CESTAT Delhi Quashes Demand On Tata Bluescope Steel, Bars Recharacterisation Of Job Work As Exempt Service

On 1 July, the Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, held that job work activity already treated as “manufacture” cannot later be reclassified as an “exempted service” for the purpose of invoking Rule 6 of the CENVAT Credit Rules and raising consequential demands.

A Bench of Technical Member P.V. Subba Rao allowed all three appeals filed by Tata Bluescope Steel Pvt. Ltd., set aside the orders passed by the Commissioner (Appeals), and quashed the CENVAT credit demands raised by the Department. It held:

“As far as the manufacture of the goods on job work basis is concerned, undisputedly, the department considered it as manufacture and allowed clearance of the goods under Notification No. 214/86-CE which permits the job worker to clear the goods without paying duty if the Principal undertakes to pay duty. The same activity which is treated as a manufacture cannot also be treated as an exempted service to demand an amount of 7% of the job charges under Rule 6(3) (i).”

The dispute arose from CENVAT demands raised under Rule 6(3)(i) of the CENVAT Credit Rules, including a demand equivalent to 7% of job-work charges. The Department treated job work undertaken by Tata Bluescope Steel as an “exempted service” despite the clearances being made under Notification No. 214/86-CE, under which the principal manufacturer undertakes payment of duty.

The Tribunal held that once the Department had consistently treated the activity as “manufacture” and allowed clearance under the exemption framework, it could not re-characterise the same activity as an exempted service for raising fresh demands under Rule 6.

It further noted that Tata Bluescope Steel had already reversed CENVAT credit in terms of Rule 6(3A). It held that failure to intimate the Department about exercising the option constituted only a procedural lapse and could not justify a second demand.

On the issue of waste and scrap, the Department raised demands on items such as wooden pallets, PVC pipes, iron strips, and HDPE sheets generated during the manufacturing process. The Tribunal rejected the stand that such waste and scrap constituted manufactured goods merely because they were sold.

It held that waste and scrap arise incidentally during manufacturing and are not independently manufactured products. It observed that manufacturers do not intentionally produce waste, likening it to wastewater generated during routine household activity. The Bench noted:

“As no waste or scrap was manufactured by the appellant using the inputs/input services, Rule 6(1) will not apply to waste and scrap. Therefore, the demand under Rule 6(3) (i) cannot be sustained,”

Accordingly, the CESTAT ruled that Rule 6 could not be invoked against the company and granted consequential relief.

For Appellant: Shri Udit and Shri Ashish Jain, Advocates

For Respondent: Shri Ram Pravesh Prasad, Authorised Representative