Revenue-neutral Cenvat credit cannot be reversed when duty paid and credit taken are co-extensive.

Cenvat credit could not be denied merely because intermediate processing at a job-worker's unit was covered by Notification No. 214/86-C.E., where the assessee received the processed goods after duty had been paid by the sister unit. Because the credit availed matched the duty actually paid on the inputs, the situation was revenue neutral and no reversal demand could survive. The fact that no proceedings had been taken to correct any mistake in payment by the job-worker also supported this conclusion. The demand for reversal of Cenvat credit was therefore not sustainable.

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Issues: Whether Cenvat credit could be denied on the ground that the intermediate processing at the job-worker's unit was covered by Notification No. 214/86-C.E. and whether, where the credit taken by the assessee matched the duty paid by the input-manufacturer, the demand for reversal could still survive despite revenue neutrality.

Analysis: The assessee received the processed materials after duty had been paid by the sister unit and no proceedings had been taken to correct any mistake in payment by the job-worker. The credit availed was equivalent to the duty actually paid on the inputs, and the legal effect of such equivalence was that the situation was revenue neutral. In that circumstance, the benefit of credit could not be denied merely on the basis of the exemption notification relied upon by the Revenue. The reasoning was also supported by the earlier decision of the Supreme Court relied on by the Tribunal, which recognised that where the duty paid and the credit taken were co-extensive, reversal was not warranted.

Conclusion: The demand for reversal of Cenvat credit was not sustainable, and the Revenue's challenge failed.

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