By TIOL News Service

MUMBAI, JULY 04, 2014: THE appellants are manufacturers of Hydraulic Pumps, Cylinders, Valves and Power units. They procured critical components such as, hydraulic pumps, heat exchanger, filters and filter elements, electric motor, etc. and undertook partial processing and then these components, either as such or after being processed were sent to various job workers for fabrication of structure and assembly as per the drawings and designs provided by the appellants. The job workers also sometimes procured components as such pipes, fittings, etc. After the fabrication work was completed, the goods were inspected and tested by the appellants and thereafter, despatched from the job worker's premises to the various buyers of the goods on payment of appropriate excise duty.

The movements of inputs or partially processed goods by the appellant to the job workers was undertaken under Rule 4(5)(a) of the CCR, 2004. The appellant was also granted permission under Rule 4(6) of the said Rules for clearance of the finished goods from the job workers' premises to the customers on payment of duty by the appellant. There is no dispute about the valuation of the goods or that the appellant had not discharged the correct duty liability on the finished products, namely, hydraulic power pack.

Revenue alleges there is no job work activity being undertaken by the job workers as defined in rule 2(n) of the CCR, 2004 and, furthermore, the credit taken by the appellants on the various inputs procured by the job worker's for completion of the job work activity is not admissible as the inputs were not received in the appellant's premises.

Based on these allegations a demand notice was issued and the CCE, Pune was more than happy to confirm this demand of Rs.5.08 crores with all the paraphernalia that is associated with such adjudication.

The appellant is before the CESTAT and primarily relies on the apex Court decision International Auto Ltd. - 2005-TIOL-81-SC-CX-LB to justify their entitlement to CENVAT credit.

The Revenue representative submitted that there are procedural infractions on the part of the appellant in the present case. Inasmuch as the CCR envisages that for taking of credit, inputs/input service should be received by the manufacturer whereas in the present case, part of the inputs have been received by the vendor/job worker and, therefore, there is violation of the CENVAT Credit scheme. It is also submitted that the activity of fabrication/fitment of various components of the hydraulic power pack does not amount to job-work but amounts to "manufacture" itself and, therefore, the provisions of Rule 4(5)(a) has been violated. And, therefore, the confirmation of duty demand by denying the CENVAT Credit is sustainable in law and the appellant should be put to terms.

The Bench inter alia observed -

++ CENVAT Credit envisages that duty/tax paid on the input/input services will be available for discharge of duty liability on the finished products. It is not in dispute that the inputs were used in the fabrication / assembly of the finished products. Similarly, it is also not in dispute that finished products did emerge at the job workers' premises. In these circumstances, the conclusion drawn by the adjudicating authority that there is no job work involved in the present case is a contradiction in terms.

++ A job work might amount to "manufacture" or might not amount to "manufacture". In many instances the job work results in production of a new commodity. For example, in the case of textile fabrics, a job-worker undertaking the process of bleaching or dyeing of fabrics, new products namely, dyed/bleached fabrics come into existence. Thus, the activities amount "manufacture". Similarly, in the case of a bus body built on a chassis, the activity amounts to "manufacture". Therefore, it cannot be said that since the activities undertaken result in a new commodity, there is no job work involved.

++ In view of the above, we do not find any merit in the Revenue's contention that merely because finished products emerged as a result of the activity undertaken by the appellant, the same is not job work.

++ As regards the second contention that the appellant took credit on the components purchased by the job workers without receiving the goods in their premises, the erstwhile Central Excise Rules provided for such a situation.

++ In the CENVAT Credit Rules, 2004, these specific provisions which allowed the appellant to take credit in respect of materials directly received by the job worker are not explicit. However, the same is certainly implied in Rule 4(5)(a). If materials could be cleared from the job workers premises under Rule 4(6), it implies that a job worker could procure part of the raw materials which are required for completion of the manufacturing process.

++ So long as inputs/raw materials are used into the manufacture of the finished products and the cost of these inputs/raw materials is included in the cost of finished products on which the excise duty liability is discharged, the question of denial of CENVAT Credit on such inputs merely on the ground that the said inputs were not received in the appellant's factory would not stand to any reason or logic. It is for the Commissioner to prescribe the procedure in such cases to ensure that the inputs received at the job worker's premises are used in or in relation to the manufacture of the final products. In the absence of any prescribed procedure, the allegation of contravention of procedure would not arise at all.

Holding that the appellant has made out a strong prima facie case the Bench granted unconditional waiver from pre-deposit of the adjudged dues and ordered stay in the matter.

In passing: Hope this is the end of the road for the 5.08 cr. SCN.

(See 2014-TIOL-1202-CESTAT-MUM)