Job-work machining in manufacturing chain is not an exempted service for denying Cenvat credit on input services.

Machining operations performed by a job worker on semi-finished goods under a job-work arrangement were treated as part of the principal manufacturer's manufacturing chain, not as an exempted service under Notification No. 25/2012-ST. Because the final products were cleared on payment of Central Excise duty and the intermediate activity was carried out on behalf of the principal manufacturer, the process could not be used to deny Cenvat credit on input services. The Tribunal therefore held that the credit was admissible and the adverse order was set aside with consequential relief.

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Issues: Whether machining operations carried out by a job worker on semi-finished goods received under job-work arrangements constituted an exempted service under Notification No. 25/2012-ST so as to disentitle the assessee from Cenvat credit on input services used in such operations.

Analysis: The assessee was undisputedly working as a job worker for the principal manufacturer, and the goods were received and returned under the job-work mechanism. The activity was undertaken as part of the manufacturing chain for the principal manufacturer, whose final products were cleared on payment of Central Excise duty. In this setting, Notification No. 214/86 and the job-work arrangement showed that the assessee was carrying out a part of the manufacturing activity on behalf of the principal manufacturer. The mere fact that the intermediate machining process may not independently amount to manufacture did not make the activity an exempted service for the purpose of denying credit. The conclusion was supported by the cited Tribunal decisions on similar job-work based manufacturing arrangements.

Conclusion: The denial of Cenvat credit on input services was not justified, as the machining activity was not to be treated as an exempted service in the facts of the case.

Final Conclusion: The assessee was entitled to the credit claimed and the adverse order was set aside with consequential relief.

Ratio Decidendi: Where job-work machining is undertaken as part of the manufacturing activity of the principal manufacturer and the finished goods suffer duty, the intermediate job-work process is not to be treated as an exempted service for denying Cenvat credit on input services used in that process.

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