Cenvat credit on waste and scrap from job work cannot be denied when inputs and final products are returned

Cenvat credit under amended Rule 4(5)(a) was not to be denied merely because waste, scrap, refuse or by-products arose during manufacture or processing by a job worker, since the rule for the relevant period required return only of the inputs or capital goods. Board clarification and cited precedents treated such waste as not constituting a separate manufactured final product, and where the final product was duly received back, the credit remained admissible. The denial of credit on the basis of waste or scrap was therefore unsustainable.

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Issues: Whether Cenvat credit could be denied on waste, scrap or refuse arising during manufacture or processing of inputs sent to a job worker or generated within the factory when the final product was duly received back.

Analysis: The earlier rule required return of waste in the course of certain operations, but the amended Rule 4(5)(a) governing the relevant period spoke only of return of the inputs or capital goods and did not impose any express condition regarding return of waste or scrap. The Board's clarification stated that credit could not be denied merely because inputs were contained in waste, refuse or by-product. The cited precedents treated such waste as not amounting to a separate manufactured final product and held that credit could not be disallowed on that basis. Applying that reasoning, the waste and scrap generated in the present cases did not justify denial of credit.

Conclusion: Cenvat credit was admissible and the denial of credit on waste or scrap was unsustainable; the appeals succeeded in favour of the assessees.

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