CENVAT credit for job-worked goods under special procedure upheld; Rule 6 demand on intermediate clearances rejected.

CENVAT credit on inputs used by a job worker under Notification No. 214/86-CE was held admissible because the notification operates as a special procedure under which duty is ultimately discharged by the principal manufacturer. The job-worked intermediate goods were not treated as exempted goods for Rule 6 purposes, since their value forms part of the assessable value of the final dutiable product. On that basis, Rule 6(3)(b) could not be invoked to demand 10% of the value of the job-worked goods, and the demand was not sustainable.

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Issues: Whether CENVAT credit on inputs used by a job worker for manufacture under Notification No. 214/86-CE is admissible and whether Rule 6(3)(b) of the Cenvat Credit Rules, 2004 can be invoked to demand 10% of the value of such job-worked goods.

Analysis: The job-worker clearances under Notification No. 214/86-CE were not treated as truly exempt clearances for the purpose of denying credit, because the notification operates as a special procedure under which duty is ultimately discharged on the final product by the principal manufacturer. The value of the job-worked intermediate goods forms part of the assessable value of the final dutiable product, so the credit taken on inputs used in the job work does not create the mischief addressed by Rule 6, which applies to exempted goods. The Tribunal applied the settled position that such intermediate job-worked goods are not to be treated as exempted goods for disallowing credit or demanding an amount under Rule 6(3)(b).

Conclusion: CENVAT credit was admissible and the demand of 10% of the value of job-worked goods under Rule 6(3)(b) was not sustainable.

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