CESTAT disallows the benefit of availing area based exemption where goods are manufactured on Job-work basis

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Fact: M/s. Magadh Plas Pvt. Ltd (“the assessee”) was engaged in manufacture of plastic containers. Assessee also manufactured the same on job work basis for Divya Pharmacy Industrial Area who was availing area-based exemption under Notification No. 52/2003-CE dated June 10, 2013 and supplied raw materials i.e. plastic granules to the assessee for the said job work under the cover of miscellaneous invoices as different from the regular invoices under Central Excise Rules for clearance of assessee’s own manufactured goods qua the said job work expenses. Revenue issued a show cause notice proposing recovery of central excise duty along with the interest at the proportionate penalties which was confirmed by the Commissioner.

Assessee’s Contention of law: Assessee contended that they were regularly discharging excise liability for the goods manufactured by them and submitted that no duty was payable for the manufacture of plastic containers on job work basis out of the raw materials received from Divya Pharmacy. Assessee also stated that CENVAT credit was not taken on the inputs and only job work expenses had been charged from Divya Pharmacy against proper declarations and intimations. Further, assessee contended that penalty is not imposable as there is no fraud, collusion or any wilful mis-statement or suppression of fact with intent to evade payment of duty and SCN is beyond period of limitation.

Held: The Hon’ble CESTAT of New Delhi vide its Final Order No. 50255-50256/2019 dated February 18, 2019 dismissed assessee’s appeal by stating that assessee had manufactured plastic containers under job work challans and cleared them under miscellaneous challans only with an intent to evade the payment of duty as it was very much in the knowledge of the assessee that the unit of Divya Pharmacy was in access free zone and was available an area based exemption. CESTAT opined that “Once, there was no duty on the final goods cleared no question of any exemption available qua the goods manufactured in factory as a job work arises”.

CESTAT thus held that the exemption does on apply to the goods manufactured as a job work, as there was no duty on the final goods cleared. CESTAT further held that, assessee is also not qualifying the remaining two conditions of the said notification. CESTAT clarified that no bonafide can be attributed to the assessee of not being aware of the condition of the Notification that the goods are to be cleared after payment of duty to avail the benefit. CESTAT considered the only possibility for the non-payment was the intent to evade the duty. CESTAT thus believed Revenue had committed no error while imposing penalty Therefore, stated that SCN could not be barred by time for the said reason.

Citation: [ TS-901-CESTAT-2018-EXC ]