CKD/SKD boiler exemption and CENVAT credit on exempt clearances were sustained, while job-worker duty liability remained open.
Boilers cleared in CKD/SKD condition may still qualify for exemption where the parts together constitute a complete boiler and the notification covers the device as a whole; the exemption was therefore available on the facts described. Where the principal paid the prescribed 8% amount on exempt clearances, CENVAT credit on inputs used for the exempt boiler could not be denied on that ground, and the demand for reversal was unsustainable. Rule 4(5)(a) permits movement of inputs for job work but does not itself create an exemption from duty, so the question whether a job-worker must pay duty in such circumstances was left open for Larger Bench consideration.
Issues: (i) whether boilers cleared in CKD/SKD condition, where the parts constitute a complete boiler, were eligible for exemption under the relevant notification; (ii) whether CENVAT credit on inputs sent for job work was inadmissible where 8% amount was paid on exempt clearances; (iii) whether the job-worker was liable to pay duty on parts manufactured under Rule 4(5)(a) when the principal cleared the final product under exemption.
Issue (i): whether boilers cleared in CKD/SKD condition, where the parts constitute a complete boiler, were eligible for exemption under the relevant notification.
Analysis: The exemption was held to depend on the nature of the complete device and not on whether it was cleared in assembled form. The parts supplied formed a complete boiler and were erected at site. Earlier decisions and the Board's Section 37B clarification recognised that boilers cleared in CKD/SKD condition may still qualify for the exemption when the cleared goods form part of a complete device and the supply of that device is established.
Conclusion: The exemption was available to the boilers cleared in parts.
Issue (ii): whether CENVAT credit on inputs sent for job work was inadmissible where 8% amount was paid on exempt clearances.
Analysis: Since the principal paid the prescribed 8% amount on clearance of the exempt final product, the credit taken on inputs used in manufacture of the exempt boiler could not be denied on that ground. The demand for reversal of credit on inputs sent to the job-worker was therefore unsustainable.
Conclusion: The demand for disallowance of CENVAT credit was set aside.
Issue (iii): whether the job-worker was liable to pay duty on parts manufactured under Rule 4(5)(a) when the principal cleared the final product under exemption.
Analysis: The bench held that Rule 4(5)(a) only permits movement of inputs for job work and does not itself grant an exemption from duty. The competing decisions cited on job-worker liability were found to be distinguishable on their facts or not applicable to the present regime. As there were conflicting views on whether duty could be fastened on the job-worker in such circumstances, the question was referred for resolution by a Larger Bench.
Conclusion: The question of duty liability of the job-worker was not finally decided and was referred to a Larger Bench.
Final Conclusion: Exemption on boilers cleared in CKD/SKD condition and the related input-credit demand were decided in favour of the assessee, but the separate question of duty liability of the job-worker remained open for consideration by a Larger Bench.
Ratio Decidendi: A complete industrial device cleared in knocked down condition may still qualify for exemption where the notification covers the device as a whole, and a job-work provision that permits movement of inputs does not by itself create an exemption from duty.