(Per : HONOURABLE MR. JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgment of Customs, Excise and Service Tax Appellate Tribunal ('CESTAT', for short) dated 6-2-2006. At the time of admission of the appeal, this court had framed the following substantial question of law for consideration:-
“Whether the assessee is entitled to modvat credit on the inputs used in the manufacture of goods which are cleared at NIL rate of duty by virtue of Rule 57F(3) and Notification No.214/86-CE?”
2. In brief, the facts are as follows. The respondent assessee is a manufacturer and carries on manufacturing activity on its own as well as on job work basis. A show-cause notice came to be issued by the Deputy Commissioner of Central Excise, Ahmedabad some time in July, 1999. In the notice, it was stated that the assessee was doing the job work of casting and manufacturing of cast articles. In the process, the assessee was utilising an input called Metaquinch Oil for which he had taken credit. At the time of clearance of the goods, however, such credit was not reversed and the goods were cleared without payment of duty. The assessee was, therefore, directed to show cause why such cenvat credit be not recovered with interest and penalty not be imposed..
3. Similar such two show-cause notices came to be issued against the respondent for the same alleged breach, however, for a different period on or around 17-3-2001. The assessee opposed such proceedings. The Deputy Commissioner of Central Excise passed three separate orders dated 20-8-2001, 30-10-2001 and 2-11-2001 dropping such proceedings. Since contents of these orders are common, we may take notice of an order dated 2-11-2001 as at Annexure 'F' to the appeal. In the said order, the adjudicating authority dropped the proceedings principally on the following ground:-
“12. Having gone through the case records, I don't find any justification for denying Cenvat credit on the pre- text of clearing the final products without payment of duty for the reason that the assessee is returning the processed goods to the original manufacturer under challans and the original manufacturer is clearing the final products on payment of duty.”
4. Revenue carried the matter further in appeal before the Tribunal. The Tribunal passed two separate orders, both dated 6-2-2006 and disposed of all the three appeals of the revenue. In such orders, the Tribunal relying upon and referring to the decision of its Larger Bench in case of Sterlite Industries (I) Ltd. vs. Commissioner reported in 2005 (183) E.L.T. 353, dismissed the revenue's appeals. The Tribunal also relied on the decision of the Apex Court in case of Prestige Engineering (India) Ltd. vs. Collector of C. Excise, Meerut reported in 1994 (73) E.L.T. 497.
5. Counsel for the revenue Shri Ravani submitted that the respondent could not have retained a credit while clearing the goods without payment of duty. He submitted that such procedure was contrary to the rules.
6. On the other hand, learned counsel for the assessee Mr. Devang Nanavati supported the impugned judgment of the Tribunal submitting that the issue is no longer res integra. He relied on a brief judgment of the Bombay High Court dated 13-8-2008 passed in Central Excise Appeal No.76 of 2008 by which the decision of the Larger Bench of the Tribunal in case of Sterlite Industries Ltd. (supra) came to be confirmed. He also relied on the decision of Apex Court in case of Escorts Ltd. vs. Commissioner of Central Excise, Delhi reported in 2004 (171) E.L.T. 145. On the basis of such decisions, he submitted that the Tribunal has correctly applied the statutory provisions. The appeal, therefore, should be dismissed.
7. Having thus heard learned counsel for the parties and having perused the documents on record, we recall that undisputedly the respondent assessee cleared the goods manufactured on job work basis and returned the same to the principal manufacturer who, in turn, after utilising such products, cleared the goods under challan after payment of duty. In that view of the matter, the decision of Apex Court in case of Escorts Ltd. (supra) would come into play. It was a case wherein the job worker was entrusted with the task of manufacturing parts which were used for ultimate manufacture of tractor by the principal manufacturer. The Apex Court held that in such a case it would be the tractor which would be the final product and credit taken by the job worker on the inputs used in manufacturing of the parts cannot be denied when the principal manufacturer was clearing the tractors after payment of duty. The Apex Court, of course, noted that in case where the parts are cleared for sale in the open market or in cases where the parts are used for manufacture of small tractors where no duty is paid, the assessee would have no claim of modvat credit. Subject to such clarification, however, the Apex Court ruled in favour of the assessee making following observations:-
“11. In this view of the matter, we set aside the impugned judgment and the Order of the Commissioner of Central Excise. It is held that the Appellants will be entitled to Modvat credit on duties paid for the inputs used for manufacture of parts, so long as the parts are used in the manufacture of tractors on which duty is pad. We clarify that in respect of parts which are sold in the open market and/or used for manufacture of tractors on which no duty is paid, the benefit of the Notification No.217/86-C.E., dated 2nd April, 1986 may not be available.”
8. In the present case, somewhat similar situation arises. The ratio of the decision in the case of Escorts Ltd. (supra) would apply. In our view, the revenue authority as well as the Tribunal correctly granted the benefit to the assessee. We, therefore, answer the question in favour of the respondent assessee and against the revenue and dismiss the appeal accordingly.
( Akil Kureshi, J. ) ( Harsha Devani, J. ) hki