Job-work classification of grey fabrics: treated as inputs or intermediate products where the final processed fabric was exported after duty payment.

Grey fabrics sent to a job worker for further processing were treated as inputs or intermediate products when the undisputed final product was processed fabric cleared on export after duty payment. The Cenvat Credit Rules permitted such movement to a job worker for additional processing, and the provision allowing export clearance from the job worker's premises supported that treatment. The contrary view that the grey fabrics were finished goods was held to be incorrect, and the duty demand on the grey fabrics was set aside.

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Issues: Whether grey fabrics sent to a job worker for processing were to be treated as inputs or intermediate products for the purposes of job work under the Cenvat Credit Rules, and whether duty could be demanded on the grey fabrics despite the processed fabrics being exported on payment of duty.

Analysis: The categorisation of grey fabrics had to be determined with reference to the final product cleared from the assessee's hands. Since the undisputed final product was processed fabrics and duty had been discharged at that stage, the grey fabrics sent for further processing were to be treated as input or intermediate products. Rule 4(5)(a) permitted such goods to be sent to a job worker for further processing, and the permission under Rule 4(6) enabled clearance of the processed fabrics for export from the job worker's premises on payment of appropriate duty. The contrary view that the grey fabrics were finished goods was held to be erroneous.

Conclusion: The demand of duty on the grey fabrics was unsustainable and was set aside. The assessee's appeal succeeded and the Revenue's appeal failed.

Ratio Decidendi: Where goods sent to a job worker are further processed into the final export product, their character must be determined with reference to that final product, and such goods are to be treated as inputs or intermediate products for job work purposes.

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