Job-work clearances under exemption notification did not attract 8% reversal where goods were not sold and input credit was reversed.

In job-work clearances of metallised films made under Notification No. 214/86-C.E. for use by the principal manufacturer in dutiable final products, Rule 6(3)(b) of the Cenvat Credit Rules was held inapplicable because the 8% formula was tied to sale of exempted goods, and the job worker did not sell the goods to the principal. The prior reversal of input credit used in those goods also meant no further liability could be fastened on the same inputs. The demand and penalty were therefore not sustainable.

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Issues: Whether, in respect of metallised films processed on job-work basis and cleared without payment of duty under Notification No. 214/86-C.E., the assessee was liable to pay an amount equal to 8% under Rule 6(3)(b) of the Cenvat Credit Rules, and whether prior reversal of credit on inputs used in such goods negatived the demand.

Analysis: The goods were manufactured on job-work basis and were cleared to the principal manufacturer under the exemption notification for further use in dutiable final products. The rule invoked by the Revenue was analogous to the earlier provision requiring payment of 8% of the price charged on sale of exempted final products. Since the job worker did not sell the goods to the principal manufacturer, the condition of sale necessary for applying the 8% formula was absent. The assessee had also reversed the credit taken on inputs used in the goods cleared under the job-work arrangement, so no further liability could be fastened on the same inputs. The demand therefore could not be sustained on either basis.

Conclusion: The assessee was not liable to pay 8% under Rule 6(3)(b), and the demand and penalty were unsustainable.

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