CENVAT credit on factory inputs depends on compliance with receipt and storage procedure, including prior permission where required.

CENVAT credit was allowed for duty-paid inputs used in manufacture where the record showed they had been received in the factory and the only objection was that they were lying elsewhere; that denial was unjustified. Credit taken before Central Excise registration was disallowed because the unit was not registered at the relevant time. Credit on inputs stored outside the factory was disallowed because the assessee had not obtained prior permission and had taken credit before the inputs were received inside the factory, contrary to the prescribed procedure. The reduced penalty was sustained as fair on the facts.

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Issues: (i) whether CENVAT credit of Rs. 46,600 was admissible when the inputs were duty-paid and used in manufacture but were not lying in the registered factory premises; (ii) whether CENVAT credit of Rs. 51,811 was admissible when it was taken before Central Excise registration; (iii) whether CENVAT credit of Rs. 30,05,054 was admissible when the inputs were stored outside the factory without prior permission and credit was taken before the inputs were received inside the factory; and (iv) whether the penalty of Rs. 50,000 called for interference.

Issue (i): whether CENVAT credit of Rs. 46,600 was admissible when the inputs were duty-paid and used in manufacture but were not lying in the registered factory premises.

Analysis: Rule 57AB(1) required the inputs to have been received in the factory on or after 1-3-2001. There was no allegation that the inputs were not received in the factory, or that they were not duty-paid, or that they were not used in the manufacture of final products. The denial was based only on the fact that the inputs were lying elsewhere, which was not a sufficient ground on the record.

Conclusion: The credit of Rs. 46,600 was admissible and the denial was unjustified, in favour of the assessee.

Issue (ii): whether CENVAT credit of Rs. 51,811 was admissible when it was taken before Central Excise registration.

Analysis: The credit was admittedly taken before the factory came under Central Excise registration and while the unit was manufacturing and clearing exempted goods. No challenge was pressed against the finding of the lower appellate authority on this aspect.

Conclusion: The credit of Rs. 51,811 was not admissible, against the assessee.

Issue (iii): whether CENVAT credit of Rs. 30,05,054 was admissible when the inputs were stored outside the factory without prior permission and credit was taken before the inputs were received inside the factory.

Analysis: The Board circular permitted storage of Modvatable inputs outside the factory only with prior permission of the jurisdictional Commissioner and contemplated taking credit only after the inputs were received inside the factory for use in production. The assessee had taken credit without such permission and contrary to its own undertaking to follow the circular procedure. The cited precedent was distinguishable because it involved prior permission.

Conclusion: The credit of Rs. 30,05,054 was not admissible, in favour of the Revenue.

Issue (iv): whether the penalty of Rs. 50,000 called for interference.

Analysis: The reduced penalty was considered fair and just on the facts and no reason was found to interfere with it.

Conclusion: The penalty of Rs. 50,000 was sustained, against the assessee.

Final Conclusion: The order was modified by allowing the assessee's challenge only to the credit of Rs. 46,600, while sustaining the disallowance of Rs. 51,811 and the penalty, and by allowing the Revenue's challenge to the credit of Rs. 30,05,054.

Ratio Decidendi: Modvat or CENVAT credit on inputs stored outside the factory is admissible only when the governing procedure is followed, including prior permission where required and taking credit only after the inputs are received inside the factory for use in manufacture.

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