Job work on grey fabrics: no separate duty demand where processed fabrics were returned and duty was paid on final clearance.

Grey fabrics sent to a job worker for further processing, and the man-made fabrics received back and cleared on payment of duty, did not attract a separate duty demand on the intermediate grey fabrics. Rule 4(5)(a) of the Cenvat Credit Rules, 2002 permits inputs or partially processed inputs to be sent for further processing and returned within the prescribed period, and Rule 16B of the Central Excise Rules similarly allows removal of semi-finished goods for manufacturing processes without duty. On these facts, the movement of the grey fabrics and the duty payment on the final goods brought the transaction within the statutory framework, so no duty demand on the intermediate stage was sustainable.

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Issues: Whether grey fabrics sent to a job worker for further processing and the man-made fabrics received back and cleared on payment of duty attracted duty demand on the intermediate grey fabrics.

Analysis: The appellants had received duty-paid yarn, converted it into grey fabrics, and sent the grey fabrics for further processing to a job worker. The goods returned as man-made fabrics were cleared on payment of duty. Rule 4(5)(a) of the Cenvat Credit Rules, 2002 permits inputs or partially processed inputs to be sent to a job worker for further processing and returned within the prescribed period. Rule 16B of the Central Excise Rules also contemplates removal of semi-finished goods for carrying out manufacturing processes and their return without duty. On the facts found, the movement of grey fabrics to the job worker and the return of processed fabrics fell within the statutory framework, and duty had already been discharged on the final cleared goods.

Conclusion: No duty demand could be sustained on the intermediate grey fabrics, and the impugned orders were set aside in favour of the assessee.

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