Commissioner, Customs & Central Excise, Meerut-1 vs M/s Bharat Heavy Electricals Limited, Ranipur, Haridwar, Uttarakhand

Ramesh Ranganathan, CJ

This appeal, under Section 35-G of the Central Excise Act, 1944 (for short the "Act"), is preferred by the Revenue against the order passed by the Central Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi in its Final Order No. A/58139/2013-EX(DB) dated 31.102013.

The appeal before the CESTAT was preferred by the respondent-assessee aggrieved by the order passed by the Commissioner dated 30.11.2012 confirming the show cause notices issued earlier, and levying interest under Section 11AB and penalty of an equal amount under Rule 15(2) of the CENVAT Credit Rules, 2004 (for short the Rules).

Facts, to the limited extent necessary, are that the respondent-assessee is a manufacturer of turbines and electricity generating sets, which are chargeable to excise duty. They availed CENVAT credit for the excise duty paid on inputs and capital goods used in or in relation to manufacture of their final products. During the period from October, 2006 to March, 2011, and from April, 2011 to January, 2012, the assessee i.e. Bharat Heavy Electricals Ltd. (for short 'BHEL') was receiving excise duty paid inputs with respect to which they availed CENVAT credit. They, thereafter, sent the CENVAT credit availed inputs to job-workers without reversing CENVAT credit in terms of Rule 4(5)(a) of the Rules. The job-workers, in turn, processed the inputs received free of charge from BHEL; and, in the course of processing, used some of their own inputs in respect of which they had taken CENVAT credit. The processed inputs (intermediate products) were cleared by the job workers to BHEL, on payment of duty on a value equal to the cost of the inputs supplied free of charge by BHEL, excluding the excise duty credit of which had been taken by BHEL, plus the job charges, including the cost of their own material used, and without availing CENVAT credit on the value of free supply of inputs made by BHEL. The intermediate products were cleared by the job workers under invoices issued to BHEL and, on the basis of these invoices, BHEL took CENVAT credit of the duty paid by the job-workers.

On the ground that BHEL had availed CENVAT credit in respect of the same inputs twice, first at the time of receiving inputs in their factory before sending the same to job-workers, and thereafter a second time at the time of receiving intermediate products from the job-workers on which the job workers had paid duty on the value which included the value of the free supply inputs, a show cause notice was issued to BHEL for recovery of the CENVAT credit of a sum in excess of Rs. 3.70 crores for the period from October, 2006 to March, 2011, and another show cause notice was issued for recovery of the credit amount in excess of Rs. 1.09 crores for the period from April, 2011 to January, 2012. BHEL was also called upon to pay interest on the CENVAT credit, alleged to have been wrongly taken by them, under Rule 14 of the Rules read with Section 11AB of the Act. Penalty under Rule 15(2) of the Rules read with Section 11AC of the Act was also imposed. Aggrieved thereby, BHEL carried the matter in appeal to the CESTAT.

In the order under appeal before us, the CESTAT noted that BHEL had been receiving duty paid inputs, and had availed CENVAT credit in respect thereof; these CENVAT credit availed inputs were, thereafter, sent to their job-workers under Rule 4(5)(a) of the Rules, without reversal of credit, for being processed into intermediate products; in terms of Rule 4(5)(a) of the Rules, manufacturers, who had availed CENVAT credit in respect of inputs, could send those inputs for further processing, testing, repair, re-conditioning etc. or for manufacture of intermediate goods necessary for the manufacture of final products, or for any other purpose, provided the processed goods were received back in the factory within a period of 180 days; there was no condition that, for availing the facility of this Rule, the job-worker should avail full duty exemption under Notification No. 214/86-CE; there was no dispute that intermediate products, made out of the inputs supplied by BHEL, were received back from the job workers within the stipulated period; the only point of dispute was whether BHEL was eligible for CENVAT credit of the duty paid by the job-workers, on the intermediate products, which had been paid on the value equal to the cost of the free supply inputs excluding excise duty (the credit of which had been taken by BHEL), plus job charges plus value of other inputs of their own used by the said job workers for manufacture of the intermediate products; CENVAT credit was sought to be denied, of the duty on the intermediate products paid by the job workers, on the ground that, on the same inputs, CENVAT credit could not be availed twice, first at the time of receipt of inputs by BHEL in their factory from the input manufacturers, and a second time in respect of duty paid on intermediate goods made out of inputs supplied by BHEL upon receiving the same from the job-workers; there was no condition in Rule 4(5)(a) of the Rules that the job-workers should necessarily avail full duty exemption under Notification No. 214/86-CE; if the job worker decides to pay duty on the intermediate products, manufactured by him on job work basis for the principal manufacturer, in terms of the judgment of the Supreme Court in Ujagar Prints Vs. Union of India : 1989 (3) ELT 439 (SC), they would be required to pay duty on the cost of input plus job charges, including cost of their own inputs used in the manufacture; this is what the job workers had done in the present case; and when the inputs in question had suffered duty twice, first in the hands of input manufacturers from whom BHEL had procured the inputs, and the second time in the hands of the job-workers who, at the time of clearance of intermediate products, had paid duty on the value which included the cost of inputs; and credit of duty, paid on the intermediate products, could not be denied when such intermediate products were made out of those inputs, even if BHEL had availed CENVAT credit in respect of the inputs while receiving the same. The CESTAT further held that, in any case, the intermediate products, made out of inputs, were different from the inputs; and just because BHEL had availed CENVAT credit in respect of the inputs, the CENVAT credit of duty, paid on the intermediate products by the job-workers, could not be denied to the principal manufacturer i.e. the BHEL.

Sri Shobhit Saharia, learned Senior Standing Counsel for Central Excise, would reiterate the submissions urged by the Revenue before the Tribunal, and would contend that, since no excise duty was paid when free supplies were made to the job-workers, BHEL could not claim the benefit of CENVAT credit on intermediate products received by them from the job-workers; this was contrary to what was stipulated under Rule 4(5)(a) of the Rules; the findings recorded by the Tribunal are perverse; and perversity of findings gives rise to a substantial question of law warranting exercise of jurisdiction under Section 35-G of the Act.

On the other hand Sri Rupesh Kumar, learned counsel for the BHEL, would submit that the job-workers, to whom BHEL had made free supplies, had excluded excise duty paid on inputs by the suppliers of BHEL and had, thereafter, added the cost of value-addition to the free supplies received from BHEL; they had paid excise duty on the intermediate products; it is this excise duty, liability of which was passed on, of which BHEL had taken credit of; the intermediate products supplied by the job-workers to BHEL are not the free supplies sent to the job-workers by BHEL; in any event, the CENVAT credit claimed by BHEL is on excise duty paid to the Department, in the first instance by the input manufacturers, and at a later stage by the job-workers; since the CENVAT credit claimed by BHEL is on the excise duty paid to the Department (albeit twice), the Tribunal was justified in setting aside the order of the Commissioner, and in allowing the appeal preferred by BHEL; the Tribunal has recorded a finding that the free supplies received from BHEL by the job-workers were not sent back as it is, but as intermediate products; there was a value addition thereto; and the intermediate products supplied by the job-workers to BHEL was distinct from the free supplies made to them by BHEL.

Rule 4(5)(a) of the Rules, with respect to which the dispute in this appeal relates to, reads as under:

"4(5) (a) The CENVAT credit shall be allowed even if any inputs or capital goods as such or after being partially processed are sent to a job worker for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products or any other purpose, and it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker and if the inputs or the capital goods are not received back within one hundred eighty days, the manufacturer or provider of output service shall pay an amount equivalent to the CENVAT credit attributable to the inputs or capital goods by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of the provider of output service."

In terms of Rule 4(5) (a) of the Rules, CENVAT credit can be taken on duty paid on inputs, which are sent to job-workers for further processing, testing, repair, re-conditioning, or for the manufacture of intermediate goods necessary for the manufacture of final products, and the records, challans or memos or any other document, produced by the manufacturer taking CENVAT credit, should establish that the goods were received back in the factory within 180 days of their being sent to the job workers. If such inputs are not received back within one hundred eighty days, the manufacturer is then required to pay an amount equivalent to the CENVAT credit attributable to the inputs, and he can take CENVAT credit again when the inputs are received back in his factory.

In terms of Rule 4(5)(a), BHEL, which received duty paid inputs from its suppliers, was entitled to take CENVAT credit on the duty so paid. On free supplies being made to the job workers thereafter, the job-workers could have, without payment of excise duty, sent the goods (inputs) back to BHEL within 180 days after completing the job work; and in such an event, the CENVAT credit claimed earlier by BHEL would have remained valid. In terms of Rule 4(5)(a) of the Rules, in case the goods were not sent back within 180 days, BHEL was required to then reverse the CENVAT credit taken by them earlier, and claim CENVAT credit on the excise duty paid on the intermediate products.

It was open to the job-workers to claim exemption from payment of excise duty on the free supplies made to them by BHEL, and only to pay excise duty on the value addition to the free supplies, resulting in the intermediate products. In the present case the job-workers, however, did not claim the benefit of exemption. Instead they added the value of the inputs (less excise duty paid thereupon by BHEL), to the value of the additional material used by them, and paid excise duty on the total value of the intermediate products, and raised an invoice on BHEL.

While it is, no doubt, true that BHEL had claimed CENVAT credit twice, i.e. both on the excise duty paid on the inputs received by them from their suppliers, and on the duty paid on the intermediate products supplied to them by the job-workers, the fact also remains that, at both the stages, the CENVAT credit claimed by BHEL was only on the excise duty paid twice, in the first instance by the input manufacturers before effecting supplies to the BHEL, and the second time by the job-workers before supplying the intermediate products to BHEL. While this problem, of levy of excise duty twice on the very same products, could have been avoided, if the job-worker had claimed the benefit of exemption, the mere fact that the job-worker chose not to and, instead, paid excise duty on the intermediate products supplied by them to BHEL, would justify BHEL taking CENVAT credit on the excise duty paid by their suppliers (in the first instance the input manufactures, and in the second instance the job workers), since in both cases the burden of excise duty, paid by the input manufacturers and the job - workers, had been passed on to BHEL. The CENVAT credit, which BHEL had claimed, is, admittedly, the central excise duty paid on two occasions on these products. Further the CESTAT has also recorded a finding that the intermediate goods sent by the job-workers to BHEL was not the same as the free supplies made by BHEL to the job-worker, in which event Rule 4(5)(a) of the Rules would have no application, and the claim of CENVAT credit by BHEL would be justified.

We find no error, therefore, in the order of the CESTAT warranting interference in proceedings under Section 35-G of the Act, more so as we are satisfied that no substantial question of law arises for consideration in this appeal. The Appeal fails and is, accordingly, dismissed.