Job-work clearance under challans did not shift excise duty liability to the job worker where the arrangement was revenue neutral.

Fabrics sent to a job worker under challans for processing under the erstwhile Rule 57F(4), corresponding to Rule 4(5)(a) of the Cenvat Credit Rules, 2002, were treated as inputs or semi-processed goods that could move without duty for job work. The principal manufacturer used the returned goods in final products and discharged duty on clearance, supporting the view that duty liability attached to the principal manufacturer rather than the job worker. The arrangement was also revenue neutral because any duty paid by the job worker would only have been available as credit to the principal manufacturer. The demand against the job worker was therefore not sustainable.

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Issues: Whether the job worker was liable to pay central excise duty on fabrics received for processing under Rule 57F(4) and returned to the principal manufacturer under challans, and whether the demand could survive in light of the applicable job-work mechanism and revenue neutrality.

Analysis: The fabrics were received for job work under challans issued in terms of the erstwhile Rule 57F(4), which corresponded to Rule 4(5)(a) of the Cenvat Credit Rules, 2002. The processing was done for the principal manufacturer, who used the returned goods in the manufacture of final products and cleared them on payment of duty. The applicable rule permitted removal of inputs or semi-processed goods for processing without payment of duty, and the earlier view reflected in the departmental circular supported discharge of duty by the principal manufacturer rather than the job worker. The record also showed that the arrangement was revenue neutral because any duty paid by the job worker would only enable credit in the hands of the principal manufacturer.

Conclusion: The demand against the job worker was not sustainable, and the order dropping the proceedings was restored.

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