Job worker entitled to input service credit under Rule 6 CCR 2004 for goods cleared under Notification 214/86-CE

CESTAT Hyderabad held that goods cleared by a job worker to their principal manufacturer under Notification 214/86-CE are not exempted goods for purposes of Rule 6 of CCR, 2004. The notification regulates movement of goods between principal manufacturer and job worker without duty payment, subject to compliance conditions. Since goods are not exempted goods, the appellant job worker was entitled to input service credit. The department's demand for 10% of job work value under Rule 6(3)(b) was unsustainable. Appeal allowed, impugned orders set aside.

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Issues Involved:
1. Admissibility of Cenvat credit on input services used for both manufacturing and job work.
2. Classification of goods cleared under Notification 214/86-CE as "exempted goods."
3. Applicability of Rule 6 of Cenvat Credit Rules, 2004.

Detailed Analysis:

1. Admissibility of Cenvat Credit on Input Services:
The Appellant, M/s Pitti Laminations Ltd, engaged in manufacturing electrical stampings and laminations, availed Cenvat credit on input services used for both their own manufacturing and job work. The Department argued that credit attributable to input services used for job work, amounting to Rs. 54,11,284/-, was inadmissible under Rule 2(l) and Rule 3 of CCR, 2004, asserting that only manufacturers, not job workers, are eligible for such credit. The Appellant contended that they were complying with Notification 214/86-CE, which allows job workers to clear goods without payment of duty, with the principal manufacturer eventually paying the duty.

2. Classification of Goods Cleared Under Notification 214/86-CE:
The Original Adjudicating Authority examined whether goods cleared to the principal manufacturer without payment of duty should be treated as exempted goods. The Authority concluded that goods cleared under Notification 214/86-CE are exempted from duty, thus attracting Rule 6(1) of CCR, which mandates the reversal of proportionate credit of input services attributable to exempted goods. The Appellant argued that Notification 214/86-CE does not make the goods "exempted goods" and cited multiple judgments to support their claim, including Federal Mogul Goetze India vs CCE and Precision Metals vs CCE.

3. Applicability of Rule 6 of CCR, 2004:
The Appellant argued that Rule 6(1) of CCR, which disallows Cenvat credit on inputs or input services used in the manufacture of exempted goods, does not apply as the goods cleared under Notification 214/86-CE are not exempted goods. They relied on the judgment in Federal Mogul Goetze India, which held that Notification 214/86-CE is not an exemption notification per se but shifts the duty liability to the principal manufacturer. The Tribunal agreed with the Appellant, referencing the Precision Metals case, which concluded that goods cleared under Notification 214/86-CE are not exempted goods and thus, Rule 6(3)(b) of CCR does not apply.

Conclusion:
The Tribunal held that the goods cleared under Notification 214/86-CE should not be treated as exempted goods and thus, the provisions of Rule 6 of CCR, 2004, do not apply. Consequently, the Appellant was entitled to avail Cenvat credit on input services used for both manufacturing and job work. The demand raised by the Department was found unsustainable, and the Impugned Orders were set aside. The appeals were allowed with consequential benefits as per law.

Order:
"Appeals are allowed with consequential benefits, if any, as per law."

(Pronounced in the Open Court on 11.06.2024)

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