Job work duty liability and clandestine removal cannot rest on theoretical norms without reliable evidence of actual yield.
Where inputs or waste are sent for job work under the Cenvat Credit Rules and returned after processing with proper accounting, no separate duty arises on the job worker absent evidence of diversion or unaccounted clearance. The CESTAT also held that theoretical input-output norms cannot be used to allege excess production or clandestine removal when the scrap and waste involved have materially different recovery percentages and no reliable yield study or other factual proof supports the demand. On these findings, the duty demand and penalties could not survive, and the impugned adjudication was set aside.
Issues: (i) whether duty was payable on intermediate goods manufactured on job work basis when inputs were received from the principal under Rule 4(5)(a) of the Cenvat Credit Rules, 2004; (ii) whether standard input-output norms could be applied for determining yield and alleging clandestine removal in respect of diverse categories of waste and scrap supplied for job work.
Issue (i): whether duty was payable on intermediate goods manufactured on job work basis when inputs were received from the principal under Rule 4(5)(a) of the Cenvat Credit Rules, 2004?
Analysis: The Rule permits movement of inputs for job work and their return after processing. The settled position, as recognised in the cited larger bench and later decisions, is that where the goods sent for job work are returned after processing and duly accounted for, no separate duty liability arises on the job worker merely because processing was undertaken on job work basis.
Conclusion: No duty was payable on the goods processed by the appellant as job worker under Rule 4(5)(a) of the Cenvat Credit Rules, 2004.
Issue (ii): whether standard input-output norms could be applied for determining yield and alleging clandestine removal in respect of diverse categories of waste and scrap supplied for job work?
Analysis: The standard norm of 1 kg lead for 1.07 kg scrap was shown to relate to highly refined, standardised scrap with high metallic content. The waste and scrap received here comprised different categories with materially different recovery percentages. In the absence of sample yield studies or other reliable evidence, the department's theoretical calculations based only on standard norms could not sustain a finding of excess production or clandestine clearance.
Conclusion: The standard input-output norms were not rightly applied, and the allegation of clandestine removal was not established.
Final Conclusion: The demand and penalties could not survive, and the appeals succeeded with the adjudication order set aside.
Ratio Decidendi: Where inputs or waste are sent for job work under the applicable job-work provision and are returned after processing, duty cannot be demanded from the job worker absent evidence of diversion or unaccounted clearance; further, theoretical input-output norms cannot replace reliable factual proof of actual yield for alleging clandestine removal.
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