2018 (9) TMI 1058 - AT - Central Excise

Tribunal sets aside orders based on Notification interpretation, show cause scope, cenvat credit rules

The Tribunal allowed all appeals, setting aside the impugned orders. The decision was based on the interpretation of Notification No.214/86-CE, the scope ... Cenvat credit admissibility on inputs used in manufacture of job-worked goods - scope of show cause notice and change of ground (going beyond SCN) - Notification No.214/86-CE as postponement of duty liability and shifting of payment obligation - requirement to maintain separate accounts or apportionment for inputs used for dutiable and exempted goods - status of job worker as manufacturer of final product for purposes of creditScope of show cause notice and change of ground (going beyond SCN) - Impugned orders proceeded on a ground different from that taken in the show cause notices and therefore went beyond the scope of the SCNs. - HELD THAT: - The adjudicating authority accepted the appellants' contention that the SCNs had charged irregular availment of cenvat credit because furnace oil was used for both dutiable and job-work goods and had required separate accounts/apportionment. However, the orders confirmed demand on the alternative basis that the appellants were not 'manufacturer of final products' and therefore furnace oil used for job-work goods was not an 'input' for the appellants. That proposition was not canvassed in the SCNs and amounted to changing the goal posts. Applying the settled principle that adjudication must not travel beyond the terms of the show cause notice, the impugned orders suffer from the infirmity of raising and deciding a fresh ground not put to the appellants and cannot be sustained (relying on authorities noted in the judgment, e.g. Commissioner Vs Marubeni India Pvt. Ltd. ; CCE Nagpur Vs Ballarpur Industries Ltd. ; H.S. Nataraj Vs CCE Bangalore ; Tube Products of India Ltd. Vs CCE Chennai ; Varsed Detective & Security Pvt. Ltd. Vs CCE Jaipur ). [Paras 4, 5, 7]Impugned orders set aside insofar as they proceed on a ground which was not the subject of the SCNs.Cenvat credit admissibility on inputs used in manufacture of job-worked goods - Notification No.214/86-CE as postponement of duty liability and shifting of payment obligation - status of job worker as manufacturer of final product for purposes of credit - On merits, cenvat credit on furnace oil used by the job worker for manufacture of job-worked goods is admissible and the impugned demands cannot be sustained. - HELD THAT: - The Tribunal accepted the view that Notification No.214/86-CE does not operate as an unconditional exemption but postpones and shifts the liability to pay duty to the principal manufacturer; a job worker who undertakes manufacturing operations is legally the manufacturer of the goods he produces. Relying on the Tribunal's precedent in Federal Mogul Goetze India Ltd. Vs CCE Bangalore and the Larger Bench decision in Sterlite Industries (I) Ltd. Vs CCE Pune , the Tribunal held that inputs used by the job worker in manufacture of job-worked items which are cleared without payment by the job worker (with duty to be discharged by the principal) are not disqualified per se from cenvat credit. Consequently, the demands and penalties predicated on disallowance of credit for furnace oil used in job work were unsustainable on merits and were set aside. [Paras 7, 8, 9]Appeals allowed on merits; demands and penalties confirmed by the authorities are set aside.Final Conclusion: The appeals are allowed: the impugned orders are quashed insofar as they proceed on a ground not raised in the SCNs, and on the merits the Tribunal held that cenvat credit on furnace oil used in job work is admissible in the circumstances; consequential relief granted as per law. Issues:- Dispute over availing cenvat credit on furnace oil used for manufacturing goods under job work basis.- Allegations of irregular cenvat credit availed leading to demand, interest, and penalties.- Interpretation of Notification No.214/86-CE and its applicability to job work goods.- Imposition of penalties on the appellant.- Scope of show cause notices (SCNs) and adjudicating authorities' decisions.Analysis:1. Dispute over Cenvat Credit on Furnace Oil:The appellants, engaged in manufacturing Hot Rolled Steel Products, availed cenvat credit on furnace oil used for reheating ingots/billets. The dispute arose as the department alleged that the appellants availed credit on furnace oil used for both dutiable and exempted goods. The department demanded irregularly taken cenvat credit amounts, leading to show cause notices and penalties.2. Interpretation of Notification No.214/86-CE:The crux of the matter revolved around the interpretation of Notification No.214/86-CE. The appellants argued that the goods manufactured under job work basis were exempted goods under the notification. However, the adjudicating authority held that the appellants, as job workers, were not the manufacturers of final products, thus disallowing the credit on furnace oil used for job work goods.3. Penalties Imposition:The appellants contended that penalties imposed were unjustified as there was no intent to evade duty payment. They believed they were eligible for cenvat credit in good faith. The department supported the penalties, emphasizing the necessity to comply with Cenvat Credit Rules.4. Scope of Show Cause Notices and Adjudication:The appellants argued that the demands in the impugned orders differed from the grounds in the show cause notices. They contended that the authorities went beyond the scope of SCNs by changing the basis of demand. The Tribunal agreed with the appellants, citing various precedents and held that the impugned orders were unsustainable.5. Judicial Precedents and Tribunal Decisions:The Tribunal referred to past judgments, such as Federal Mogul Goetze India Ltd. Vs CCE Bangalore, to support its decision. It highlighted that Notification No.214/86-CE does not unconditionally exempt goods but shifts the duty payment liability to the principal manufacturer. The Tribunal also cited Sterlite Industries (I) Ltd. Vs CCE Pune to reinforce the appellants' argument regarding cenvat credit on inputs used in the final product.In conclusion, the Tribunal allowed all appeals, setting aside the impugned orders. The decision was based on the interpretation of Notification No.214/86-CE, the scope of show cause notices, and the applicability of cenvat credit rules to job work goods. The judgment emphasized the importance of maintaining clarity and consistency in demands raised through show cause notices.