Cenvat credit on inputs cannot be denied merely because the buyer did not bear the duty incidence.

Cenvat credit on inputs is available where the duty on those inputs has been duly paid by the manufacturer, and it cannot be denied merely because the purchaser did not itself bear the duty incidence or pay the duty element in a particular manner. Rule 3 of the Cenvat Credit Rules, 2002 links entitlement to the duty suffered by the inputs, not to how the buyer funded or recorded the purchase price. On the stated facts, the restriction applied in the impugned order had no basis in the Rules, so the denial of credit was unsustainable and the assessee was entitled to relief.

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Issues: Whether Cenvat credit on inputs could be denied on the ground that the purchaser had not borne the incidence of duty or had not paid for the duty element, when the duty had been discharged by the manufacturer of the inputs.

Analysis: Rule 3 of the Cenvat Credit Rules, 2002 permits a manufacturer of final products to take credit of the duty of excise paid on inputs received in the factory. The entitlement to credit depends on the inputs having suffered duty and not on whether the buyer of the inputs has personally borne the duty burden or paid the input price in a particular manner. On the facts, the disputed duty had been paid by the manufacturer while removing the inputs, and the restriction adopted in the impugned order had no support in the Cenvat Credit Rules.

Conclusion: The denial of Cenvat credit was unsustainable and the assessee was entitled to the credit.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Cenvat credit on inputs cannot be denied merely because the purchaser did not itself bear the duty incidence, so long as the duty on the inputs was duly paid by the manufacturer.

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