M/S Hindustan Zinc Ltd Vesus Cce, Jaipur - Court Judgment

Per. Justice Ajit Bharihoke:

1. The appellant is engaged in  manufacture of lead  and zinc concentrate classifiable under Chapter 26 of the Schedule to Central Excise Tariff Act, 1985.  The appellants awarded contract to job contractors i.e. M/s Aravali Construction Co. Ltd.  and M/s Technomin Construction Ltd. for underground  of mine development purpose.  As per the contract, the appellant supplied inputs including capital goods such as explosives, detonators, lubricants, pipes, rods and steel plates etc.  to the job contractor regarding which,  the appellant availed cenvat credit amounting to Rs. 52,37,757/-.  The department was of the view that those inputs were supplied by the appellant on chargeable basis as such it amounted to transfer of the inputs to the job contractors without the issue of invoice, for which, the appellant should have reversed the cenvat credit availed by them.  Accordingly, show cause notice was issued to the appellant.  Appellant contested the show cause notice on the plea that the inputs were supplied to the job contractors free of cost for development of  the mines and it did not amount to transfer of goods to the third person which could have entail  the obligation to reverse the cenvat credit.  The adjudication authority vide order-in-original dated 16.11.2009 ordered recovery of the cenvat credit amounting to Rs. 52,37,757/- under Rule 14 of Cenvat Credit Rules alongwith interest and also imposed the penalty of equal amount on the appellant.

2. Feeling aggrieved from the said order, the appellant has preferred this appeal wherein the application under Section 35F has been moved with a request to waive the condition of pre-deposit of the demand, interest and penalty.

3. Originally the case was listed for arguments on stay application.  However, after  having been gone through the record we are of the view that the appeal itself can be disposed of at this stage.  Accordingly, after waiving the condition of pre-deposit  with the consent of the parties, we proceeded to hear the arguments on appeal.

4. Sh. B.L. Narasimhan, ld. Counsel has contended that the inputs which are subject matter of the order-in-original were procured on payment of excise duty by the appellant and were provided to the job contractor for development of the mines belonging to the appellant from which the lead and mine ore is extracted.  Thus, according to him the inputs were used for the function relating to the manufacture of  final product.  Ld. Counsel contended that the Commissioner has failed to appreciate that as per the job contracts the appellant was requested to provide the inputs to be used for the development of the underground mines and there was no transfer of those inputs to the job contractor as the ownership of those inputs always remain with the appellant.  Thus, it is urged that the impugned  order is not sustainable in law.  Ld. Counsel in the alternative has referred to the final  order No. 1015 of 2011-Ex (DB) of this Tribunal in Excise Appeal No. 1298 of 2011 between the parties wherein while dealing with the similar issue of fact and law relating to earlier period was involved the Tribunal taking note of the fact that  in one other similar matter the Commissioner (Adjudication) has dropped the demand, remanded the matter back to the adjudicating authority  for denovo adjudication in the light of subsequent order of the Commissioner.

5. Sh. I. Baig, ld. AR  of the department on the contrary had argued in support of the impugned  order and submitted that Commissioner (Adjudication) has rightly concluded that the inputs in question were actually transferred to the job contractor  as such the appellants were required to reverse the cenvat credit which they have not done.  Thus, the adjudication order confirming the demand, interest and penalty cannot be faulted.

6. We have considered the rival contentions and perused the record.  It is not disputed by the department that originally the cenvat credit was rightly claimed by the appellant.  The question is whether the providing of the relevant inputs by the appellant to  the job contractor for user for completion of contract work,  would amount to the transfer of inputs to the third party which may require the appellant to reverse the cenvat credit relating to those inputs.  This issue is basically a question of fact. For resolving  this issue, it would be necessary to scrutinize the contract between the appellant and job contractors as also the actual transaction which have taken place.  Admittedly, the adjudicating authority has not cared to refer  the terms and conditions of the  job contractor  which could have thrown light upon the interest of the parties and  the nature of transaction.  Therefore, we are of the view that the adjudicating authority has confirmed the demand against the appellant without looking into the basic evidence i.e. the contract between the parties.  Thus, we are unable to sustain the impugned order.  Appeal is accordingly accepted and the matter is remanded back to the Commissioner (Adjudication) for denovo adjudication after allowing the appellant to produce all relevant documents including the contracts in support of his defence and  giving due  hearing to the appellant.

7. Appeal as well as stay application  disposed of accordingly.