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By S Jaikumar & G Natarajan, Swamy Associates

UNFORTUNATELY, the very first Central Excise Non-Tariff Notification of the year 2004, has given rise to so many questions and leaves one puzzled as to what was the purpose behind the issue of this Notification. Let us examine further.

As per Rule 4 (5) (a) of the Cenvat Credit Rules (erstwhile Rule 57 F (4) of the Central Excise Rules, 1944) credit availed inputs can be removed, either as such or after being partially processed, to the premises of job workers for further processing, testing, repair, re-conditioning or any other purpose.

Rule 16 A already provides that any inputs can be removed as such, or after being partially processed, to a job worker, for further processing, testing, repair, re-conditioning or any other process, subject to the conditions prescribed by the Commissioner in this regard. The reference here is to inputs, whether credit availed or not. (When no credit is availed on the inputs, what is the necessity for controlling their removal?)

The following interferences could be drawn from the above rules.

a) Finished goods cannot be removed under these Rules for the stated purposes.
b) The removal must be only for the specified purposes.
c) No permission from the department is required.
d) After the said processes, the final products can be cleared directly from the premises of the job worker, after obtaining the permission from the Commissioner of Central Excise.

More than the above, Notification 214/86 provides for exemption for the goods manufactured on job work basis.

Let us now see, what the new rules have provided for.

By virtue of Rule 16 B, the following provisions have been incorporated.

a) Excisable goods in the nature of semi-finished goods can be removed for carrying out certain manufacturing process.

b) Permission from the Commissioner of Central Excise is required.

c) The goods can either be brought back to the parent factory or be directly cleared from the place, to which the goods have been removed.

By virtue of Rule 16 C, the following provisions have been incorporated.

a) Excisable goods manufactured in a factory can be removed for carrying out tests.
b) Permission of the Commissioner is required.
c) After such testing, the goods can either be brought back to the parent factory or be directly cleared from the place, to which the goods have been removed.

By issue of the present Notification, the following issues are going to crop up.

a) If a manufacturer clears his partially processed inputs (which have attained the character of excisable goods), under Rule 4 (5) (a) (credit availed ones) or Under Rule 16 A (credit not availed), the department may allege that what is being cleared is “excisable goods” and not “inputs partially processed” and permission should have been obtained from the Commissioner, under Rule 16 B or 16 C.

b) Then what is the difference between “inputs partially processed” and “excisable goods in the nature of semi-finished goods”. This question assumes more importance, when removal of the former doesn’t require any permission where the latter requires prior permission.

c) Can a final product (excisable goods), which is an input for further manufacture of another article, can be cleared by a manufacturer to his another unit, without payment of duty, under the provisions of the new rule 16B, claiming that they are only semi-finished goods, viewed from the ultimate final product to be manufactured by the another unit? (For example, in the automobile sector, inter-unit transfers of manufactured goods are quite common). If so, the relevance of Rule 8 of the Valuation Rules itself would become redundant and the cumbersome activity of calculation of cost of production for the purpose of payment of duty, can be avoided. Paying duty at one unit and availment of credit at the another unit, which is a revenue neutral activity, can be avoided. Lots of objections as to calculation of cost of production, which is nothing but an exercise in futility (as whatever is paid here would be availed as credit by the sister unit) would see their coffin.

d) When the final products are cleared directly from such other place, under Rule 16 B / 16 C, who has to discharge the duty liability? Whether the parent manufacturer or the “such other registered premises”?

e) When there are so many provisions for dealing with job work, what is the need for having another lengthy rule viz., 12 B?

f) When a same situation can be dealt with under different Rules, and when the different rules provide for different procedures, will it not lead to claims and counter-claims?

Let us humbly suggest the following :

At present, provisions as to job work are spilled over in several places, viz., Notifications 83/94, 84/94, 214/86, Rule 4 (5) (a) of Cenvat Credit Rules, Rule 12 B, Rule 16 A, Rule 16 B, and Rule 16 C of Central Excise Rules and in the celebrated judgement of the apex court in the case of Ujjgar Prints. Though the judgement of the apex court in the Ujjagar print case, 2002-Taxindiaonline-02-SC-CX, is still honoured, it is yet to get legislative recognition, in the form a Rule. Moreover, all the provisions relating to the subject have to be codified at a single place, in the form of “Central Excise (Job Work) Rules, 2004”. Such codification shall provide for the following.

a) Inputs (credit availed or not availed) and semi-finished goods, can be cleared out of the factory, without payment of duty/reversal of credit, for carrying out further manufacturing activity, repair, test, re-conditioning or any other purpose.

b) If the removal is of credit availed inputs, such inputs have to come back within 180 days of removal.

c) Credit availed capital goods can also be removed without reversal of credit, for the purposes of repair, test, re-conditioning, etc. of such capital goods and received back within 180 days.

d) Credit availed capital goods can also be removed to the premises of job workers for being used in the manufacturing activity continuously, without any time limit for bringing them back.

e) Provision for dealing with the scrap arising in the premises of job workers, similar to the one available in the erstwhile Rules may be brought back.

f) Excisable goods even in the nature of final products can also be cleared without payment of duty, to other units of the same manufacturer for further manufacture and subsequent clearance of goods on payment of duty.

g) After the processing, the finished goods arising out of the factory can either be returned to the parent manufacturer or be cleared directly from such other place.

h) If the “such other place” is a registered premises / other unit of the parent manufacturer, the duty thereon can be paid either by the parent manufacturer or by such other person. Will the new rules help the manufacturers to send the tools/capital goods, either manufactured by them or purchased by them, to the premises of job workers, for being continuously used in the activity of job work? This is a nagging problem. Rule 4 (5) (a) of the Cenvat Credit Rules, imposes a restriction as to bringing back such goods within 180 days, which is not practically possible.

i) It is a common practice for the manufacturers to manufacture the tools required for their manufacturing activity also and such tools would either be used in the factory itself, or at the job workers premises. So long as such tools are used in the factory, the benefit of exemption contained in Notification 67/95 would be available. But when such tools are removed to job workers place, the said exemption is being denied. As such, the term of “factory of production” appearing in Notification 67/95 shall also include the premises of the job workers.