Whether job worker is allowed to avail cenvat credit on inputs used in processing the goods returned to the principal without payment of duty under notification no. 214/86 CE dated 25/3/1986

Notification no. 214/86 CE dated 25/3/1986 allows a job worker to remove the goods after processing (manufacturing) to the principal where the principal removed finished goods on payment of duty for home consumption from his factory or for export without payment of duty.

In the present case:

During the visit to the respondent's factory on 12.3.05, the Central Excise officers found that the respondent availed cenvat credit on inputs purchased by themselves like Methanol, Spent Sulphuric Acid, HDPE bags used in the manufacture of H.Acid for principal manufacturer, in addition to the raw materials supplied by various parties for manufacture of H.Acid.

As per the provisions of Cenvat Credit Rules, 2004, no Cenvat credit can be allowed on quantity of input or input services used in the manufacture of exempted final product or chargeable to Nil rate of duty. Offence case was registered against the respondent on the ground that they had wrongly availed cenvat credit on their own input used in the exempted product i.e. H.Acid manufactured on job work and cleared without payment of duty under Notification No.214/86-CE.

A show cause notice was issued demanding cenvat credit of Rs.7,27,248/- wrongly availed in contravention to Rule 6 of Cenvat credit rules during the period April'04 to June'05 on the input used in the manufacture of finished goods which were cleared under Notification No.214/86.

Decision of the Tribunal

Admittedly, the respondent in this case did not maintain separate accounts for the exempted goods as well as finished goods. In fact, from the brief of facts of the case as narrated in the OIO it has been brought out that the assessee had worked out the details and calculated the total duty payable on the input used in the manufacture of finished goods manufactured on job work basis.

The fact that the amount has to be calculated shows that separate accounts were not maintained. Once separate accounts are not maintained, Rule 6(2) is attracted and therefore, the exempted goods have to be cleared on payment of amount specified under Rule 6(3)(b) of Cenvat Credit Rules if the exempted goods are other than those described in Rule 6(3)(a).

In fact, Rule 6(1) specifically provides that cenvat credit is not allowed except in circumstances mentioned in sub-rule (2) which is maintaining of separate accounts. On this ground also, the demand for cenvat credit fails.

Goods manufactured on job work basis cannot be considered as exempted goods since the principal manufacturer has to pay the duty on the same.

Demand can not be made.

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COMMISSIONER OF C. EX., VADODARA-I Versus J.H. KHARAWALA (P) LTD. 2009 -TMI - 32782 - CESTAT, AHMEDABAD