By TIOL News Service

MUMBAI, AUGUST 01, 2014: THE CCE, Pune-I has disallowed CENVAT credit amounting to Rs.2.76 Crores to the appellant and also imposed equivalent penalty and interest.

The reason for all this is that the appellant cleared moulds, dies, etc., on which CENVAT credit was taken, to vendors under Rule 4(5)(a) procedure & these vendors manufactured certain motor vehicle parts for the appellant. And it is the allegation made by the Revenue that rule 4(5)(a) procedure of CCR, 2004 can be followed only in the case of a job worker and not a vendor.

Before the CESTAT, the appellant submitted that the goods were cleared u/r 4(5)(b) and mentioning 4(5)(a) was a mistake; that from 27.02.2010 sub-rule 4(5)(b) was substituted and it allowed an assessee to send jigs, fixtures, moulds and dies to another manufacturer for the production of the final products so as to take care of problems arising in the automobile industry and, therefore, the availment of credit is proper in law. It is further submitted that the appellant has also been using the said moulds and dies in his own factory for the manufacture of excisable goods.

The Revenue representative reiterated the contents of the order and submitted that the term 'job worker' has been defined in rule 2(n) of the CCR, 2004 and which the 'vendor' failed to satisfy. Inasmuch as in the present case the appellant did not supply any raw materials but the vendor procured the raw materials himself and manufactured the goods and for such manufacture, the appellant had sent the moulds and dies. It is also submitted that in the absence of a specific provision in the CCR for removal of moulds and dies to vendors without reversal of credit, the impugned demand is sustainable and accordingly he pleads for upholding the impugned order.

The Bench,after noting that there is no dispute that the appellant had sent the moulds and dies to the vendor and brought back the same,observed –

++ As per the definition under Rule 2(n) it is clear that the vendor who procured the raw material himself is not a job-worker as defined in law and prior to 27/02/2010, there was no specific provision for sending the moulds and dies to another manufacturer. Therefore, the procedure of sending moulds and dies to a vendor who is not a 'job-worker' was not envisaged under the CENVAT Credit Rules.

++ However, the question remains whether the appellant should be denied benefit of CENVAT credit if he was also utilizing these moulds and dies in his factory for manufacture of excisable goods.

The CESTAT further observed that the aforesaid issue had not been examined by the adjudicating authority and if the appellant was also utilizing the same moulds and dies, which was also occasionally sent to the vendors, the appellant could not have been denied the benefit of CENVAT Credit.

Moreover, in the aforesaid situation, the only infraction that could be attributed is only procedural infraction which only merits imposition of penalty rather than denial of credit, as provided for in the law, the Bench added.

Resultantly, the matter was remanded to the adjudicating authority.

In passing:

+++ The sub-rule 4(5)(b) of CCR, 2004 in question read –

(b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to a job worker for the production of goods on his behalf and according to his specifications.

+++ After amendment by notification 6/2010-CE(NT) dated 27.02.2010 -

(b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to,-

(i) another manufacturer for the production of goods; or

(ii) a job worker for the production of goods on his behalf, according to his specifications.

+++ D.O.F.No.334/ 1/2010-TRU dated 26.02.2010

10.2 Other measures

10.2.1 Some of the other procedural simplification measures that are contained in the budget proposals are as under:

* Movement of moulds, dies, jigs and fixtures by the main manufacturer to vendors (other than job-workers) without loss of Cenvat credit has been facilitated by suitably amending the Cenvat Credit Rules.

(See 2014-TIOL-1393-CESTAT-MUM)