CENVAT credit on inputs for essential intermediate products remains available when used in manufacture of final goods.

CENVAT credit was treated as admissible on inputs used in manufacturing essential intermediate products, such as PCBs and transformers, where those intermediates were in turn used to make the final products. The broad definition of input was applied to cover goods used directly or indirectly in relation to manufacture, so indirect participation through an intermediate stage did not break credit eligibility. Where common inputs were used for dutiable and exempt clearances and separate accounts were not maintained, the assessee had already paid the prescribed 8% on exempt goods. On those facts, no reversal of credit was required and the departmental appeal was rejected.

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Issues: Whether credit was admissible on inputs used in the manufacture of intermediate products such as PCBs and transformers, which were in turn used in the manufacture of final products, and whether the assessee's payment of 8% on exempt clearances affected the entitlement to credit.

Analysis: The definition of input was construed broadly to include goods used in or in relation to the manufacture of final products, whether directly or indirectly. Inputs used for intermediate products that were essential in the manufacture of the final products were held to fall within the credit scheme. The reasoning treated indirect participation in manufacture as sufficient for eligibility. It was also noted that, where separate inventories or accounts were not maintained for common inputs used in dutiable and exempted products, the assessee had already discharged the amount equivalent to 8% of the price of exempted goods, as required by the relevant regime.

Conclusion: Credit on the inputs was admissible and the assessee was not required to reverse the benefit on the facts found. The departmental appeal was rejected.

Ratio Decidendi: Inputs used in an essential intermediate stage of manufacture remain eligible for credit when they are used in relation to the manufacture of the final product, even if the intermediate product is exempt, and the prescribed amount on exempt clearances has been paid.

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