Telangana High Court

Commissioner Of Customs And Central ... vs M/S.Lokesh Machines Ltd on 24 November, 2023

Author: P.Sam Koshy

Bench: P.Sam Koshy, N.Tukaramji

            THE HON'BLE SRI JUSTICE P.SAM KOSHY
                                    AND
            THE HON'BLE SRI JUSTICE N.TUKARAMJI

               CENTRAL EXCISE APPEAL No.16 of 2007

JUDGMENT :

(per Hon'ble Sri Justice P.SAM KOSHY)

The instant Central Excise Appeal is preferred by the Revenue

assailing the order passed by the Customs, Excise And Service Tax

Appellate Tribunal (for short 'the Tribunal') in Appeal

No.E/1106/2005 decided on 22.05.2006.

2. Heard Sri A. Rama Krishna Reddy, learned Standing Counsel

for CBEC appearing for the appellant/Revenue and Sri Yammanuru

Siri Reddy, learned counsel for the respondent/assessee.

3. Vide the said impugned order, the Tribunal has allowed the

appeal filed by the respondent/assessee setting aside the Order-in-

Original dated 26.09.2005 passed by the Office of the Commissioner

of Customs and Central Excise, Hyderabad, in C.Ex.No:22 of 2005.

The Commissioner vide the Order-in-Original dated 26.09.2005 held

that the respondent/assessee had wrongly availed MODVAT/CENVAT

Credit on the capital goods in contravention to the provisions of Rule

56Q read with sub-rule 57(R1) of Central Excise Rules, 1944, and also

Rule 57AB read with sub Rule 57AD(3) of Rules, 1944, and also Rule

3 read with sub Rule 6(4) of CENVAT credit Rules 2001-2002 from

LML under proviso to sub-section (1) of Section 11A of the Central

Excise Act, 1944, read with sub-rule (2) of Rule 57U of Central Excise

Rules, 1944, Rule 57AH of Central Excise Rules, 1944, Rule 12 of

Cenvat credit Rules, 2001. As a consequence, to the order was passed

by the Commissioner in addition to the payment of duty, penalty was

also imposed.

4. The case of the appellant/Revenue is that on the basis of report

from the intelligence, on scrutiny of the premises of the assessee,

irregularity in availing the MODVAT credit on capital goods was

detected. It was found that the assessee had installed machines in

two lines i.e. (1) NEF Line and (2) 275 DI Line which were used

exclusively for machining of rough crank cases received from the two

units of Mahindra and Mahindra located at Nagpur and Bombay. The

said work was received on job work basis under sub Rule 57(4) of CE

Rules, 1944, read with the Notification No.214 of 1986 in this regard

dated 25.03.1986. NEF Line was used for machining of crank cases

received from Mumbai unit of Mahindra and Mahindra, Mumbai and

the 275DI Line was used for the same purpose for crank cases

received from Nagpur unit of Mahindra and Mahindra, Nagpur.

5. The contention of the appellant/Revenue was that, in addition

the assessee was also engaged in machining and assembling Special

Purpose Machines (for short 'SPM') and General Purpose Machines

(for short 'GPM') falling under chapter 84 of the Central Excise Tariff

Act, 1985.

6. It was also the contention of the appellant/Revenue that for the

purpose of manufacturing of SPM, the machines used for processing

of rough crank cases for Mahindra and Mahindra i.e. the machines

installed in NEF Line and 275DI Line were neither used in the

manufacturing of SPM and GPM, nor were they required for the same.

7. It was the further contention of the appellant/Revenue that the

assessee has procured some finished machinery on payment of duty

from their sister unit situated at Bonthapally and the said machines

were used for manufacturing of SPM and GPM. The Commissioner in

the course of passing the Order-in-Original on 26.09.2005, decided

the matter against the respondent/assessee. However, when the

matter travelled before the Tribunal, the Tribunal upon careful

consideration of the statements which were recorded during the

course of proceedings before the Commissioner and also upon careful

consideration of the documents that were perused during the course

of proceedings had reached to the following conclusion:

"6. On a careful consideration of the entire matter, we are of the view that the present case is squarely covered by the ratio of the decisions by the learned Advocates. We find that upto 30.09.2002, the appellants had been clearing the goods under job work procedure availing the Notification 214/86. In terms of the Bajaj Electricals Ltd.(supra) case, the modvat credit on the Capital Goods cannot be denied on the Capital Goods cleared when the Capital Goods are used both in the

dutiable and exempted goods. Also for the period subsequent to 30.09.2002, the products have been cleared on payment of duty. Hence, it cannot be said that the Capital Goods have been used exclusively for the production of exempted goods. As Tribunal decision in the case of Madura Coats Pvt. Ltd. (supra). The ratio of the Larger Bench decision in the case of Sterlite Industries (supra) that the goods cleared by a job worker under Notification 214/86 should not be deemed to be exempted goods, would also apply. In view of the above points, we feel that the impugned order has no merits. The Cenvat credit availed cannot be demanded. The appellants are not liable for penalty. Hence, we allow the appeals with consequential relief, if any."

8. The Notification No.214 of 1986 dated 25.03.1986 categorically

exempts goods specified in column No.2 of the table annexed

manufacturing in a factory as a job work and used in or in relation to

the manufacture of a final product specified in column No.3 of the

said table.

9. When we look into judgment passed by the Tribunal in the case

of Commissioner vs. Sterlite Industries (I) Ltd. 1, we find that the

judgment of the larger Bench of the Tribunal was relied upon by the

learned counsel for the respondent/assessee when it had travelled to

the High Court. The High Court while considering the judgment of the

larger Bench of the Tribunal in paragraph No.3 held as under:

"3. ... ... ... ... ... ... ... ... ... ...As such to attract the provisions of Rule 57C, two situations in respect of final product should be satisfied. Either the final product should be exempted, which situation can arise only when there is an exemption notification issued Section 5A of the

2009 (244) ELT A89 (Bom.)

Central Excise Act or the final product is chargeable to nil rate of duty. Expression chargeable to nil rate of duty or exempted from whole of duty was considered by the Tribunal in the case of Orissa Synthetics Ltd v. Collector of Central Ex. [1995 (77) E.L.T. 350 (Tri.)] and after taking note of the Ministries clarifications issued vide Circular No.10/75/CX 6, it was held that clearance of goods under provision of 191 BB for export without payment of duty would not get covered by the above expression. ... ... ... ... it was opined in the said letter of Law Ministry that the term 'exempted' has a definite connotation. The same was attributed to the notification issued by Central Government. ... ... ... ... ... In the present case, we find that the job worker could have cleared the goods on payment of duty and manufacturer could have claimed credit of the same. It is only under the special procedure laid down in terms of Rule 57F(3) that the duty does not get paid at the job worker's end at the time of clearance of the goods, but ultimately gets paid at the manufacturer's end."

10. The view of the High Court of Bombay was relying upon the

judgment of the Hon'ble Supreme Court of India in the case of

ESCORTS LTD V. THE COMMISSIONER OF CENTRAL EXCISE,

DELHI 2 wherein in paragraph Nos.6, 8, 10 and 11 it has been held by

the Hon'ble Supreme Court as under:

"6. It is the contention of the Respondent, which has been accepted by CEGAT, that Rule 57C would become applicable as the parts are cleared from one factory to another without payment of duty. In our view, this reasoning cannot be accepted. The underlined portion of the Notification, set out hereinabove, shows that the inputs may be used within the factory of production or in any other factory of the same manufacturer. Thus merely because parts are cleared from one factory of the Appellants to another factory does not make the parts the final product. It is not denied that the parts, which are manufactured from the duty paid inputs, are used in the

2004 (171) E.L.T. 145 (S.C.)

manufacture of tractors and that the duty is being paid on the tractors.

8. It is to be seen that the whole purpose of the Notification and the Rules is to streamline the process of payment of duty and to prevent the cascading effect if duty is levied both on the inputs and the finished goods. Rules 57D(2), which has been extracted hereinabove, shows that in the manufacture of a final product an intermediate product may also come into existence. Thus in cases where intermediate product comes into existence, even though no duty has been paid on the intermediate product as it is exempted from whole of the duty or is chargeable to Nil rate of duty, credit would still be allowed so long as duty is paid on the final product.

10. Mr. Lakshmikumaran relied upon the decision of this Court in the case of Collector of Central Excise, New Delhi v. Hindustan Sanitaryware & Industries reported in 2002 (145) E.L.T. (S.C.), wherein, in respect of this very Notification, this Court has held that so long as duty is paid on the final product, the mere fact that the duty was not paid on the intermediate product would not disentitle the manufacturer from the benefit of Notification No. 217/86-C.E., dated 2nd April, 1986. In that case, the input was plaster of paris, the intermediate product was moulds made out of the plaster of paris, the final product was sanitaryware. In our view, the facts of that case are identical to the facts of the present case. The ratio laid down therein fully applies to this case.

11. In this view of the matter, we set aside the impugned Judgment and the Order of the Commissioner of Central Excise. It is held that the Appellants will be entitled to Modvat credit on duties paid for the inputs used for manufacture of parts, so long as the parts are used in the manufacture of tractors on which duty is paid. We clarify that in respect of parts which are sold in the open market and/or used for manufacture of tractors on which no duty is paid, the benefit of the Notification No. 217/86-

C.E., dated 2nd April, 1986 may not be available."

11. Both the aforesaid decisions were primarily based upon the

Notification No.217 of 1986 which allowed the clearance of inputs to

another factory of the same manufacturer for use in manufacture of

final products. Likewise, the Notification No.214 of 1986 dated

25.03.1986 also allows clearance of intermediary goods to principal

manufacturer for use in manufacture of final products. The reason

being under both the situations, the final products would still suffer

duty.

12. The High Court of Allahabad in the case of COMMISSIONER OF

C. EX., NOIDA Versus SAMSUNG INDIA ELECTRONIC LTD. 3 dealing

with a somewhat similar situation in paragraph No.16 held as under:

"16. We find that SEIITL only manufactured the chassis, which is only a part of a TV. It is not a finished product and is only an intermediary product. We also find that SEIITL supplied intermediary product to SEIL, which manufactured the TV and paid duty on it. Consequently, it was entitled to avail Cenvat credit in order to prevent the cascading effect, if duty was levied. We are of the opinion that SEIITL, which was the job worker was entitled to duty paid on inputs and used in the manufacture of intermediary product. Consequently, for the reasons stated aforesaid, the appeal fails and his dismissed. The questions of law are answered in favour of the assessee and against the department."

13. The Madras High Court in the case of THE COMMISSIONER OF

CENTRAL EXCISE VERSUS M/S. KYUNGSHIN INDUSTRIAL

MOTHERSON LTD. 4 relying upon the same notification in paragraph

Nos.9 and 16 have held as under:

"9. We find that in the present case, the manufacture of wiring harness is done at Unit-I. The inputs are sent by Unit-I to Unit-II, viz., the principal manufacturer to the respondent/assessee for manufacture semi-finished wiring harness and the job-worked goods are cleared

2014 (309) E.L.T. 593 (All.)

2015 (11) TMI 899 - MADRAS HIGH COURT

under delivery challans and not on payment of duty. The respondent/assessee is availing the exemption under Notification No.214/86-Ce for the job work done by the assessee.

16. We find on fact that in this case also, the Tribunal was correct in holding that wiring harness was removed without payment of duty under job work procedure to the principal manufacturer and that semi-finished goods removed by the job worker from its unit to the principal, without payment of duty, would not come within the scope of expression "exempted final product"

used in Rule 57-R (1) equivalent to Rule 6 (4) of the Cenvat Credit Rules, 2004. The Tribunal has rightly held that availment of Modvat Credit on capital goods to be the job work is in order. For the reasons aforesaid, the substantial question of law is answered in favour of the assessee and against the Revenue."

14. Given the fact that the appeal of the appellant/Revenue was

primarily touching upon the applicability of the Notification No.214 of

1986 and also use of the term "capital goods as such" mentioned in

Rule 57AB of the Central Excise Rules, 1944, we are of the considered

opinion that the judicial precedents referred to in the preceding

paragraphs dealing with if not identical in almost similar

circumstances lays to rest the question of law being agitated by the

Revenue in this case.

15. For the aforesaid reasons, we do not find any substantial merits

in the grounds raised by the Revenue in this case and the appeal thus

fails and stands decided affirming the order passed by the Tribunal

and the same stands decided in favour of the respondent/assessee.