Intermediate Goods Captively Consumed For Manufacture Of Exempted Final Products Does Not Attract Excise Duty: CESTAT

The appellant/assessee is engaged in the manufacture of brass parts of agricultural products falling under Chapter sub-heading 8424900 of the Central Excise Tariff Act, 1985. As per Notification No. 03/2005-CE dated 24.02.2005, brass parts of agricultural products are exempted from payment of Central Excise duty.

The appellants are manufacturing intermediate products, viz., brass casted rods, at their own factory and also getting them manufactured at the place of job workers. They used brass-cast rods captively. On this captive consumption of the Brass Casted Rods which are used for the manufacture of the final product, the appellant claimed exemption under Notification No. 67/95-C.E., dated 16-3-1995; Notification 83/94-CE and 84/94-CE, both dated 11.04.1994. The appellants were issued a show cause notice proposing a demand for excise duty of Rs. 11,55,62,312 on intermediate goods. The demand for duty was confirmed by the Commissioner and a penalty equivalent to the duty under Section 11AC was also imposed. In addition, a personal penalty of Rs 5,00,000 was also imposed on the director of the appellant company.

The appellant submitted that they had not availed of the Cenvat Credit under the Cenvat Credit Rules, 2004. Therefore, they complied with the provisions of discharged obligation under Rule 6 of the CCR, 2004. Thus, they are eligible for exemption for intermediate goods viz. Brass Cast Rods manufactured in their factory and used captively for the manufacture of parts of agricultural equipment in terms of clause (vi) of Notification No. 67/95-CE dated 16.03.1995.

The appellant submitted that goods manufactured on a job work basis are exempted from duty of excise under Notification No. 83/94-C.E. dated 11.04.1994 and applies to intermediate goods. The Notification No. 84/94-C.E. dated 11.04.1994 applies to waste and scrap sent to job workers for the manufacture of intermediate goods. Therefore, confirmation of demand of Rs. 3,94,46,239 on intermediate goods manufactured on a job work basis is also liable to be quashed. If it is upheld that duty excise is payable on intermediate goods, then it is admissible for set off against CENVAT credit of duty paid on brass scrap.

The department argued that with regard to the manufacture of brass casted rods at the place of job worker, the appellant has given an undertaking that they will pay the Central Excise Duty, if any, payable on goods. Thus, the appellant is liable to pay duty. Provisions of Notification No. 8/2003-CE dated 01.03.2003 cannot be applied as the final products, viz., brass parts of agricultural products manufactured by the appellant, are exempted from the excise duty.

The issue raised was whether Central Excise Duty is payable on the intermediate products manufactured at the unit owned by the appellant and Job Work Basis and used in the manufacture of exempted final products.

The CESTAT observed that even if the benefit of job-work notification is denied to the Appellant, the duty liability rests with the job worker. Therefore, the show cause notice demanding duty from the appellant on the goods manufactured by the job worker cannot be sustained.

"Once the Revenue took a view that the inputs could not have been sent to a job worker claiming the job-work exemption notifications and the process undertaken by the job worker amounted to manufacture and resulted in products, namely, Brass Casted Rods, the duty liability would fall on the manufacturer, who is a job worker in this case, and not on the appellant. Since a duty demand has been made on brass casted rods and the appellant is not a manufacturer of the same, the demand is not sustainable and, accordingly, the impugned order demanding duty from the appellant is legally not correct," the CESTAT said.

Case Title: Spray King Agro Equipment Pvt Ltd Versus C.C.E. & S.T.-Rajkot

Citation: Excise Appeal No. 11901 of 2013

Dated: 05.05.2022

Counsel For Appellant: Advocate P.D Rachchh

Counsel For Respondent: Additional Commissioner T.G Rathod

Click Here To Read/Download Order