Job work clearances under Cenvat Credit Rules were not exempted goods, so Rule 6 reversal did not apply.

Goods manufactured on job work basis under Rule 4(5)(a) of the Cenvat Credit Rules, 2002 were not treated as exempted goods, because inputs were sent under challans and the Cenvat credit mechanism remained linked to the principal manufacturer. The liability to pay duty on the processed goods continued with the manufacturer who had taken credit, and the job worker's clearances could not be characterised as exempted merely because the procedure under Notification No. 214/86-CE was not followed by the principal supplier. On that basis, Rule 6(3) was held inapplicable to such job-work clearances.

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Issues: Whether goods manufactured on job work basis under Rule 4(5)(a) of the Cenvat Credit Rules, 2002 could be treated as exempted goods so as to attract reversal/payment under Rule 6(3) of the Cenvat Credit Rules, 2002.

Analysis: The raw materials for job work were supplied under challans issued in terms of Rule 4(5)(a), which permits sending inputs to a job worker while retaining the Cenvat credit mechanism with the principal manufacturer. On that footing, the liability to pay duty on the processed goods returned from job work remains with the manufacturer who took credit, and the job-worker's clearances cannot be characterised as exempted goods merely because the principal supplier had not followed the procedure under Notification No. 214/86-CE. The reasoning adopted in the cited precedent was followed to hold that Rule 6(3) does not apply to such job-work clearances.

Conclusion: Rule 6(3) of the Cenvat Credit Rules, 2002 was not attracted and the demand was unsustainable.

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