By TIOL News Service

MUMBAI, FEB 12, 2016: THE appellant received raw material from the principal supplier u/r 4(5)(a) of the CCR without payment of duty and on the said raw material manufacturing is carried out. During manufacturing they utilized propane gas on which they were availing CENVAT credit.

The issue involved is whether CENVAT credit on such inputs(propane gas) used by the jobworker for the manufacture of goods on jobwork basis under Notification No. 214/86-CE dated 25.03.1986 is admissible or otherwise.

The adjudicating authority confirmed the demand i.e. 10% of the value of the goods manufactured and cleared under Notification No. 214/86 on the ground that the goods so manufactured on jobwork basis is exempted from payment of excise duty and, therefore, Rule 6 of CCR applies. The amount involved is Rs.78.74 lakhs with equivalent penalty and interest.

Before the CESTAT the appellant submitted that as per the said exemption 214/86-CE the principal manufacturer undertakes to discharge the excise duty on their final product wherein the intermediate goods manufactured by the appellant are used. In such situation there is no exemption from payment of duty as the final product which is subsequently cleared by the principal supplier of the raw material are cleared on payment of duty. Reliance is placed on the following decisions in support of their contention that there cannot be any application of rule 6(3)(b) of CCR in the present situation viz. Hwashin Automotive India Pvt. Ltd. - 2007-TIOL-2011-CESTAT-MAD, Sterlite Industries (I) Ltd. - 2005-TIOL-305-CESTAT-MUM-LB, Happy Forging Ltd. - 2011-TIOL-34-HC-P&H CX.

The AR justified the stand taken by the adjudicating authority.

The CESTAT observed -

"6. We find that the demand was raised for an amount equivalent to 10% of the value of the goods which was manufactured by the appellant on jobwork basis and returned without payment of duty to the principal supplier of raw material in terms of Notification No. 214/86 principal supplier of raw material undertakes to discharge the excise duty either on the jobwork goods itself or on the final product in which jobwork intermediate goods is used. With this provisions it cannot be said that the goods manufactured on jobwork basis is exempted from payment of excise duty. Notification 214/86 only facilitates the principal supplier of raw material and jobworker to avoid payment of duty at intermediate stage i.e. at jobwork stage. However, the amount of duty required to be paid will remain same as if any duty is charged at the jobworker end the same shall be available as CENVAT credit to the principal supplier of raw material. It is only for the convenience of the procedure, Notification 214/86 was issued and not to exempt any excise duty. Since the goods manufactured on jobwork basis is exempted on the ground that the excise duty is charged on the full value of final product wherein the value of jobwork goods deemed to have been included, the jobwork goods cannot be said to exempted goods. Therefore, Rule 6(3)(b) which is applicable only on the clearance of exempted goods shall not apply in the case of the goods manufactured on jobwork basis under Notification 214/86…."

After extracting the relevant paragraphs from the case laws cited by the appellant, the Bench concluded that the issue involved has been decided in a number of cases and, therefore, the demand raised for an amount equivalent to 10% of the value of jobwork goods in terms of Rule 6(3)(b) is not sustainable.

The appeal was allowed with consequential relief.

In passing: This objection is a staple diet of the Audit teams and even though the LB decision in Sterlite was delivered more than a decade ago, none seem to accept it. Time for the Board to put such 'frivolous' litigation to rest and bring out an amendment in the CCR clearly revealing what it wants - litigation or ease of doing business!

(See 2016-TIOL-400-CESTAT-MUM)