M/s Shantaram Machineries P Ltd vs Commissioner Of CCGST, Kolhapur

Dr. Suvendu Kumar Pati, Member (J)

Denial of CENVAT Credit to the Appellant by the Commissioner of Central Tax (Appeals-I), Pune on the ground that Appellant had not followed the procedure contained in Rule 6(3) of the CENVAT Credit Rules, 2004 and not reversed proportionate credit against exempted services provided by it as job worker and confirmation of demand for its recovery under Rule 14 alongwith interest as well as penalty under Rule 15(1)&(2) is assailed in this appeal.

Facts of the case, in brief, is that Appellant is a manufacturer of excisable goods namely Sugar Mill Roller, Lathe Machines and parts of mill assembly against clearance of which appropriate Central Excise duty liability was discharged by it. Alongwith manufacturing, it has also carried out certain job work activities for other principal manufacturers and engaged in processing of semi-finished goods received from the principal manufacturer which were being processed and return back to the principal manufacturer without payment of duty as per Notification No. 214/86-C.E. dated 25.03.1986 for further processing and its clearance as final product on payment of appropriate duty. Appellant’s documents were scrutinised during the course of Audit for the year July, 2012 to March, 2016 and as per audit objection Department issued a show-cause notice to the Appellant demanding Rs.31,53,734/- with interest and penalty for not maintaining separate records by holding job work carried out by the Appellant as exempted service, against which separate maintenance of records on common inputs like manpower requirement/security, Chartered Accountant service, maintenance and repair services were not done. Upon reply to the show-cause notice Appellant suffered adjudication process and approached the Commissioner (Appeals) after the Adjudicating Authority confirmed the demand, interest and penalty but the same yielded no fruitful result, for which this appeal is preferred by the Appellant before this Tribunal.

During course of hearing of the appeal, Learned Counsel for the Appellant Mr. J.N. Somaiya submitted that issue involved in this appeal is fully settled in favour of the Appellant-Assessee in the case of Shree Organo Chemicals Ahmedabad P. Ltd. Vs. CCE reported in 2019 (2) TMI-852, CCE Vs. DM Brass Extrusion & Ors. Reported in 2018 (6) TMI – 1420, Industrial Heat Treaters & Ors. Vs. CCE reported in 2017 (12) TMI 1210, Western India Forging Pvt. Ltd. Vs. CCE reported in 2014 (36) STR 637, JBF Industries Vs. CCE reported in 2014 (34) STR – 345, and even for the subsequent period the demands raised against other job workers situated in the same Commissionerate were also dropped by the Adjudicating Authorities. In citing judgement of the Hon'ble Supreme Court passed in the case of Escorts Ltd. Vs. CCE reported in 2004 (171) ELT 145 (SC) and of the Larger Bench decision in the case of Starlight Industries (I) Ltd. Vs. CCE reported in 2005 (183) ELT 353 (Tri.-LB), he further submitted that issue relating to non-payment of duty by job worker should not be considered as goods exempted from duty of Excise even during the MODVAT era, for which the order passed by the Commissioner (Appeals) is unsustainable both in law and facts. His alternate submission is that excisable goods manufactured by the job worker cannot be treated as service and there is no evidence about use of common inputs or input services placed by the Respondent on record to raise a demand. He also placed his reliance on the following decisions Makjai Laboratories Vs. CCE reported in 2011 (21) STR 398, Mistair Health & Hygiene Pvt. Ltd. Vs. CCE reported in 2015 (40) STR 148, Alkyl Amines Chemicals Ltd. Vs. CCE reported in 2015 (40) STR 757, Vidarbha Grindeers Pvt. Ltd. reported in 2015 (40) STR 331. On job work activities to be not treated as service he placed his reliance on the following decisions Ganga Kisan Sah. Chini Mills Ltd. Vs. CCE reported in 2017 (346) ELT 450, Cherry Co-operative Sugar Mills Ltd. Vs. CCE reported in 2018 (10) TMI 827 regarding non-production of evidence on use of common services and its resultant effect. Plea of non-applicability of extended period is also raised by him.

To contradict the submissions made by the Appellant learned Authorised Representative Mr. Xavier P.M. Mascarenhas, in placing reliance on Notification No. 25/2012-ST issued on dated 20.06.2012, has drawn our attention to Sr. No. 30 of the said notification that exempts intermediate products and process carried out by job workers from the purview of the Service Tax and argued that job work activity does not amount to manufacture, for which the same is to be treated as exempted service so as to invoked Rule, 6(3) of the CENVAT Credit Rules, 2004. He further argued that for the first time Appellant has raised a new ground that it was also manufacturing goods as job worker but infect it was publishing and developing intermediate products that was being subsequently developed by the principal manufacturer and cleared on payment of duty. In support of the reasoning and rationality of the order passed by the Commissioner (Appeals), he argued that Appellant’s case is squarely covered by the decision of the Hon'ble Supreme Court passed in the case of Hema Engineering Industries Ltd. Vs. Commissioner of S.T., New Delhi reported in 2017 (5) GSTL 43 (Tri.-Del.), for which interference by the Tribunal in the order passed by the Commissioner (Appeals) is uncalled for.

I have perused the case record and the relied upon judgements as well as written note of submissions filed by the adversaries. At the outset, it is to be brought on record that show-cause notice was issued with a clear noting that Appellant job worker was availing the benefit of Notification No. 214/86-CE dated 25.03.1986 and sending the processed goods after carrying out job work viz. machining of shaft and rollers etc. on the inputs/semi-finished goods, on which CENVAT Credit was availed by the original manufacturer and it was returning back the same to the original manufacturer for further processing and its clearance on payment of duty. Needless to mention here that when Notification No. 214/86-CE was issued tax on service activities was not in existence, for which the activity of Appellant, since did not involve sale or transfer of title in any goods or moveable or immoveable property, as referred in the Commissioner’s order in para 2 under facts of the case without the same being alleged in the show-cause notice, cannot be accepted as an issue covered under excise provisions as the entire activities were covered under the said Notification No. 214/86-CE issued under Central Excise Act, as apparently he was hinting at the definition of Sales Tax and not at the Central Excise Act. Moreover, under serial No. 30 of Notification No. 25/2012-S.T., certain definite activities are defined to have been covered under the job work and exempted from the purview of Service Tax but those relates to processes on selected intermediate production and not production of any kind of goods or goods in general. In the instant case the nature of resultant output from the job workers end is not referred anywhere in the entire appeal case record including show-cause notice, orders etc., except that nature of work undertaken by it is mentioned as machining of shaft and rollers but whether the final outcome of the same would be a marketable product without any further development by the principal/original manufacturer is not forthcoming form the show-cause notice or from the orders.

5.1 Be that as it may, in Hema Engineering Industries Ltd. cited supra, placing reliance on which learned Commissioner (Appeals) had passed his order, Notification No. 08/2005-S.T. was considered therein so as to determine exemption from Service Tax only when the process undertaken doesn’t amount to manufacture but in the instant case it has not been determined as to if Appellant was processing an intermediate product or was manufacturing the same since serial No. 30 of Notification No. 25/2012-S.T. has clearly categorised specified items for processing as intermediate product like products on agriculture, printing, textile, polishing diamonds and gemstones etc. that would fall under it but Appellant’s activity doesn’t fall into it. Sub-para (c) of the said serial No. 30, which states about any goods on which appropriate duty is payable by principal manufacturer could be covered under the exemption notification only when intermediate production process at the job worker’s level is carried out, which could be activities like those stated above and also process of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting, etc. in the course of manufacture of parts of cycles or sewing machines up to a certain turnover. To say it differently other works like doing agriculture or manufacturing textile since are different from processing of products of agriculture or textile processing, machining of shaft or rollers could also be different from manufacturing of shaft or rollers but when for decades, Appellant has been allowed to avail the benefit of Central Excise Notification No. 214/86-CE, its activity can only be considered as an activity covered under Central Excise Act and not rendering of a service, so as to invoke the provision contained in Rule 6 of the CENVAT Credit Rules, 2004. Hence the order.

THE ORDER

The appeal is allowed and the order passed by the Commissioner of Central Tax (Appeals-I), Pune vide Order-in-Appeal No. PUN-EXCUS-001-APP-145/2018-19 dated 06.07.2018 is hereby set aside with consequential relief, if any.