2019 (9) TMI 273 - AT - Central Excise

Tribunal Rules Job Workers Liable for Excise Duty; Sets Aside Extended Demand; Affirms Cenvat Credit; Remands for Re-quantification.

The Tribunal confirmed the liability of job workers to pay excise duty if the principal manufacturer fails to comply with Notification No. 214/86-CE. The ... Liability of excise duty - job-work - case of the department is that the principal manufacturer are using the job worker manufactured goods in the manufacture of exempted goods, therefore, the job worker being a manufacturer are required to pay excise duty - Extended period of limitation - HELD THAT:- In the case of Thermax Babcock Wilcox Ltd [2017 (12) TMI 266 - CESTAT MUMBAI], Division Bench of Mumbai Tribunal referred the matter to Larger Bench and then only the Larger Bench has held that in case of job worker when the procedure under N/N. 214/86- CE is not followed and the principal manufacturer is not discharging the excise duty on their final product, job worker is required to pay excise duty. Therefore the appellants have correctly entertained the bonafide belief that on the basis of various judgments that excise duty was payable by the principal supplier of the raw material. It is settled law in various judgments in the case of Marsha Pharma Pvt. Ltd [2009 (6) TMI 818 - CESTAT, AHMEDABAD] which was upheld by Hon’ble Gujarat High Court in case of Charak Pharma P. Ltd [2012 (11) TMI 475 - GUJARAT HIGH COURT] that the demand for the extended period of limitation was not permissible when the issue was referred to Larger Bench of Tribunal - we have no hesitation in holding that since in the present case is of prior to Larger Bench decision, the matter was in favour of the assessee in many judgments and the matter was finally settled by Larger Bench. The period involved in the present case is much before the Larger Bench Decision, therefore, there is no malafide on the part of the appellant. Hence the demand for the extended period is set aside. If any demand for the normal period exists, the adjudicating authority should be recomputed - appeal allowed by way of remand. Issues Involved:1. Liability of job workers to pay excise duty on goods manufactured on job work basis.2. Applicability of extended period of limitation for demand of excise duty.3. Entitlement of job workers to Cenvat credit on raw materials supplied directly by the principal manufacturers.4. Proper valuation of goods produced on job work basis.Detailed Analysis:1. Liability of Job Workers to Pay Excise Duty:The core issue was whether job workers are liable to pay excise duty on goods manufactured for principal manufacturers. The appellants argued that based on various judgments, the duty was to be paid by the principal manufacturers. However, the Larger Bench in the case of Thermax Babcock Wilcox Ltd held that if the principal manufacturer does not follow the procedure under Notification No. 214/86-CE, the job worker is liable to pay the duty. The Tribunal acknowledged this Larger Bench decision, thereby confirming the liability of job workers to pay excise duty in such cases.2. Applicability of Extended Period of Limitation:The appellants contended that the extended period for demanding excise duty was not sustainable due to the genuine belief, based on prior judgments, that the duty was to be paid by the principal manufacturers. The Tribunal agreed, noting that the issue was legally contentious and referred to the Larger Bench only later. The Tribunal cited several cases, including Marsha Pharma Pvt. Ltd and Charak Pharma P. Ltd, which established that when an issue is referred to a Larger Bench, the extended period of limitation cannot be invoked. Consequently, the demand for the extended period was set aside.3. Entitlement to Cenvat Credit:The appellants claimed entitlement to Cenvat credit for raw materials supplied directly from the supplier to the job worker. The Tribunal agreed, provided the appellants could produce duty-paying documents for verification. This entitlement was supported by the judgments in Kirloskar Brothers Ltd and Apex Steel (P) Ltd.4. Proper Valuation of Goods Produced on Job Work Basis:The appellants argued for the deduction of excise duty on inputs when determining the value of goods produced on a job work basis. The Tribunal upheld this argument, referencing the Supreme Court judgment in Dai Ichi Karkaria Ltd, which confirmed that excise duty on inputs should be deducted for valuation purposes. The Tribunal directed the adjudicating authority to re-quantify the demand for the normal period by giving the benefit of Cenvat credit and appropriate deductions.Conclusion:The Tribunal set aside the demand for the extended period due to the absence of malafide intent and the contentious nature of the issue. For the normal period, the Tribunal remanded the case to the adjudicating authority to re-quantify the demand, allowing for Cenvat credit and proper valuation deductions. No penalties were imposed on the appellants due to the lack of malafide intent.