CX - Quantification of credit to be reversed worked out on some % age basis with no cross examination of manufacturing process at job worker's end - demand unsustainable: CESTAT
By TIOL News Service
NEW DELHI, DEC 13, 2016: M/s BHEL procured raw materials viz. copper rods and bare wires and availed credit of excise duty on such raw materials. These were supplied to various job workers under the cover of central excise challan for conversion into intermediate products such as bare copper conductors, Mica taped conductors in terms of Rule 3 (1) of CCR read with Notification No.214/86-CE dated 25.3.1986.
It is the case of the department that certain quantity of inputs viz. continuous cast copper rods, on which cenvat credit has been availed by BHEL supplied to the job workers, (M/s BCPL Conductors) has not been fully accounted for and received back by BHEL and hence, there is a violation of provisions of CCR, 2004.
Proceedings initiated against the appellant resulted in the impugned order confirming a demand of cenvat credit amounting to Rs.1,05,31,710/- for the period 1.4.2003 to 15.02.2008. Penalty of equivalent amount was also imposed along with penalty of Rs.5 lakhs on BCPL. The copper rods seized in the premises of the job worker was also ordered to be confiscated with option to redeem the same on payment of fine.
The appellant BHEL submitted that, as per Standard Rate Contract with various job workers, the waste and scrap including off-cuts generated during the course of job work are to be retained by the job worker to be cleared by them on payment of appropriate duty after due accounting;that based on decades of experience, the appellants concluded that there will be an irretrievable loss of metal of about 2% by way of oxidation, scale formation, shaving, bright annealing, grinding, etc.; that the job workers retained the scrap/off-cuts and used it for further manufacture of useful final products, which are duly accounted for and cleared on payment of central excise duty;that there is no question of any misuse of the CCR provisions; that goods seized at the job worker's premises was not Virgin Continuous Cast Copper Rodsmoreso no test was conducted and the goods were not examined technically before arriving at the conclusion that these are inputs themselves.
The AR justified the demand by reiterating the findings contained in the impugned order.
After considering the submissions, the Bench observed -
+ We find that BHEL have categorically asserted that there will certainly be a process loss and also emergence of scrap in the form of off-cuts and other pieces. The generation of such specified intermediate products will result in certain end cuttings and also certain process loss. This much cannot be disputed.
+ It is also not disputed that there will be certain conversion loss as no process can be undertaken on 100% conversion basis. If the resultant product has to meet the standard specification of the principal manufacturer, off-cuts and the copper scrap, which is not useable for the intended purpose or further use by the principal manufacturer, are retained by the job workers and have been put to profitable use in further manufacture of various other items. These manufactured items have been cleared on payment of proper central excise duty at the job worker's end. This has also not been disputed. In such situation, we find that there is no justification for reversal of any credit availed on inputs by BHEL.
+ There is no allegation of diversion of inputs or unaccounted clearance of the same either at the BHEL side or at the end of the job work- manufacturer.
+ There is no violation of provisions of Rule 4(5)(a) of Cenvat Credit Rules, 2004 read with provisions of Notification No.214/86-CE. It is also apparent that the resultant off-cuts and scrap cannot be considered as "inputs as such" at the job worker's end .
+ Calculation for quantification of cenvat credit to be reversed by the principal manufacturer has been worked out on some percentage basis with no cross examination of manufacturing process at the job worker's end and the emergence of off-cuts and other waste products, which is not useable to the same intended purpose further by the job worker.
Finding no merit in the impugned order,the same was set aside and the appeals were allowed.
(See 2016-TIOL-3215-CESTAT-DEL)
