By TIOL News Service

MUMBAI, DEC 29, 2016: THESE are two appeals filed in the year 2006.

The facts are that Babcock is engaged in the manufacture of boilers and parts thereof. In respect of three boilers they availed exemption Notification No. 3/2001-CE dated 01/03/2001 serial No. 254, which provides exemption for non-conventional energy devices/system (agricultural forestry, agro-industrial, industrial, municipal and urban waste conversion device producing energy).

For the purpose of manufacture of boilers, Babcock is getting the parts manufactured under Rule 4(5)(a) of CCR, 2002 from Thermax. Babcock was availing CENVAT credit on the inputs received partly in their factory and partly sent to Thermax for job-work and final clearance of exempted boiler.

They are paying an amount equal to 8% in terms of Rule 6 of CCR in those transactions where Thermax is not paying excise duty on the ground that the job-worker is not liable for duty in terms of Rule 4(5)(a) of the Rules, at the same time Babcock is clearing the boiler under exemption Notification No. 3/2001-CE.

The department issued show cause notice on Babcock as well as on Thermax.

In respect of Thermax, the duty demand was proposed on the parts manufactured by them on behalf of Babcock.

In respect of Babcock, the excise duty demand was raised on the boilers cleared under exemption Notification No. 3/2001-CE on the ground that Babcock is clearing boilers in CKD form and not the complete boiler and, therefore, the exemption Notification is not applicable. There was also proposal for disallowance of CENVAT credit in respect of inputs sent for job-work under Rule 4(5)(a) to Thermax .

The demands raised against both Babcock as well as Thermax were confirmed by the CCE, Pune and, therefore, the appellants are before the CESTAT.

The appellant submitted that -

+ Even if the boiler was cleared in unassembled form but constitutes a complete boiler, exemption under the Notification is admissible. [ Thermax Babcock & Wilcox Ltd 2005-TIOL-1661-CESTAT-MUM relied upon and Section 37B Order No. 4/92 dated 19/05/1992] [ Rachitech Engineers Pvt Ltd - 2015-TIOL-1169-CESTAT-DEL, Shree Venkateswara Engineering Corporation - 2016-TIOL-908-CESTAT-MAD, Metalfab Hightech (P) Ltd - 2016-TIOL-1472-CESTAT-MUM refers]

+ That the appellant have admittedly paid 8% of the amount under Rule 6 of the CCR, therefore, if at all duty liability is confirmed, the same shall be reduced to the extent of the amount paid under Rule 6.

+ As regards confirmation of demand of CENVAT credit against Babcock in respect of inputs sent to job-worker M/s. Thermax, it is submitted that since the appellant is paying 8% in terms of Rule 6 of CCR, CENVAT credit availed on inputs even though the same was used ultimately in the manufacture of exempted goods, the demand of CENVAT credit is not tenable.

+ In the matter of the appeal of Thermax, since they have operated on job-work basis u/r 4(5)(a) of CCR, therefore, Thermax is not required to pay any duty on the parts manufactured on job-work basis on behalf of Babcock.

The AR, while reiterating the findings of the impugned order emphasized that the goods as presented is parts and not boiler and, therefore, exemption which is available only to boilers cannot be extended to parts. [BPL Sanyo Utilities & Appliances - 2004-TIOL-125-CESTAT-BANG]; that the boiler is admittedly exempted, therefore, the CENVAT credit availed by Babcock is not admissible. As regards Thermax, the parts manufactured in terms of Rule 4(5)(a) is not exempted under Notification 214/86-CE for the reason that the principal manufacturer is not discharging excise duty on their final product i.e. boiler.

The Bench inter alia observed -

Eligibility to exemption notification 3/2001-CE

++ As regards the issue whether clearance of boiler in CKD form by Babcock is entitled for exemption under Notification No. 3/2001-CE dated 01/03/2001 (serial No. 250), it is an admitted fact that all the parts removed by the manufacturer, Babcock, consists of a complete boiler is carried out. The issue whether goods cleared in CKD/SKD condition is entitled for the exemption notification is covered by the various decisions. [ Thermax Babcock & Wilcox Ltd - 2015-TIOL-125-SC-CX and 2005-TIOL-1661-CESTAT-MUM, Rachitech Engineers Pvt Ltd 2015-TIOL-1169-CESTAT-DEL, Shree Venkateswara Engineering Corporation 2016-TIOL-908-CESTAT-MAD, Metalfab Hightech (P) Ltd 2016-TIOL-1472-CESTAT-MUM where it is held that the boiler even if cleared in CKD/SKD condition to the customer's site, the same is regarded as boiler and is eligible for exemption.]

++ It was further clarified by the Board in the Section 37B Order No. 4/92 dated 19/05/1992 that -

(a) Benefit of the notification No. 205/88-CE dated 25/5/88 (earlier Notification No. 120/81-CE dated 15/5/81) will be available to such goods, even when these are cleared in CKD, ISKD conditions, provided that evidence is produced that goods cleared, form part of a complete device, and the evidence is also produced for supply of such a device to the buyer.

(b) The said goods is designed for converting agricultural and municipal waste for producing energy though conventional fuel can be used.

The Bench, therefore, concluded that though the boilers manufactured are cleared in various parts by the appellant, Babcock will be eligible for exemption notification No. 3/2001-CE dated 01/03/2001 (serial No. 252) and, therefore, the demand on this issue is not sustainable.

Recovery of CENVAT in r/o inputs sent to job worker:

++ As regards the demand of CENVAT credit in respect of inputs supplied to job-worker Thermax under Rule 4(5)(a), we find that it is undisputed fact that the appellants are paying 8% on the clearance of boiler under Rule 6 of the CENVAT Credit Rules, 2002. Therefore, they are entitled for CENVAT Credit in respect of inputs used in the manufacture of exempted boiler. Therefore, the demand of CENVAT credit on the inputs sent for job-work by Babcock is not sustainable.

Whether job worker is liable to pay duty on parts manufactured:

++ Rule 4(5)(a) only provides for movement of the inputs on which CENVAT credit is availed for the purpose of job-work. Rule 4(5)(a) is not the authority to grant any exemption to the job-worker from payment of duty if it arises on the manufacture of goods by the manufacturer.

++ Generally, the duty liability on the part of the job-worker remains exempted under Notification No. 214/86-CE dated 25/03/1986. However, in the said notification, there is a condition that job-worked goods should be used in the manufacture of final products of the principal and the principal, on the final products so manufactured out of the job-worked intermediate goods, should pay duty on the final product.

++ In the present case, the principal cleared the final products i.e. boiler without payment of duty under exemption Notification No. 3/2001-CE dated 01/03/2001. Therefore, even if Notification No. 214/86-CE dated 25/03/1986 is not applicable, it is very clear that any manufacturer, whether on job-work basis or otherwise, manufactures any goods, being the manufacturer of such goods, is liable to pay duty.

++ Payment of duty can only be avoided only when there is an exemption notification on the said goods. In the appellant's case, the parts of boiler manufactured by the job-worker are undoubtedly dutiable goods. When the principal manufacturer is not discharging excise duty on the boiler, the job-worker Thermax is liable to pay duty on the parts manufactured by them and supplied to Babcock.

However, the Bench also observed that it does not agree with the coordinate bench decisions [in Mukesh Industries Ltd, M Tex & D K Processors (P) Ltd., Dhana Singh Synthetics Pvt. Ltd. 2015-TIOL-2271-CESTAT-AHM] and, therefore, refers the following question to the Larger Bench for resolution:

The appeal is disposed as above.

In passing: What is sauce for the goose is sauce for the gander!

(See 2016-TIOL-3351-CESTAT-MUM)