacturer is not liable for the duty on inputs supplied by the final product manufacturer.

Conclusion:
The Tribunal allowed the appeal, citing the Supreme Court's decision and finding no dual benefit or procedural violations by the Appellant. The Tribunal directed the department to refund the penalty amount adjusted from the rebate claim and disposed of the stay petition.

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