Job-worker input credit allowed where duty-paid inputs were used directly and Rule 57C did not bar the claim.

A job worker manufacturing goods on job-work basis was treated as entitled to take credit on duty-paid inputs received directly and used in that manufacture. The settled Larger Bench position was applied to hold that clearance of such goods without payment of duty did not attract the bar under erstwhile Rule 57C of the Central Excise Rules, 1944, so the input credit could not be denied. As the credit demand was unsustainable, the related penalty also could not survive, and the respondent's claim was upheld while the revenue appeal was rejected.

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Issues: Whether a job worker clearing manufactured goods without payment of duty on behalf of the principal manufacturer was entitled to take credit on duty-paid inputs received directly and used in such job work, and whether erstwhile Rule 57C of the Central Excise Rules, 1944 applied to deny such credit.

Analysis: The dispute turned on the settled position laid down by the Larger Bench that a job worker receiving inputs directly and using them in the manufacture of goods on job-work basis is entitled to credit on such duty-paid inputs. Goods manufactured on job-work basis and cleared without payment of duty were held not to attract the bar under erstwhile Rule 57C of the Central Excise Rules, 1944. Once the demand on credit was unsustainable, the penalty based on that demand also could not survive.

Conclusion: The credit was admissible and Rule 57C did not apply to deny it; the order allowing the respondent's claim was upheld and the revenue appeal was rejected.

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