2025 (11) TMI 4 - AT - Central Excise

Rule 4(5)(a) CCR 2004 governs job-work removals; input CENVAT credit allowed before and after job-work as distinct events

M/s. Proventus Life Sciences Pvt. Ltd. Versus Commissioner of GST and Central Excise, Chennai

CESTAT held that Rule 4(5)(a) of CCR 2004 governs job-work removals and not Rule 3(5); the appellant validly availed CENVAT credit on inputs before ... Availment of CENVAT credit twice for the same inputs - non issuance of excise invoice for removal of inputs to job worker - non-reversal of CENVAT credit for as such removal of inputs to the job worker - levy of interest and penalties - HELD THAT:- The job-worker on processing, pays duty on the intermediate products and goods returned back under Job Work Challan and Duty paid Invoice. It is found that such duty paid by the job-worker is a distinct duty event in respect of the intermediate product as compared to the removal of inputs for Job work. Rule 4(5)(a) expressly allows sending of inputs to job-workers without reversal and contemplates re-availment of credit when inputs/intermediate goods are received back after duty payment by the job-worker. The principal’s availment on receipt is therefore within the statutory scheme. It is found from the records that the movement of inputs is for bona fide job-work (not a commercial sale/transfer) as evidenced from the job-work challans and the goods were intended to be returned. It is not disputed anywhere that the movement was in substance a removal as such to the job worker where the goods were sold and not expected back and where documents show sale/ transfer, in such cases Rule 3(5) and payment obligation can be invoked - the applicable Rule for Job work is Rule 4(5)(a) and not Rule 3 (5) as held by the Respondent. The application of Rule 3(5) by the Department is overruled in the impugned Orders and it is held that the correct Rule governing Job work is 4(5)(a) of CCR 2004. From the Rule 2(k)(i) of CCR, it is clear that whatever be the input received back whether known as inputs or intermediate goods are inputs at the hands of the Appellant and they are eligible for Credit on the goods returned back - the respondent has not given any clear findings as to whether the double-availment presupposes that the appellant has effectively claimed credit twice for the same duty component — i.e., the identical duty head/amount on the same physical quantity and on the same taxable event. The onus to demonstrate such identity rests with the Revenue. In the present case the appellant has produced job-worker invoices, Challans, showing the separate duty event and the actual payment by the job-worker. It is found that the documents show that the original CENVAT taken related to duty on the raw input; the subsequent credit relates to the duty paid on the intermediate product (a different taxable event and in value composition different from original). Further it is not disputed that there is no sale or clearance of goods to attract the provisions of Rule 3(5) of CCR 2004. The Revenue has also not produced evidence showing any identical duty element being availed twice by the appellant. The availment of credit on the goods before being sent for the Job work and after it is received back from job work is in Order and there is no dual availment of CENVAT Credit and the Impugned Order-in-Original are not sustainable and so, ordered to be set aside - As the demand for reversal of CENVAT Credit is set aside, the demand of interest thereon and penalties will automatically get extinguished. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether reversal of CENVAT credit was required when inputs, on which credit had been taken on receipt, were sent 'as such' to a job-worker and subsequently returned after job-work. 2. Whether the payment of excise duty by the job-worker on job-worked/intermediate goods and subsequent availment of CENVAT credit by the principal constituted double-availment (double credit) on the same input. 3. Whether interest and penalties could be imposed consequent to the demand for reversal of CENVAT credit. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of Rule 4(5)(a) v. Rule 3(5) (Reversal on removal 'as such' v. job-work regime) Legal framework: Rule 3(5) CCR 2004 requires payment of an amount equal to credit availed when inputs/capital goods are removed 'as such' from the factory (e.g., sale/transfer/clearance as such). Rule 4(5)(a) CCR 2004 expressly permits sending inputs (as such or partially processed) to a job-worker without reversal of credit provided specified conditions/time-limits (notably receipt back within 180 days) are complied with; if not received within stipulated time, payment equivalent to credit is required with possibility of re-credit on return. Precedent treatment: The Court examined CBEC Circular No. 990/14/2014-CX-8 clarifying operation of Rule 4(5)(a) (180-day rule; payment and re-credit mechanics) and relied on tribunal decisions applying Rule 4(5)(a) in job-work contexts (e.g., decisions declared in the judgment summarised below). Interpretation and reasoning: On a plain reading, Rule 3(5) governs genuine removals 'as such' (sale/transfer) and cannot be equated with bona fide job-work movements which are squarely covered by Rule 4(5)(a). The record showed bona fide job-work (delivery challans, intent to return, no sale/transfer) and receipt back within prescribed period, making Rule 4(5)(a) the operative provision. The payment of duty by the job-worker on intermediate goods constitutes a distinct duty event and does not convert the job-work removal into an actionable 'removal as such' under Rule 3(5). Ratio vs. Obiter: Ratio - Rule 4(5)(a) governs inputs sent to job-workers; Rule 3(5) was not applicable where movement is bona fide job-work and returns occur within the stipulated period. Obiter - explanatory observations about practical operation of CBEC circulars and procedural features of re-credit. Conclusion: The Tribunal overruled application of Rule 3(5) by the department in the impugned orders and held that Rule 4(5)(a) CCR 2004 is the correct governing provision for the job-work transactions under consideration. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Whether availment after return constitutes double-availment Legal framework: CENVAT credit is allowable on inputs used in the factory per Rule 2(k)(i); Rule 4(5)(a) contemplates allowance of credit on inputs sent for job-work and re-availment when inputs/intermediate goods are received back after duty payment by job-worker. Precedent treatment: Tribunal decisions were followed which held that intermediate products made out of inputs are different from inputs and credit of duty paid on intermediate products by job-workers cannot be denied merely because credit was earlier availed on raw inputs (Bharat Heavy Electricals Ltd.; Thermax Ltd.; and other tribunal/court precedents relied upon by the appellant and considered persuasive). Interpretation and reasoning: The revenue failed to demonstrate identity of the alleged double claim - i.e., the same duty component on the same physical quantity and the same taxable event. Documentary evidence (delivery challans, job-worker invoices, central excise invoices) showed (a) initial credit related to duty on raw inputs at receipt; (b) subsequent duty by the job-worker related to the intermediate product (distinct taxable event and value composition), and (c) no sale/clearance that would trigger Rule 3(5). Rule 2(k)(i) supports that goods received back and used in the factory qualify as inputs eligible for credit. The onus to prove double-availment rests with the Revenue, which did not establish identity of duty twice claimed. Ratio vs. Obiter: Ratio - Where inputs are sent for bona fide job-work and intermediate goods returned (with job-worker having paid duty on the intermediate), availment of credit upon return does not amount to impermissible double-availment; credits relate to different duty events and distinct taxable values. Obiter - remarks on the absence of any requirement in Rule 4(5)(a) that job-workers must avail conditional exemption schemes for the principal to claim credit. Conclusion: There was no double-availment; the appellant's availment of credit on receipt and again on receipt of intermediate goods after job-work was sustainable under Rule 4(5)(a) and related jurisprudence. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Interest and penalties Legal framework: Interest and penalties arise only upon a valid demand (e.g., confirmed reversal/payment obligation). If the underlying demand is unsustainable, ancillary interest and penalty demands fall away. Precedent treatment: The Court applied the logical sequence that extinguishing the principal demand (reversal) negates the basis for interest and penalty imposed in consequence of that demand. Interpretation and reasoning: Since the demand for reversal of CENVAT credit was set aside on substantive legal grounds (Rule 4(5)(a) applicable; no double-availment), the consequential claims for interest and penalties lack sustenance and are automatically extinguished. Ratio vs. Obiter: Ratio - Interest and penalties tied to an unsustainable demand for reversal are extinguished; no separate basis remained to impose them. Obiter - none significant beyond the necessary consequence. Conclusion: Interest and penalties consequential to the disallowed demand for reversal were set aside. OVERALL CONCLUSION The Tribunal held that the correct legal regime for the movements in dispute was Rule 4(5)(a) CCR 2004 (job-work provisions), not Rule 3(5); the job-worker's payment of duty on intermediate goods was a distinct taxable event and did not result in impermissible double-availment of CENVAT credit by the principal; accordingly, demands for reversal of credit, and consequential interest and penalties, were unsustainable and were set aside. The Appeals were allowed with consequential benefits if any, as per law.