Job-work processing of grey fabrics permits intermediate transfer; duty cannot be demanded before final processed clearance.

Grey fabrics sent to a job worker for further processing were treated as inputs or intermediate goods under Rule 4(5)(a) of the Cenvat Credit Rules and Rule 12B of the Central Excise Rules. Their classification had to be assessed in relation to the final processed fabric cleared by the assessee, and not in isolation at the intermediate stage. Because duty had already been paid on the final processed fabric, the statutory job-work route remained available and duty could not be demanded on the grey fabrics before completion of processing. The demand on the intermediate stage was therefore unsustainable.

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Issues: Whether grey fabrics sent to a job worker for further processing were to be treated as inputs or intermediate goods for the purpose of Rule 4(5)(a) of the Cenvat Credit Rules and Rule 12B of the Central Excise Rules, and whether duty could be demanded on the grey fabrics at that intermediate stage.

Analysis: The relevant classification of the grey fabrics had to be determined with reference to the final product cleared by the assessee. Since the final product was processed fabric on which duty had been duly paid, the grey fabrics could not be viewed in isolation as finished goods for the purpose of denying the job-work route. The statutory provisions permitted sending such goods to a job worker for further processing, and the demand raised on the intermediate grey fabrics was inconsistent with that scheme.

Conclusion: The grey fabrics were rightly treated as inputs or intermediate goods, and the demand of duty on that stage was unsustainable. The assessee succeeded and the Revenue's challenge failed.

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