2018 (1) TMI 684 - AT - Central Excise

Tribunal rules in favor of appellants in Service Tax assessment case, clarifies Central Excise duty responsibility

M/s Vacmet India Ltd., Unit - II & III (Formerly known as M/s Vacmet Packagings (India) Pvt. Ltd. Unit II & III) Versus Commissioner of Central Excise, Lucknow

The Tribunal ruled in favor of the appellants in a case involving the assessment of Service Tax on job work and stock transfer. The Tribunal found that ... CENVAT credit - job-work - It appeared to Revenue that the semi processed goods which were sent back to the principal manufacturers were exempted goods and therefore, on the value of such goods under Sub-rule (3) of Rule 6 of Cenvat Credit Rules, 2004, appellants were required to pay Service Tax, amount at prescribed rate of 8 or 10% during the relevant period. Held that: - the goods which were processed by the appellants on being received from the principal manufacturer, which were returned back to the principal manufacturer were not exempted goods since the same were subjected to Central Excise duty and responsibility to pay Central Excise duty on the said goods was on the principal manufacturer as per the provisions of N/N. 214/86-CE dated 25/03/1986 - the issue settled by Larger Bench decision by this Tribunal in the case of Ispat Industries Ltd. Versus Commissioner of Central Excise, Raigad [2007 (2) TMI 5 - CESTAT, MUMBAI] is squarely applicable in the present case, in respect of the confirmation of demand on account of short payment of levy - appeal allowed - decided in favor of appellant. Issues involved:1. Assessment of Service Tax on job work and stock transfer.2. Application of Rule 6(3) of the Cenvat Credit Rules, 2004.3. Allegation of undervaluation of goods stock transferred.4. Interpretation of Notification No. 214/86-CE dated 25/03/1986.5. Compliance with Central Excise Valuation Rules.Analysis:1. Assessment of Service Tax on job work and stock transfer:The appellants were engaged in job work of Metallization of Polyester or Plastic Films for customers availing exemption under Notification No. 214/86-CE. The Revenue claimed that on semi-processed goods sent back to principal manufacturers, Service Tax was payable under Rule 6(3) of Cenvat Credit Rules, 2004. The appellants argued that as the goods were not sold but returned after job work, the Rule did not apply. The Tribunal found that the processed goods were not exempted and the responsibility to pay Central Excise duty rested with the principal manufacturer, as per the Notification. The Tribunal ruled in favor of the appellants, setting aside the Order-in-Original.2. Application of Rule 6(3) of the Cenvat Credit Rules, 2004:The Revenue demanded Service Tax under Rule 6(3) on the processed goods sent back to principal manufacturers. The appellants contended that as the goods were not sold but returned after job work, the Rule did not apply. The Tribunal agreed with the appellants, emphasizing that the goods were not exempted and the duty liability lay with the principal manufacturer as per the Notification.3. Allegation of undervaluation of goods stock transferred:The Revenue alleged undervaluation of goods stock transferred to other units, invoking Section 11A of the Central Excise Act, 1944. The Order-in-Original confirmed the demand and imposed penalties. The appellants argued that the entire operation was known to the Revenue, so the extended period of limitation did not apply. The Tribunal found the Order-in-Original to be legally flawed and set it aside.4. Interpretation of Notification No. 214/86-CE dated 25/03/1986:The appellants relied on the Notification to argue that the processed goods were not exempted and the duty liability rested with the principal manufacturer. They contended that the goods were not sold but returned after job work, thus Rule 6(3) did not apply. The Tribunal agreed with this interpretation, ruling in favor of the appellants.5. Compliance with Central Excise Valuation Rules:The Revenue demanded duty under Rule 8 of the Central Excise Valuation Rules on stock transfers. The appellants argued that the demands did not follow the prescribed procedure for determining assessable value. The Tribunal referenced a Larger Bench decision, stating that Rule 4 should be preferred over Rule 8 in cases involving sales to independent buyers. The Order-in-Original was set aside, and the appeals were allowed by the Tribunal.This detailed analysis covers the issues raised in the legal judgment, highlighting the arguments presented by both parties and the Tribunal's findings on each issue.