2012 (7) TMI 713 - AT - Service Tax

Tribunal overturns orders, grants appeals with relief. Manufacturer's credit upheld, penalties unjustified.

The Tribunal set aside the impugned orders and allowed the appeals with consequential relief. Key findings included the manufacturer-appellant's credit ... Denial of Cenvat credit - alleged that the job worker-appellant was manufacturing dutiable goods and providing exempted service (chrome plating) and that they had not maintained separate accounts in terms of Rule 6(2) of CENVAT Credit Rules 2004 - Held that:- a) Manufacturer-appellant taking credit on piston rings in coil form and sending the same under Rule 4 (5) (a) for the purpose of chrome plating is in order. - (b) As the activity of chrome plating does not amount to manufacture and no excisable goods emerge, there is no question of exemption from excise duty and, therefore, levy of service tax is attracted on the said activities. - (c) The exemption under Notification No. 8/2005 ST being a conditional exemption subject to fulfillment of obligation by the raw material supplier, the same cannot be thrust on the job worker-appellant. Therefore, payment of service tax by the job worker-appellant is in order. - (d) Job worker-appellant cannot be held to have provided any exempted services attracting the provisions of Rule 6 of CENVAT Credit Rules. - (e) The job worker appellant cannot be held to have had any intention to evade excise duty/service tax. - (f) The credit taken by the manufacturer appellant of the service tax paid by the job worker appellant is in order. Issues Involved:1. Inadmissible CENVAT credit availed on common inputs and input services.2. Wrong payment of excise duty and service tax by the job worker.3. Applicability of Notification No. 214/1986 and Notification No. 8/2005 ST.4. Maintenance of separate accounts under Rule 6(2) of CENVAT Credit Rules.5. Imposition of penalties on the job worker and the manufacturer.6. Time-barred demand and mis-declaration.Detailed Analysis:1. Inadmissible CENVAT Credit:The appeals challenged the demand of Rs. 6,11,96,239/- for inadmissible CENVAT credit availed on common inputs and input services by the job worker-appellant and manufacturer-appellant. It was alleged that the job worker-appellant did not maintain separate accounts for inputs and input services as required under Rule 6(2) of CENVAT Credit Rules, 2004. The Tribunal concluded that since the chrome plating did not amount to manufacture, the job worker-appellant was not providing exempted services, and hence Rule 6 was not applicable. Consequently, the credit taken by the manufacturer-appellant was deemed in order.2. Wrong Payment of Excise Duty and Service Tax:The job worker-appellant paid excise duty on chrome plated piston rings before January 2007 and later paid service tax for certain periods. The Tribunal agreed with the Commissioner that chrome plating did not amount to manufacture, making the goods non-excisable. However, the Tribunal found that the job worker-appellant's payment of service tax was correct as the exemption under Notification No. 8/2005 ST was conditional and could not be compulsorily availed.3. Applicability of Notifications:Notification No. 214/1986 CE was discussed to determine if it was an unconditional exemption. The Tribunal held that the notification merely shifted the duty liability from the job worker to the principal manufacturer and was not an unconditional exemption. Similarly, Notification No. 8/2005 ST was a conditional exemption and could not be forced upon the job worker-appellant. The Tribunal concluded that the job worker was not obligated to avail these notifications.4. Maintenance of Separate Accounts:The job worker-appellant was accused of not maintaining separate accounts for inputs and input services. The Tribunal found that since the job worker was not providing exempted services, the requirement to maintain separate accounts under Rule 6(2) of CENVAT Credit Rules did not apply. Therefore, the demand for reversal of CENVAT credit was not justified.5. Imposition of Penalties:Penalties were imposed on the job worker-appellant and the manufacturer-appellant under Rule 25 of the Central Excise Rules and Section 11AC of the Central Excise Act, 1944. The Tribunal held that the payment of excise duty and service tax by the job worker-appellant, even if not required, could not be considered as an intention to evade duty. Therefore, the imposition of penalties was not justified.6. Time-Barred Demand and Mis-Declaration:The job worker-appellant argued that the demand for the period March 2005 to September 2007 was time-barred as there was no mis-declaration and the issue involved complex legal interpretation. The Tribunal did not find any evidence of mis-declaration or intent to evade duty, supporting the appellant's claim that the demand was time-barred.Conclusion:The Tribunal set aside the impugned orders and allowed the appeals with consequential relief. The key findings were:- The manufacturer-appellant's credit on piston rings and subsequent processes was in order.- The job worker-appellant's payment of service tax was appropriate, and the conditional exemption could not be forced upon them.- Rule 6 of CENVAT Credit Rules was not applicable as the job worker was not providing exempted services.- There was no intention to evade duty, and penalties were unjustified.- The demand for the period March 2005 to September 2007 was time-barred.