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2015 (11) TMI 899 - MADRAS HIGH COURT

2015 (11) TMI 899 - MADRAS HIGH COURT - 2016 (332) E.L.T. 69 (Mad.) - 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 a .....

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incipal manufacturer and that semi-finished goods removed by the job worker 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 .....

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l, framed the following substantial questions of law for consideration :- "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 re .....

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clarity, the show cause notice reads as under :- "(i) Cenvat credit 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 Te .....

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r Rule 57-I of the CE Rules, 1944, or Rule 12 of the CE Rules, 2001/2002 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 Commissio .....

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te of duty. 5. The further appeal by the assessee to the Tribunal came 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 :- .....

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he submissions, I find that the Larger Bench did not recognize job-worked 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 .....

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ods" for purposes of Rule 57C or Rule 57R. Thus, the Larger Bench 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 .....

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ppellant/Revenue contended that in the cases cited by the assessee, which 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 pr .....

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is chargeable to 'Nil' rate of duty. It is further submitted that 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 .....

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he respondent/assessee is semi-finished products and, therefore, the decision 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 p .....

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ailed by the respondent/assessee. The original authority came to hold 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 - commi .....

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time of clearance. It held that Rule 57- C will apply and no Modvat credit 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 th .....

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h are manufactured for being used in the tractor. In such a case the parts 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 fact .....

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or a second, let us take a situation where the basic inputs is sent by 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 fi .....

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39;s the mechanical application of Rule 57C which destroys the basic benefit 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 .....

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nal product is chargeable to nil rate of duty. Expression chargeable to 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 w .....

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