2015 (5) TMI 132 - AT - Central Excise

Manufacturer not liable for duty on waste & scrap from job workers. Job workers are considered manufacturers under Central Excise Rules.

The Tribunal held that the principal manufacturer is not liable to pay duty on waste and scrap generated at the job workers' end, even if job charges ... Liability to pay excise duty on waste and scrap generated by a job worker - principal manufacturer versus job worker liability for duty on scrap - manufacturer of waste and scrap - liability to pay excise duty and manner of payment under Central Excise Rules - reversal of Cenvat credit for inputs used in generation of waste and scrapLiability to pay excise duty on waste and scrap generated by a job worker - principal manufacturer versus job worker liability for duty on scrap - reversal of Cenvat credit for inputs used in generation of waste and scrap - liability to pay excise duty and manner of payment under Central Excise Rules - Appellant as principal manufacturer is not liable to pay excise duty on waste and scrap generated at the job worker's premises even where the value of waste and scrap forms part of the job charges. - HELD THAT: - The Tribunal applied established authorities holding that the person who actually produces or manufactures excisable goods is liable to discharge excise duty and that waste and scrap generated during job work are manufactured by the job worker. The Central Excise Rules govern the liability to pay duty and the manner of payment; the Cenvat Credit Rules do not create a liability to pay duty but only provide for reversal of credit where credit was wrongly taken. Prior Tribunal decisions, including Fag Engineering India Ltd. and Mahindra Hinoday Industries Ltd., were relied upon to conclude that the principal manufacturer cannot be fastened with duty liability for scrap produced by the job worker. At most, the principal manufacturer may be required to reverse Cenvat credit attributable to inputs used in generation of the waste and scrap, but where no reversal was sought, a demand for duty against the principal manufacturer is unsustainable. The Tribunal therefore set aside the demand, following the determinative legal principle that duty on waste and scrap must be demanded from the job worker who manufactures it, not from the principal manufacturer. [Paras 6, 7]Impugned demand of duty from the principal manufacturer on scrap generated at the job worker's premises is set aside; appellant relieved of liability.Final Conclusion: Appeal allowed; demand of duty on waste and scrap raised against the principal manufacturer quashed, with consequential relief as applicable. Issues:Whether the appellant, as the principal manufacturer, is liable to pay duty on waste and scrap generated at job workers' end where job charges form part of the value of waste and scrap.Analysis:The appellant, a manufacturer of IC engines and their parts, sent processed goods to job workers, resulting in the generation of scrap. The revenue demanded duty on the scrap, contending that the appellant should pay duty on the waste and scrap generated at the job workers' end. The appellant argued that based on a previous Tribunal case, the duty on scrap generated and sold by job workers cannot be imposed on the principal manufacturer. The department did not ask the appellant to reverse the Cenvat Credit on inputs used in generating waste and scrap, further supporting the appellant's position.The department argued that as per agreements between the parties, the value of waste and scrap is included in the job charges, making the appellant liable to pay duty on waste and scrap. The Tribunal considered the submissions and focused on the key issue of whether the appellant, as the principal manufacturer, is obligated to pay duty on waste and scrap generated at the job workers' end, especially when job charges include the value of waste and scrap.Referring to previous cases, the Tribunal clarified that the duty cannot be demanded from the principal manufacturer for waste and scrap generated at the job workers' premises. The Tribunal emphasized that the job worker is considered the manufacturer of waste and scrap under the Central Excise Rules, and the duty liability falls on the person who produces or manufactures excisable goods. The Tribunal highlighted that the liability to pay excise duty and the manner of payment are governed by specific rules, and the Cenvat Credit Rules do not create a liability to pay excise duty. Therefore, the principal manufacturer supplying inputs to job workers for further processing is not liable to pay duty on waste and scrap generated at the job workers' premises.Consequently, the Tribunal held that the appellant is not required to pay duty on waste and scrap generated at the job workers' end. The impugned order was set aside, and the appeal was allowed with consequential relief, if any.