Appellant entitled to Cenvat Credit on paints for job work activities. Commissioner's order set aside.

The Tribunal held that the appellant was entitled to avail Cenvat Credit on paints used in job work activities. The impugned order by the Commissioner (Appeal) was set aside, and the appeal was allowed, providing consequential relief to the appellant as per law. The judgment was pronounced on 07.01.2020.

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Issues Involved:
1. Entitlement to Cenvat Credit on paints used in job work.
2. Interpretation of Rule 3 of the Cenvat Credit Rules.
3. Applicability of Notification No. 214/1986-CE.
4. Treatment of goods cleared under Notification No. 214/86-CE as exempted goods.

Issue-wise Detailed Analysis:

1. Entitlement to Cenvat Credit on paints used in job work:
The appellant, engaged in manufacturing motor vehicle parts and accessories, availed Cenvat Credit on paints used during job work activities. The department alleged that since the appellant did not pay Central Excise duty on the job work, the Cenvat Credit on paints was illegally availed. The appellant argued that they were entitled to the credit as the paints were used in the job work, and the cost of paints was separately shown in the invoices. The Tribunal referred to previous judgments, including Sterlite Industries India Limited vs. Commissioner of Central Excise and M/s Escort Ltd. Vs. Commissioner, which supported the appellant's claim that Cenvat Credit is permissible even if the job work goods are returned to the principal manufacturer without payment of duty, provided the final product is cleared on payment of duty.

2. Interpretation of Rule 3 of the Cenvat Credit Rules:
The appellant contended that the original adjudicating authority and the Commissioner (Appeal) misinterpreted Rule 3 of the Cenvat Credit Rules. They argued that the paint used in job work should not be considered as cleared "as such" under Rule 3(5). The Tribunal agreed with the appellant's interpretation, citing that the job worker is entitled to Cenvat Credit for inputs used directly in manufacturing goods on a job work basis, as established in previous cases like Bajaj Tempo and Jindal Polymers.

3. Applicability of Notification No. 214/1986-CE:
The appellant operated under Notification No. 214/1986-CE, which allows job workers to clear processed goods without payment of duty, provided the principal manufacturer uses these goods in the manufacture of final products that are cleared on payment of duty. The Tribunal noted that this notification merely postpones the duty payment and shifts the liability to the principal manufacturer. The Tribunal concluded that treating goods cleared under this notification as exempted is incorrect, as the principal manufacturer ultimately pays the duty.

4. Treatment of goods cleared under Notification No. 214/86-CE as exempted goods:
The Tribunal emphasized that goods cleared under Notification No. 214/86-CE should not be treated as exempted goods. The notification does not exempt the goods unconditionally but shifts the duty liability to the principal manufacturer. The Tribunal referred to the judgment in MPI Papers Pvt. Ltd. Vs. Commissioner of Central Excise, which held that goods cleared under such notifications are not exempted and thus, Rule 6 of the Cenvat Credit Rules does not apply. The Tribunal also cited the Punjab and Haryana High Court's decision in Commissioner of Central Excise, Ludhiana Vs. Jaisons Wool Coomber Ltd., which supported the appellant's position.

Conclusion:
The Tribunal found that the appellant was entitled to avail Cenvat Credit on paints used in job work activities. The impugned order by the Commissioner (Appeal) was set aside, and the appeal was allowed, providing consequential relief to the appellant as per law. The judgment was pronounced on 07.01.2020.

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