Intermediate goods under Rule 16B: grey fabric sent for job work qualified, defeating differential duty and penalty demands.

Grey fabric made from duty-paid yarn and sent to job workers for further processing was treated as intermediate goods under Rule 16B of the Central Excise Rules, 2002, in line with earlier Tribunal decisions. On that basis, the contrary view in the impugned order could not be sustained, because the job work procedure remained applicable to the processed grey fabric returned for export clearance on payment of duty. Once intermediate-goods treatment was accepted, the basis for demanding differential duty and imposing penalty ceased to exist. The assessee's appeals were allowed and the Revenue's appeals were rejected.

---

---

Issues: Whether grey fabric manufactured from duty-paid yarn and sent to job workers could be treated as intermediate goods so as to avail the benefit of Rule 16B of the Central Excise Rules, 2002, and whether the consequential demand of differential duty and penalty was sustainable.

Analysis: The dispute was covered by earlier Tribunal decisions holding that grey fabric manufactured out of duty-paid yarn, sent for further processing to job workers and thereafter received back for export clearance on payment of duty, is to be treated as intermediate goods for the purpose of the job work procedure. The legal position having already been settled, the contrary view taken in the impugned order could not be sustained. Once the grey fabric was eligible for treatment as intermediate goods, the foundation for confirming differential duty and for imposing penalty disappeared.

Conclusion: The grey fabric was held to be intermediate goods eligible for the benefit of Rule 16B, and the assessee's appeals were allowed while the Revenue's appeals were rejected.

---