Cenvat credit and job-work duty liability clarified where capital goods were fabricated for use in the principal manufacturer's factory.

Cenvat credit remained admissible on inputs used by a job worker to fabricate capital goods intended for use in the principal manufacturer's factory, because the goods were further completed at the principal site and were within the credit scheme. Under Notification No. 214/86-CE, duty liability shifted to the principal manufacturer where the required declaration and undertaking were in place, so the job worker could not be fastened with excise duty. Once the demands against the principal manufacturer and job worker failed, the penalty on the managing director also could not survive. The impugned order dropping duty and penalty was upheld.

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Issues: (i) Whether Cenvat credit availed by the principal manufacturer on inputs sent for job work and used in the manufacture of capital goods was admissible. (ii) Whether the job worker was liable to pay central excise duty on goods cleared after job work under Notification No. 214/86-CE. (iii) Whether penalty on the managing director could be sustained.

Issue (i): Whether Cenvat credit availed by the principal manufacturer on inputs sent for job work and used in the manufacture of capital goods was admissible.

Analysis: The goods fabricated at the job worker's premises were capital goods meant for use in the factory for manufacture of sponge iron. Inputs used in the manufacture of such capital goods fall within the scope of inputs for Cenvat credit when the goods are further used in the manufacturer's factory. The record also showed that the final form of the kiln and cooler was attained at the principal manufacturer's site after further structural fabrication.

Conclusion: The credit was admissible and this issue was decided in favour of the assessee.

Issue (ii): Whether the job worker was liable to pay central excise duty on goods cleared after job work under Notification No. 214/86-CE.

Analysis: Under the notification scheme, where the principal manufacturer gives the requisite declaration and undertakes to discharge the duty burden, the liability shifts from the job worker to the principal manufacturer. There was no finding that the conditions of the notification were breached. Accordingly, the goods cleared by the job worker could not be fastened with duty liability on the job worker.

Conclusion: The job worker was not liable to pay duty and this issue was decided in favour of the assessee.

Issue (iii): Whether penalty on the managing director could be sustained.

Analysis: Once the demands against the principal manufacturer and the job worker were unsustainable, the foundation for penalty on the managing director also failed.

Conclusion: The penalty could not be sustained and this issue was decided in favour of the assessee.

Final Conclusion: The impugned order dropping the duty demands and penalty was upheld, and the Revenue's appeals failed.

Ratio Decidendi: Where goods fabricated on job work are capital goods for use in the principal manufacturer's factory and the notification conditions are complied with, Cenvat credit remains admissible and duty liability shifts to the principal manufacturer rather than the job worker.

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