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Issues: Whether the demand of 8% of the value of job-worked goods cleared under Notification No. 214/86-C.E. could be sustained, and whether the Commissioner (Appeals) had to examine the records and the effect of reversal of Cenvat credit before deciding the dispute.
Analysis: The job-worked goods were cleared to the principal manufacturer under challans and the materials on record indicated that the principal manufacturer used the job-worked goods in the manufacture of final products cleared on payment of duty. The scheme of Cenvat credit is intended to avoid cascading, and denial of credit on inputs used in exempt intermediate goods could not be sustained without examining whether the credit relatable to such goods had been reversed and whether the principal manufacturer had accounted for and duty-paid the final products. The earlier order did not deal with the relevant evidence, the applicability of the cited Tribunal decisions, or the necessary factual enquiry into the accounting and duty position at both ends.
Conclusion: The matter had to be remanded for fresh consideration, with a direction to pass a reasoned and speaking order after enquiry and hearing.
Final Conclusion: The impugned order was set aside and the dispute was sent back to the lower appellate authority for de novo decision on the relevant factual and legal issues.
Ratio Decidendi: Credit liability on inputs used in exempt job-work goods cannot be affirmed without a proper factual enquiry into reversal of credit, linkage with the principal manufacturer's dutiable final products, and the accounting of the job-work clearances.
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