Central Excise - CENVAT Credit - Job-worker entitled to take credit on capital goods used in manufacture of exempted intermediary products: High Court
By TIOL News Service
ALLAHABAD, SEPT 30, 2014: M/S Samsung Electronics India Information and Telecommunication Ltd. (SEIITL) was a public limited company and was engaged in the manufacture of colour monitors and CTV chassis on job work. On 28.12.2002 a team of Central Excise Officers visited the premises of SEIITL and conducted a check and found that SEIITL was manufacturing CTV chassis for Samsung Electronics India Ltd. (SEIL) on job work basis. For this purpose SEIITL had obtained 10 numbers of Auto Insertion Machines from SEIL . SEIITL had taken credit of the duty on these machines. The statement of Manager Production of SEIITL was also recorded, who deposed that all the 10 numbers of Auto Insertion Machine received from SEIL were being used exclusively for the manufacture of CTV chassis for SEIL . On this basis, the checking team consequently found that SEIITL had taken Cenvat Credit amounting to Rs. 74,40,730.00 in respect of Auto Insertion Machine which was used exclusively for job work for the manufacture of CTV chassis. According to the department, since Cenvat Credit had wrongly been utilised by SEIITL and there was suppression of facts and declaration with regard to duty, a notice dated 26.03.2004 was issued to SEIL for contravention of Cenvat Credit Rules.
Commissioner Central Excise, Noida passed an order in original dated 28.12.2004 disallowing the Cenvat Credit amounting to Rs. 74,40,730.00 and also imposed penalty. Being aggrieved, SEIL preferred an appeal before the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, who by an order dated 21.02.2006 allowed the appeal holding that the SEIL was eligible for availment of Cenvat Credit.
Aggrieved Department is before the High Court with the following questions of Law:
1. Whether the CENVAT credit of capital goods taken by the respondents, which are exclusively used in the manufacture of exempted goods, is admissible?
2. Whether the penalties should not be imposed on SEIL as well as on Shri Puspak Verma , Manager (Accounts) and Shri Rahul Sood , Manager (Production) for contravening the provisions of Rule 57E (3), (4) and (5) of the Central Excise Rules, 1944 and Rule 7(1) of Cenvat Credit Rules, 2002?
The High Court noted:
Certain doubts were created as to whether Cenvat credit could be made available on capital goods, which were used in the manufacture of intermediary products. The Central Board of Excise & Customs issued a circular no. 665/56/2002-CX, dated 25.9.2002, which indicated that Cenvat credit cannot be denied on capital goods used in the manufacture of exempt intermediate products exempt from payment of duty, which are used captively in the manufacture of finished goods chargeable to duty.
The High Court observed,
We find that SEIITL only manufactured the chassis, which is only a part of a TV. It is not a finished product and is only an intermediary product. We also find that SEIITL supplied intermediary product to SEIL , which manufactured the TV and paid duty on it. Consequently, it was entitled to avail Cenvat Credit in order to prevent the cascading effect, if duty was levied. We are of the opinion that SEIITL , which was the job worker was entitled to duty paid on inputs and used in the manufacture of intermediary product .
Questions of Law are answered in favour of the assessee and against the department.
Department's Appeal Dismissed
(See 2014-TIOL-1708-HC-ALL-CX)
