Intermediate Goods can be cleared without duty payment only on Condition of Clearing them as Final Product within Six Months: CESTAT directs to Pay Interest In Delayed Payment

The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that intermediate goods can be cleared without duty payment only on condition of clearing them as the final product within six months.

M/s. Caterpillar India Pvt. Ltd, the appellants are engaged in manufacturer of ‘Earth Moving Machinery’ viz. Dumpers, Loaders, Excavators and are registered with the Central Excise Department. They are availing the facility of CENVAT credit of duty paid on inputs, capital goods and service tax paid on input services.

On audit, it was noticed that appellants have been receiving engines without payment of duty from their sister unit located in Hosur under Rule 12BB of the Central Excise Rules, 2002 (CER, 2002). The said engines are used in the manufacture of Earth Moving Machinery by the appellant and the finished goods are cleared on payment of appropriate duty.

It was also noticed that the appellant had availed CENVAT credit during the period January 2014 to July 2014 on the duty paid under Rule 12BB on the clearances of engines from their Hosur Unit. The department viewed that credit can be availed only on inputs and not on intermediate goods. The engines received from Hosur Unit were only intermediate goods and not inputs for further manufacture of Earth Moving Machinery, the credit was not eligible.

Show Cause Notice dated 14.10.2014 was issued invoking the extended period proposing to demand the duty payable under Rule 12BB on intermediate goods along with interest and for imposing a penalty. The Show Cause Notice also proposed to deny the CENVAT credit wrongly availed and to recover the same along with interest and imposing a penalty. After due process of law, the original authority confirmed the demands along with interest and imposed penalties regarding both demands.

It was observed that according to Rule 12BB of the CER, the EMM (final products) using the engines (intermediate goods) ought to have been cleared on payment of appropriate duties of excise within 6 months from the date of receipt of the stock-transferred engines i.e., the intermediate goods. The issue under dispute revolves around the duty demand on engines stock-transferred between the Appellant’s sister unit under Rule 12BB of the CER, 2002.

As the finished products were not cleared within a period of 180 days as required under Rule 12BB, the Appellant paid duty and interest on the stock-transferred engines on being pointed out by audit. On the duty so paid, the appellant availed credit since the engines were inputs used to manufacture the EMM.

The twin conditions mentioned in Rule 12BB of CER i.e., finished goods must be manufactured by the recipient using the intermediate goods; such finished goods must be cleared on payment of duty to DTA/ exported under bond or LUT within 180 days is not adhered to. Therefore, the Appellant was held liable for payment of duty on the inputs received, along with interest.

The two-member bench comprising Ms Sulekha Beevi C.S, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that “The duty liability for the manufacture and clearance of engines is on the Hosur unit and not on the appellant. Only because appellant opted for the facility of Rule 12BB, the duty burden is shifted to the appellant unit. In such circumstances, when the duty liability is paid with interest, the penalty levied under Sec. 11AC is unwarranted. In the peculiar facts of this case, we are of the considered opinion that the penalty imposed requires to be set aside which we hereby do.” 

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