CENVAT credit on duty-paid returned goods is available when Rule 16 conditions are met; recovery cannot be sustained.

Duty-paid returned goods received in the factory under Rule 16 of the Central Excise Rules, 2002 can qualify for CENVAT credit when the prescribed conditions are satisfied. Where the record showed that the returned goods were duty paid and the Rule 16 requirements were complied with, denial of credit was unwarranted. On that basis, recovery under Rule 14 of the CENVAT Credit Rules, 2002 was not justified and the demand for reversal could not stand.

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Issues: Whether the assessee was entitled to avail CENVAT credit on receipt of duty-paid returned goods under Rule 16 of the Central Excise Rules, 2002, and whether recovery under Rule 14 of the CENVAT Credit Rules, 2002 was justified.

Analysis: Rule 16 permits receipt of duty-paid goods in the factory for re-making, refining, reconditioning, or any other reason, and allows CENVAT credit on such receipt, subject to compliance with the prescribed conditions. The record showed that the returned goods were duty paid and that the conditions governing Rule 16 had been complied with. In those circumstances, the basis for denying credit and directing recovery did not survive.

Conclusion: The assessee was entitled to CENVAT credit on the returned goods, and the demand for recovery was not sustainable.

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