The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has set aside a demand of ₹47.09 lakh holding that CENVAT credit on moulds cannot be denied merely because they were sent to job workers for manufacturing battery components.

The bench of  R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) has observed that selling raw materials to a job worker after reversing credit does not require the manufacturer to adopt the same procedure for moulds supplied under job-work challans. It also rejected the department’s allegation of double credit and found that the extended period of limitation could not be invoked when the transactions were within the department’s knowledge and were revenue neutral. 

Buy Now: 80+ Judgements Indirect Tax – September 2026 E-Magazine

The appellant/assessee manufactures automobile batteries falling under tariff heading 8507 1000 and availed CENVAT credit on duty-paid inputs and capital goods.

The manufacture of its batteries required plastic containers and lids used to hold and seal the battery’s internal components and liquid chemicals. These components were manufactured by job workers using polypropylene co-polymer granules and moulds supplied by the assessee.

The company supplied the polypropylene granules under sale invoices after reversing the CENVAT credit and charging VAT. However, it sent the moulds under job-work challans.

The job workers manufactured the battery containers and lids and supplied them to the assessee on payment of central excise duty. Their assessable value included the value of the polypropylene granules and the amortised cost of the moulds. The assessee availed credit of the duty paid on these components.

Following an internal audit, the department objected to the credit taken on the moulds on the ground that they were used outside assessee’s factory.

A show-cause notice dated February 9, 2012, proposed recovery of ₹47,09,359 for the period from April 2007 to February 2010, along with interest and an equivalent penalty.

The department alleged contravention of Rule 2(a)(A) of the CENVAT Credit Rules, 2004, because the moulds had not been used within the factory of the manufacturer of the final product.

It also disputed the application of Rule 4(5)(b), contending that the recipients were independent manufacturers rather than job workers, since they manufactured and supplied the battery components on payment of duty.

The department further alleged that taking credit on the moulds and subsequently taking credit on the duty-paid battery components amounted to a double credit benefit.

The Additional Commissioner confirmed the demand through an order dated May 24, 2013. The Commissioner (Appeals) upheld it on March 16, 2018, prompting the assessee to approach the tribunal.

The assessee submitted that even if it had reversed the credit while clearing the moulds, the recipients would have been entitled to avail the corresponding credit.

The company argued that treating the recipients as independent manufacturers would require the department to recognise their entitlement to credit on moulds cleared under an invoice. Credit would therefore move through the manufacturing chain without causing any actual loss to the government.

The assessee also relied on a February 26, 2013, order of the Commissioner (Appeals), Delhi, concerning an identical issue at another unit of the company. According to its submissions, that order recognised the recipients as job workers and held that the definition of job work did not require them to claim exemption under Notification No. 214/86-CE.

The company pointed out that the department had not challenged that favourable order.

On limitation, the assessee contended that it had filed statutory returns and disclosed its credit transactions. It argued that there was no fraud or suppression warranting invocation of the extended period.

The tribunal found that the essential facts were undisputed. The polypropylene granules were sold after reversal of credit, while the moulds were supplied under job-work challans and ultimately returned to the assessee under that procedure.

It rejected the department’s position that both categories of goods necessarily had to follow the same method of clearance.

The bench explained that accounting for granules supplied for job work could involve reconciliation of quantities consumed, finished goods received and scrap generated. Reversing credit and selling the granules could therefore simplify that process.

Moulds, however, were the assessee’s capital goods, and the intellectual property connected with them belonged to the company. Supplying them under job-work challans enabled the assessee to retain and account for those assets.

The tribunal found no contravention of the CENVAT Credit Rules, 2004, in the procedure adopted by the company.

The bench expressly rejected the allegation that the arrangement resulted in double CENVAT credit.

It reasoned that if the assessee had reversed credit on the moulds, the job worker could have taken the corresponding credit and reversed it when returning the moulds. The assessee would then have been able to reclaim that credit.

The tribunal therefore found the transaction revenue neutral. It observed that the job-work procedure avoided such repeated reversals and availment of credit.

The bench also took note of the unchallenged appellate order concerning the assessee’s other unit, observing that the identical issue had attained finality in that proceeding.

On these grounds, it set aside the impugned order and allowed the appeal on merits.

The tribunal separately accepted the assessee’s challenge to the extended period of limitation.

It found that the company’s availment and reversal of credit on polypropylene granules, credit on moulds and removal of moulds under job-work challans were within the knowledge of the jurisdictional Range and Divisional officials.

Consequently, the allegation of suppression with intent to evade excise duty could not be sustained.

Relying on the revenue-neutral nature of the arrangement and the decision in Commissioner of Central Excise, Aurangabad v. Somaiya Organo Chem, the bench held that the demand for the extended period was also legally unsustainable on limitation.

The appeal was allowed with consequential relief, if any, in accordance with law. The Revenue’s cross-objection was disposed of in the same terms. 

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: ‘Repair’ Label Can’t Deny Service Tax Exemption for Railway Construction Works: CESTAT