Job-work clearances under Notification 214/86-CE do not make goods exempted for Cenvat credit denial.

Goods manufactured on job-work basis under Notification No. 214/86-CE were not treated as exempted goods for the purpose of Rule 6 of the Cenvat Credit Rules, 2004. The settled principle applied was that the bar on credit under Rule 57C, and by analogy Rule 6, operates only where the final product is wholly exempted or chargeable to nil rate of duty. Because the notification contemplates duty payment at the principal manufacturer's stage or on final clearance, common-input Cenvat credit in the job-worker's hands remained admissible. The earlier contrary view was treated as no longer good law.

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Issues: Whether goods manufactured on job work basis under Notification No. 214/86-CE are to be treated as exempted goods for the purposes of Rule 6 of the Cenvat Credit Rules, 2004, and whether Cenvat credit on common inputs used in such manufacture is admissible.

Analysis: The job-work goods cleared under Notification No. 214/86-CE were not treated as goods exempted in the hands of the job worker in the relevant sense because the notification contemplated final duty payment at the principal manufacturer's stage or clearance on payment of duty by the principal. The Tribunal applied the settled principle that Rule 57C, and by analogy Rule 6, applies only where the final product is wholly exempted or chargeable to nil rate of duty. It relied on the Larger Bench ruling and the Supreme Court's approval of the principle that intermediate or job-work clearances do not attract the bar on credit when duty is ultimately payable on the finished product. The earlier contrary view was held to be no longer good law.

Conclusion: Cenvat credit was held admissible and the job-work goods were not treated as exempted goods for the purpose of denying credit; the issue was decided in favour of the assessee.

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