Office of the Commissioner of Central Excise, Ahmedabad-I

F.No. V.32/15-23/Tapsheel/OA-I/10-11

BRIEF FACTS OF THE CASE: M/s. Tapasheel Enterprise, Plot No. 430, Phase-II, GIDC, Vatva, Ahmedabad 382445 (hereinafter referred as ‘the assessee’) is having Central Excise Registration No.AABFT5633PXM001. They were engaged in the manufacture of excisable goods & also doing job work of excisable goods falling under various Chapters of the first Schedule to the Central Excise Tariff Act, 1985.

2. The assessee received inputs from the Principal manufacturer M/s. Meghmani Dyes and Intermediates Ltd., Phase-II, GIDC Vatva, Ahmedabad (100%EOU) for further processing on sub-contracting basis and after processing, they cleared the goods from their factory to the Principal manufacturer by following the provisions of job work, as envisaged in Notification No. 214/86-CE of 25.3.1986. They were not paid any duty on these job-worked goods cleared by them to the Principal manufacturer.

2.1 On perusal of their ER 1 return for the months from January,2010 to March,2010, it has been noticed that the assessee had availed Cenvat credit on imported as well as local inputs and also on input services. The assessee had taken net Cenvat credit of total Rs.43,45,677/- during January,2010 to March,2010.

2.2 It has been observed that the assessee was receiving inputs from the Principal manufacturer for job work. After processing the goods, they cleared the processed goods from their factory back to the Principal manufacturer by following the provisions of job work, as envisaged in Notification No. 214/86-CE of 25.3.1986. They were not paid any duty on the goods cleared by them to their Principal manufacturer.

The wordings of the Notification No. 214/86-CE of 25.3.1986 starts as under:- In exercise of powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), read with …………………., being satisfied that it is necessary in the public interest so to do hereby exempts goods specified in …………………………….manufactured in a factory as a job work …

The portion “sub-section (1) of Section 5A of the central Excise Act, 1944” has been substituted by Notification No. 20/2003-CE of 25.3.2003. It implies that the Notification No. 214/86-CE has been placed under the ambit of Section 5A(1) of 4 F.No. V.32/15-23/Tapsheel/OA-I/10-11 the Central Excise Act, 1944 (‘Act’) and the said notification is issued in terms of the powers conferred under sub-section (1) of Section 5A of the Central Excise Act, 1944. Section 5A of the Act, deals with exemption from payment of excise duty. Accordingly, all clearances made under the above notification read with the said Act have to be considered as “EXEMPTED CLEARANCES”.

3. Rule 6(1) of the Cenvat Credit Rules, 2004 reads as under:

“The Cenvat credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2).”

4. From the above, it appeared that as per Rule 6(1) of Cenvat Credit Rules, 2004, no Cenvat credit shall be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2). Further, it also appears that clearances under Job work have to be considered as exempted clearances, as the Notification No. 214/86-CE of 25.3.1986 has been issued under the powers conferred under Section 5A(1) of the Central Excise Act, 1944. It, therefore, appears that the assessee have manufactured exempted goods and wrongly availed Cenvat credit on inputs and input services.

5. As per Rule 6(1) of Cenvat Credit Rules, 2004, the assessee was not entitled to the Cenvat credit. Thus, it appeared that the assessee had wrongly availed the Cenvat credit on input, input services as referred above. It further appeared that they had contravened the provisions of Rule 6(1) of the Cenvat Credit Rules, 2004 as they had used the inputs and input services exclusively in the manufacture of exempted goods and failed to follow the provisions of the Cenvat Credit Rules, 2004.

6. It appeared that the availment of Cenvat credit on inputs and input services is in contravention of Rule 6(1) of the Cenvat Credit Rules,2004. It is a case of wrong availment of Cenvat credit which they were not entitled to, and therefore, the Cenvat credit wrongly availed by the assessee, as narrated above, required to be recovered from them under the provisions of Rule 14 of the Cenvat Credit Rules,2004 read with Section 11A(1) of the Central Excise Act,1944. It further appeared that they had contravened the provisions of Rule 6(1) of the Cenvat Credit Rules, 2004, by wrongly availing the Cenvat credit on inputs, input services despite their knowledge of usage of inputs, input services exclusively in the 5 F.No. V.32/15-23/Tapsheel/OA-I/10-11 manufacture of exempted goods. They had rendered themselves liable for penal action under the provisions of Rule 15 of the Cenvat Credit Rules, 2004. Interest is also liable to be charged and recovered from the assessee under the provisions of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11AB of the Central Excise Act, 1944.

7. Therefore, M/s. Tapasheel Enterprise, Plot No. 430 Phase-II, GIDC, Vatva, Ahmedabad - 382 445, were issued the Show Cause Notice bearing F.No.V.32/15-23/Tapsheel/OA-I/10-11 dated 07.09.2010 under which they were called upon to show cause as to why:

(1) Cenvat credit of Rs.43,45,677/- (Rs. Forty-three Lakh Forty-five Thousand Six Hundred Seventy-seven only) wrongly taken by them during the period from January,2010 to March,2010 as per Annexure- 1 to this SCN should not be disallowed and recovered from them under Rule 14 of the Cenvat Rules, 2004 read with Section 11A(1) of the Central Excise Act, 1944

(2) Interest should not be charged and recovered under the provisions of Rule 14 of the Cenvat Rules, 2004 read with Section 11AB of the Central Excise Act, 1944

(3) Penalty should not be imposed on them for wrong availment of Cenvat credit on inputs and input services (as shown in Annexure-1) under the provision of Rule 15(1) of the Cenvat Credit Rules, 2004

DEFENCE REPLY:

8. M/s. Tapsheel Enterprise submitted their written reply vide letter dated 07.10.2010 to the show cause notice wherein they denied all the allegations and averments made in the Show Cause Notice and stated that the product manufactured by them was SO dyes, which was excisable under the Central Excise Tariff Act, 1985; that it is well settled matter under law that the production on job work basis is not exempted and merely shift the liability of payment of excise duty from job worker to principal manufacturer under Noti.214/86; that this notification exempts the goods manufactured on job basis only because the same is either used in excisable goods or exports; that the manufacturing on job basis does not change the excisability of the goods; that had the same goods been manufactured by job worker himself, then it would have been subjected to payment of Excise, at the time of clearance; that the concept of Job work is for 6 F.No. V.32/15-23/Tapsheel/OA-I/10-11 commercial expediency and revenue neutral, when the duty is paid by the principal manufacturer; that even otherwise also, the liability of reversal of credit taken comes only when either they had taken the credit on inputs or input services used in manufacturing and clearance of exempted goods; that they were not manufacturing any exempted products; that in case of manufacturing on job basis also all the required material is been supplied by the principal manufacturer himself under the prescribed challans or documents, on which they had not taken any credit and after necessary processing, the semi-finished or finished goods is being returned to principal manufacturer under the same or subsidiary challans following the procedure of job-work as prescribed; that same was being used by principal manufacturer in their final products cleared on payment of duty for home consumption or for exports under bond; that they had not utilized any of the input procured on their own account, in manufacturing the goods for principal manufacturer on Job work basis.

9. Further, they submitted that they had not only manufactured and cleared goods on job work basis under the provisions of Notification No.214/86-CE, but also had manufactured their own goods which were cleared on payment of duty; that the input credit taken, as is shown in annexure to SCN belongs to the input/input services used in or in relation to gods manufactured and cleared on their own account, with the payment of applicable duties; that the same can be verified from our periodical returns for the period covered under the show cause notice; that the figure of clearance and duty paid there on is apparently clear from the monthly returns submitted by them; that the Rule 3(1) of CCR, 2004 allows the manufacturer to take the credit of inputs, input services and capital goods used in or in relation to the manufacture of excisable goods.

10. Further, they stated that the SCN is not in accordance to the provisions of Rule 6 of Cenvat Credit Rules, 2004, as the provision of Rule 6 of Cenvat Credit Rules, 2004 read as under:-

Rule-6: Obligations of manufacturer of dutiable and exempted goods and provider of taxable and exempted services:- 1. The Cenvat Credit shall not be allowed on such quantity of inputs or input services which is used in the manufacture of [exempted goods or for provisions of exempted services] except in the circumstances mentioned in Sub-Rule(2) [Provided that the Cenvat Credit on inputs shall not be denied to job- worker referred in Rule12 AA of the Central Excise Rules, 2002, on the 7 F.No. V.32/15-23/Tapsheel/OA-I/10-11

ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that Rule] 2. Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable ot duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service and the quantity of input meant for use in the manufactuer of exempted goods or services and take Cenvat credit only on that quantity of input or input service which is intended for use in the manufactuer of dutiable goods or in providing output service on which service tax is payable, 3. …………………………………………………….. 4. No Cenvat Credit shall be allowed on Capital goods which are used in the manufacture of exempted goods or in providing exempted services other than the final products which are exempt from the whole of duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year, 5. ……………………………………. 6. Provision of Sub-Rules (1), (2),(3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either

(i)………………………………………………..or (ii) Cleared to a Hundred percent export-oriented undertaking; or (iii) to (vii)……………………………

11. They further submitted that the SCN itself says that the job work has been done for one of their group company, Meghmnai Dyes and Intermediates Limited(100% EOU); that the said job work is subject to permission from Jurisdictional Divisional Assistant/Deputy Commissioner; that therefore, even otherwise also, as per Cenvat Credit rules 6(6), the provisions of Cenvat Credit Rules 6(1), which is alleged to be contravened in the captioned SCN, is not applicable to clearance made to 100% EOU.

12. Further, they stated that the provisions of Notification No.214/86-CE, dated 25.03.1986 specifically provides that "The exemption contained in this notification shall be applicable only to the said goods in respect of which; 8 F.No. V.32/15-23/Tapsheel/OA-I/10-11

(i) The supplier of the raw materials or semi-finished goods gives an undertaking to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction over the factory of job-worker that the said goods shall be (a) Used in or in relation to the manufacture of final products in his factory; (b) Removed from his factory without payment of duty 1. Under bond for export; or 2. To a unit in a free trade zone or to a hundred per cent export-oriented undertaken or to a unit in an Electronic Hardware Technology Park or supplied to the United Nations or an international organizations fro their official use or supplied to project funded by them, on which exemption of duty is available under Notification of the Govt. of India in the Ministry of finance (Department of Revenue) No.108/95-Central Excise dated 25.08.1995 or 3. By a manufacturer of dutiable and exempted final products after discharging his obligations in respect of said goods under Rule 6 of the Cenvat Credit Rules,2002; or 4. Removed on payment of duty for home consumption from his factory or & used in the manufacturer of the description specified in (Colmn.(1)) of the table hereto annexed by another job-worker for further use in any of the manner provided in clause (a),(b) and (c) as above. (ii) The said supplier produces evidence that the said goods have used or removed in the manner prescribed above and

(iii) The said supplier undertakes the responsibilities of discharging the liabilities in respect of Central Excise duty leviable on the final products.

(Exemption-1)-For the purposes of this Notification, the expression "Job-work" means processing or working upon the raw materials or semi-finished goods supplied to the job- worker, so as to complete a part or whole of the process 9 F.No. V.32/15-23/Tapsheel/OA-I/10-11

resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.

From the above provisions of Notification No.214/86-CE it can be observed that the Notification is granting exemption to goods manufactured on conditional basis, therefore it cannot be said that goods manufactured on job-work basis are exempted from payment of duty. From the provisions of the notification it is proved that if goods so processed on job-work basis are not returned to the supplier of raw material after processing, the same cannot be said that it is exempted goods. As the goods are manufactured and cleared under the provisions of Sub-contract basis the principal manufacturer is required to fulfill the condition laid down in the notification, therefore it cannot be said that the goods were exempted from payment of duty.

13. They furthermore stated that they had taken the credit on receipt of inputs in their factory as paid by the manufacturer of inputs and hence they are eligible for the credit so taken as provided under rule 16 of Central Excise Rules, 2002; that they are not require to reverse the credit so taken as proposed in the show cause notice as per provision of Sub-Rule (2) & (3) of Rule 6 of Cenvat Credit Rules, 2004 which provides for provision of reversal of credit for a manufacturer of dutiable and exempted goods; that they are manufacturing SO dyes, which is not an exempted product and they have paid the duty on clearance made on their account and the principal manufacturer have made the payment of duties on goods manufactured by them on job work basis.

14. They further stated that even in case of manufacturing of exempted goods, the reversal of duty arises only when dutiable input/services are used there in and the credit of the same is taken; that when there is no credit taken on inputs/services, used in manufacture of exempted goods, the question of reversal does not arise. Therefore show cause notice is not sustainable in law and require to be vacated.

15. They further relied on the following case laws:- 2009 (235) ELT 332(Tri.-Ahmd.) 2009 (248) ELT 898 (Tri.-Ahmd.) 2010 (251) ELT 478 (Tri.-Ahmd.)

16. They also pleaded that in view of the clear legal position supported by judicial pronouncement, the show cause notice may be withdrawn and proceeding initiated for demand and recovery of duty may be vacated. 10 F.No. V.32/15-23/Tapsheel/OA-I/10-11

DISCUSSION & FINDINGS:

17. I have gone through the case records and submission made by the assessee. The main issue to be decided in this case is whether the inputs & input service on which the said assessee have availed cenvat credit during the period January’2010 to March’2010 were used by them in manufacture of goods on job- work basis subsequently cleared under Notfn. 214/86CE dated 25/03/1986 or the same were used by them in manufacture of their own goods being cleared on payment of duty.

18.1 On perusal of the written submission made by the assessee, it is very much clear that they have claimed that the said inputs & inputs services were not used in manufacture of goods on job-work basis and were actually used in manufacture of their own goods cleared on payment of appropriate duty. This was in total contradiction with the charges made in the captioned show cause notice. Thus, vide letter dated 31.01.2011 bearing F.No. V.32/15-23/Tapsheel/OA-I/10-11, the jurisdictional Assistant Commissioner (JAC) was asked to ascertain the factual position with regard to the assessee’s above contentions.

18.2 The JAC vide his letter dated 10.02.2011 bearing F.No. Ch.32/3- 21/Dem/2010 submitted that “Verification carried out by the Range Office is suggestive that the unit is doing job-work for M/s. Synergy Chelorination Pvt. Ltd. (SCPL) from December’2009. The assessee is carrying out job-work of material received and after conversion the same is being sent back. It is reported that necessary entries are made in Annexure-V Register and the job-charges collected. Further verification of computerized RG23A Pt.II, GRN, RG-I, invoices suggest that input service on credit taken by the job-worker is used in manufacture of own products on payment of duty. Copy of letter dated 8.2.2011 addressed to the Range Superintendent also suggests that the raw materials were procured on purchase by MDIL/SCPL and no cenvat credit taken and that no raw material is purchased by the job-worker for either MDIL or SCPL.” He also forwarded the copy of letter dated 82.2011 of the assessee and verification of jurisdictional Range Officer (JRO) dated 9.2.2011.

18.3 The JRO in his above referred letter dated 9.2.2011, had submitted that “Necessary verification of the record maintained by the assessee were done and it was found that they are doing job-work for M/s. SCPL Nandesari only with effect from December’2009. Raw material for such job-work are received by the assessee under job-work challan for conversion of it into Megawhite DK which are being sent to M/s. SCPL under said challan. Necessary entries are being made in 11 F.No. V.32/15-23/Tapsheel/OA-I/10-11

Annexure-V Register. No cenvat credit of such material of job-work are taken by the assessee. Job work charges are also collected by the assessee for such job-work”.

18.4 The JRO further reported that “ Also on verification of raw material register (computerized) RG23A PT.II, GRN, RG-I, invoices etc, it is found that input/input services on which credit has been taken by the assessee has been used in manufacturing their own products which has been cleared on payment of duty”.

19 Since the above mentioned verification report of JAC & JRO were in contradiction with the charges mentioned in the subject notice, vide letter of even number dated 28/04/2011, the JAC was again asked to furnish the para-wise comments on the above mentioned written submission dated 07/10/2010 of the assessee. The JAC vide his letter F.No. Ch.32/03-21/Dem/2010 dated 06.05.2011 furnished the para-wise comments on the assessee’s written submission dated 07/10/2010, wherein he reiterated the following:

(i) Submission of the party regarding non-use of input in manufacturing job-work goods is found correct. (ii) Submission of the party that along with job-work, they have manufactured their own goods also which has been cleared on payment of duty is also found correct. (iii) It is submitted by the party that they have paid duty on clearance of goods of their won. On perusal of the ER-I Return for the period of SCN, it is found that the assessee has cleared 306755 Kg of finished goods (S.O. dyes) and discharged duty of Rs. 41,37,879/-. (iv) It is also submitted by the party that they have not taken credit on input/input services used in the manufacture of exempted goods. This aspect was verified and report were submitted vide letter dated 9.2.2011 wherein it was mentioned that ‘No Cenvat credit of material of job-work are taken by the assessee”.

20. The draft show cause notice to be issued in the matter to the assessee for the further period was also submitted by the JAC to the Commissioner, C.Ex., Ahmedabad-I. However, on being directed to re-examine the proposal made in the draft show cause notice, the JAC eventually withdrew the draft show cause notice for the further period as no cause existed to issue the show cause notice as the 12 F.No. V.32/15-23/Tapsheel/OA-I/10-11 job-worker ( the said assessee) had not availed Cenvat credit on the inputs supplied by the principal manufacturer. 21. From the facts deposed hereinabove, it is evident that the said assessee had not availed cenvat credit on inputs/input service used in the manufacture of goods on job-work basis. In fact the cenvat credit in question availed by them actually pertains to the inputs/input service procured by them on their own and used in the manufacture of finished goods on their own being cleared on payment of duty. The verification reports from the JAC & JRO clearly suggest that the assessee have correctly availed the Cenvat Credit in question. Thus, in light of the above facts and findings, the charges made in the captioned show cause notice does hold water and are deserved to be dropped.

22. Accordingly, I pass the following order:

I drop the proceedings initiated against M/s. Tapsheel Enterprise, Ahmedabad vide Show Cause Notice dated 07/09/2010 issued from F.No.V.32/15- 23/Tapsheel/OA-I/10-11.

(M. RAHMAN) Joint Commissioner Central Excise, Ahmedabad-I

F. No. V.32/15-23/Tapsheel/OA-I/10-11 Date: 06.06.2011

By Regd. Post A.D. / Hand Delivery

To, M/s Tapasheel Enterprise, Plot No.430, Phase-II, GIDC, Vatva, Ahmedabad – 382 445.

Copy to: 1. The Commissioner, C.Ex., Ahmedabad-I ( Attn. A.C. C.Ex. (RRA)) 2. Assistant Commissioner, Central Excise Division III, Ahmedabad-I 3. The Range Superintendent, Central Excise, AR-IV, Division-III, Ahmedabad-I 4. The guard file. 13 F.No. V.32/15-23/Tapsheel/OA-I/10-11