ARE GOODS EXEMPT FROM DUTY ‘ IF CLEARED AFTER JOB WORK ACTIVITY TO SUPPLIER- MANUFACTURER WHO PAYS DUTY’

 

by

 

K. VIJAY KUAMR

MA, BL, MBA ,B.Ed.

 

 

YES!

 

This has reference to Mr. Gagan Kohli's article in the 15^th November 2001 ELT with the above caption.

 

The learned author had raised a basic question based on certain premises. The situation he discussed is worth a brief recall before any comment.

 

A manufacturer manufactures goods for himself as well as does job work for others. He gets inputs from other manufacturers for job work. Obviously, he clears his goods on payment of duty and the job work goods are cleared without payment back to the principal manufacturer who supplied the raw materials. Now the question posed by the learned author is, " Whether the said processed goods cleared after job work can be termed as exempted goods in view of Rule 6(2) or 6(3)(b) of the Cenvat Credit rules 2001"

 

The answer is a big YES – Yes with or with out Rule 6(2) and 6(3)(b). Let us examine the position for more clarity.

 

As per Rule 4(5) of the Cenvat Credit Rules 2001, inputs can be sent for job work which are to be returned within 180 days. This rule provides for sending the inputs for job work and requires their return. But this rule does not and can not exempt the goods from duty at the job worker's end. Confusing? Not really! See the position more clearly.

 

'A" is a manufacturer availing credit on inputs. He sends his inputs to 'B' for job work. 'B' finishes the job work and sends the goods back to 'A'. 'A' is allowed to clear the goods under Rule 4(5) of the Cenvat Credit rules 2001. But at B's factory, if the job work amounts to manufacture, can he clear the goods without payment of duty? "YES" – under Notification No. 214/86 and not under the Cenvat Credit Rules.

So there is a clear exemption for the job worked goods and they therefore fall under the category of exempted goods and naturally the mischief of 8% or separate accounts will be attracted if the job worker also takes credit on inputs used in his other goods and job work goods.

 

The learned author obviously did not consider Notification No. 214/86, while discussing his point. Once this is considered, the mist is cleared.

 

EXCISE LAW TIMES – 15.01. 2002 – A 132