Job work removals and duty demand: permission-based clearance and revenue neutrality defeated customs and excise liability.

Capital goods removed to a job worker's premises under permission granted by the Deputy Commissioner were held not liable to customs duty where the goods were covered by the permission and no factual diversion was shown. On the excise side, locally procured capital goods sent for job work were also held not liable to duty where the assessee acted under a bona fide understanding that the permission covered the corresponding excise notification, no diversion was alleged, and the situation was revenue neutral because credit could be re-availed on return of the goods. The impugned order was set aside and the appeal was allowed with consequential reliefs.

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Issues: (i) Whether customs duty was recoverable on imported capital goods removed to a job worker's premises pursuant to permission granted by the Deputy Commissioner under Notification No. 52/2003-Cus. dated 31.03.2003. (ii) Whether excise duty was recoverable on locally procured capital goods removed to a job worker's premises without reversal of credit under the applicable credit rules and without a separate permission specifically under Notification No. 22/2003-C.E. dated 31.03.2003.

Issue (i): Whether customs duty was recoverable on imported capital goods removed to a job worker's premises pursuant to permission granted by the Deputy Commissioner under Notification No. 52/2003-Cus. dated 31.03.2003.

Analysis: The removal of the imported capital goods had been made after the appellant sought permission for job work clearance and the Deputy Commissioner granted permission by letter dated 05.05.2004. The annexure to that permission identified the capital goods covered, and the goods in dispute were included. Once removal was made in accordance with that permission, the later allegation that the notification conditions were violated could not be sustained on the facts.

Conclusion: The demand of customs duty was unsustainable and was set aside in favour of the assessee.

Issue (ii): Whether excise duty was recoverable on locally procured capital goods removed to a job worker's premises without reversal of credit under the applicable credit rules and without a separate permission specifically under Notification No. 22/2003-C.E. dated 31.03.2003.

Analysis: The capital goods were removed for job work and there was no allegation of diversion. The Tribunal accepted that the appellant proceeded under a bona fide understanding that the permission granted for the customs notification would cover the similarly worded excise notification. It also held that, even if credit had been reversed on removal, the appellant would have been entitled to take credit again on return of the goods, making the exercise revenue neutral. In that situation, the duty demand could not stand.

Conclusion: The excise duty demand was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential reliefs.

Ratio Decidendi: Where capital goods are removed for job work in accordance with granted permission and no diversion is shown, duty demand cannot be sustained merely on a later contrary view of the notification conditions, especially where the transaction is revenue neutral.

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