CENVAT credit for job-work inputs and 100% EOU clearances upheld, with demands found unsustainable on both issues.

Credit on inputs used by a job worker remained admissible under the CENVAT Credit Rules, 2004 even where the processed goods were cleared on a job-work basis, and the substantive entitlement could not be denied merely for want of separate accounts. The Tribunal also held that the demand relating to clearances made for a 100% EOU was not sustainable because Rule 6(3) did not apply to such supplies, which were treated as exempt, and the required undertaking had been furnished. The Revenue's challenge therefore failed and relief was granted to the assessee on both counts.

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Issues: (i) whether credit of duty on common inputs used by a job worker in the manufacture of goods cleared on job-work basis could be denied for want of separate accounts under the CENVAT Credit Rules, 2004; (ii) whether duty demand was sustainable in respect of clearances made for 100% EOU.

Issue (i): whether credit of duty on common inputs used by a job worker in the manufacture of goods cleared on job-work basis could be denied for want of separate accounts under the CENVAT Credit Rules, 2004

Analysis: The Larger Bench ruling on Modvat credit for inputs purchased and used by a job worker was held to apply on facts and in law. The Tribunal held that the credit taken on inputs used by the job worker remained admissible even where the processed goods were cleared on job-work basis, and that the mechanical application of the rule requiring separate accounting could not defeat the substantive credit entitlement. The Tribunal also noted that the Board had clarified that the legal position continued unchanged after the amendment relied upon by the Revenue. The objection that the assessee was required to produce proof of duty payment was also rejected on the ground that the Revenue had approached the wrong person for such evidence and that the requisite evidence had in any event been produced.

Conclusion: The demand on this issue was not sustainable and was decided in favour of the assessee.

Issue (ii): whether duty demand was sustainable in respect of clearances made for 100% EOU

Analysis: The Tribunal accepted the view that Rule 6(3) of the CENVAT Credit Rules, 2004 did not apply to clearances made to a 100% EOU, that such supplies were exempt in any case, and that the statutory undertaking required by the notification had been given.

Conclusion: The duty demand on this count was not sustainable and was decided in favour of the assessee.

Final Conclusion: The Revenue's challenge failed, the assessee obtained relief on the disputed demand, and the dispute was finally resolved in favour of the assessee.

Ratio Decidendi: Credit on inputs used by a job worker cannot be denied merely because the final goods are cleared under a job-work arrangement, and a substantive credit entitlement cannot be defeated by a purely mechanical insistence on separate accounts where the legal conditions for credit are otherwise met.

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