Cenvat credit on job-worked goods remains available when the finished product is ultimately dutiable, despite intermediate duty-free clearance.

Cenvat credit cannot be denied to a job worker where inputs are used in manufacture of goods that are ultimately cleared by the principal manufacturer on payment of duty. The bar applies only when the final product is exempted or chargeable at nil rate; an intermediate clearance by the job worker without duty does not by itself justify denial of credit. Consistently with the Larger Bench view on Rule 57C, the credit denial was not sustainable and the assessee was entitled to the credit.

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Issues: Whether Cenvat credit could be denied to a job worker on inputs used in manufacture of goods cleared to the principal manufacturer without payment of duty, where the principal manufacturer ultimately cleared the goods on payment of duty.

Analysis: Credit can be denied only when the final product is exempted or subject to nil rate of duty. The goods in question were not exempted and were not chargeable at nil rate, because duty was ultimately paid by the principal manufacturer on clearance of the finished goods. A mere intermediate clearance by the job worker without payment of duty did not create a legal basis to deny credit on inputs received and used in manufacture. The reasoning was also consistent with the Larger Bench view that the bar under Rule 57C does not apply in such circumstances.

Conclusion: The denial of Cenvat credit was not sustainable and the assessee was entitled to the credit.

Ratio Decidendi: Cenvat credit cannot be denied where the finished goods are ultimately dutiable and neither exempted nor subject to nil rate of duty, even if the job worker clears them without payment of duty at an intermediate stage.

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