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The Commissioner of Central Excise Versus M/s. Kyungshin Industrial Motherson Ltd.

2015 (11) TMI 899 - MADRAS HIGH COURT

CENVAT Credit - Job Work - Whether the CESTAT is correct in law to hold that finished goods cleared without payment of duty under job work procedure to the principal manufacturer would not come within the scope of expression 'exempted final products' used under Rule 57-R (1) and Rule 57-C of the Central Excise Rules, 1944 or under Rule 6 (4) of the CENVAT Credit Rules, 2002 - Held that:- Manufacture of wiring harness is done at Unit-I. The inputs are sent by Unit-I to Unit-II, viz., the principa .....

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orker from its unit to the principal, without payment of duty, would not come within the scope of expression "exempted final product" used in Rule 57-R (1) equivalent to Rule 6 (4) of the Cenvat Credit Rules, 2004. The Tribunal has rightly held that availment of Modvat Credit on capital goods to be job work is in order. For the reasons aforesaid, the substantial question of law is answered in favour of the assessee and against the Revenue. - Decided in favour of Assessee. - C.M.A. NO. 579 OF 200 .....

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:- "Whether the CESTAT is correct in law to hold that finished goods cleared without payment of duty under job work procedure to the principal manufacturer would not come within the scope of expression 'exempted final products' used under Rule 57-R (1) and Rule 57-C of the Central Excise Rules, 1944 or under Rule 6 (4) of the CENVAT Credit Rules, 2002?" 2. The facts, in a nutshell, are as hereunder :- The respondent/assessee has two units, viz., Units-I and Unit-II. They manuf .....

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it of ₹ 18,19,930/= (Rupees Eighteen Lakhs Nineteen Thousand Nine Hundred and Thirty only) wongly taken on such capital goods in terms of Rule 57-I of the CE Rules, 1944 and Rule 12 of the Cenvat Credit Rules 2001/2002 r/w proviso to Section 11A of the Central Excise Act, 1944, as the case may be applicable during the relevant period, should not be demanded from them; (ii) Duty of ₹ 4,10,147/= (Rupees Four Lakhs Ten Thousand One Hundred and Forty Seven only) due on rubber grommets cl .....

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02 r/w Section 11AB of the CE Act, 1944, as the case may be applicable during the relevant period should not be collected from them." 3. After adjudication, Order-in-Original dated 25.10.05 came to be passed against the assessee reversing the cenvat credit and also demanding interest and penalty. Aggrieved against the said order, the assessee pursued the matter in appeal before the appellate authority, viz., the Commissioner (Appeals). 4. In the appeal filed by the assessee, the Commissione .....

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to be allowed placing reliance primarily on the decision of the Larger Bench of the Tribunal in Sterlite Industries (I) Ltd. (2005 183 ELT 353 (Tri. - LB), which was followed by other Tribunals in Bharat Fritz Werner Ltd. - Vs - CCE, Bangalore (2005 (191) ELT 1099) (Tri. - Bang.) and (CCE, Chennai - Vs - Ucal Machine Tools Ltd. (2006 (74) RLT 511 (CESTAT - Che.). The Tribunal, on consideration of the appeal, held as under :- "4. As rightly pointed out by ld. counsel, the appellant's ch .....

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ked goods as "exempted goods" for purposes of Rule 57C, which provision mandated that no credit of duty paid on input shall be allowed where the final product manufactured out of such input was wholly exempted from the payment of duty of excise leviable thereon or was chargeable to 'nil' rate of duty. It was observed that, in the special procedure laid down under rule 57F (3), duty did not get paid to the job worker's end at the time of clearance of goods, but ultimately go .....

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decision operates in favour of the respondents." 5. In the instant case, it is not in dispute that the capital goods in question were used for the manufacture of 'wiring harness', which were removed without payment of duty, under job work procedure, to the principal manufacturer. Finished goods so removed by job worker without payment of duty would not come within the scope of the expression "exempted final products" used under Rule 57R (1) ibid or under equivalent provis .....

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ich were taken into consideration by the Tribunal, the same related to inputs in one or other form, but in the present case it relates to credit involved on capital goods exclusively used by the manufacturer for the manufacture of exempted goods. It is further submitted that the rule as was existing then, viz., Rule 57R (1) and also Rule 6 (4) of the Cenvat Credit Rules, 2002, have not been considered by the Tribunal in its proper perspective, as the said rules categorically debars the person fr .....

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hat the Tribunal failed to note that though Unit-I and Unit-II belong to the respondent/assessee, they are treated as two separate entities for the purpose of Central Excise Law and the facility of exemption has to be seen with reference to the activity carried on by each unit. For the reasons aforesaid, it is submitted that the order of the Tribunal is liable to be interfered with. 7. Per contra, learned counsel appearing for the respondent/assessee submitted that the Tribunal, after careful co .....

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ecision of Kirloskar's case (supra) has no applicability and the Tribunal, taking the entire gamut of facts, has arrived at the just decision and, therefore, no interference is called for with the said finding of the Tribunal. 8. Heard the learned counsel appearing on either side and perused the materials available on record as also the judgments relied on by the counsel for the respective parties. 9. We find that in the present case, the manufacture of wiring harness is done at Unit-I. The .....

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that even if duty is paid by Unit-I, it is immaterial, since no duty was paid while clearing the goods from Unit-II to Unit-I and, therefore, the credit taken is not in order, which was affirmed by the Commissioner (Appeals). 11. However, on a careful perusal of the decisions relied on by the parties, it is evident that the above view of the Department does not appear to be correct. 12. In the case of Escorts Ltd. - Vs - commissioner of Central Excise, Delhi (2003 (160) ELT 623 (Tri. - Del.)), t .....

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redit would be admissible. Such a view, on appeal, was reversed by the Supreme Court in Escorts Ltd. - Vs - Commissioner of Central Excise, Delhi, (2004 (171) ELT 145 (SC), wherein the Supreme Court held as hereunder :- "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, .....

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arts would not be the final product. Thus 57C would have no application. The mere fact that the parts are cleared from one factory of the appellants to another factory of the appellants would not disentitle the appellant from claiming benefit of Notification No.217/86-C.E., dated 2nd April, 1986. As stated above, the Notification itself clarifies that the inputs can be used within the factory of production or in any other factory of the same manufacturer." 13. The above principle, laid down .....

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the principal manufacturer after debiting the Modvat credit taken by him. The job worker takes the credit of the same his factory, utilises other inputs procured directly by him after taking the Modvat credit on the same and clear the processed goods to the principal manufacturer on payment of duty and the principal manufacturer takes the credit of the same in his factory and utilises such credit for payment of duty on his final products at the time of clearance. In such a situation, there can .....

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enefit intended to be extended to the assessee should be avoided. If the interpretation adopted by the revenue is upheld, the benefit otherwise intended to be given will get frustrated apart from leading to discriminatory situation, where the manufacturer has himself processed the inputs and in the other case where he is sending it to the job worker. 3. We are also in agreement with the appellant's contention that Rule 57C debars taking of credit in respect of the inputs used in the manufact .....

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o nil rate of duty or exempted from whole of duty was considered by the Tribunal in the case of Orissa Synthetics Ltd. - Vs - Collector of Central Excise (1995 (77) ELT 350 (Tri.)) and after taking note of the Ministries clarifications issued vide Circular No.10/75/CX.6 , it was held that clearance under goods under provision of 191BB for export without payment of duty would not get covered by the above expression. Reference was made to the advice received from the Ministry of Law dealt in the p .....

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