Cenvat credit on returned rejected goods sustained where the notice alleged waste and scrap, not finished goods.

Cenvat credit was admissible on rejected finished goods returned to the manufacturer, because the record accepted in appeal showed receipt of pipes, fittings and related rejected goods, not waste, scrap or ash. The denial of credit failed once that factual finding became final, and a demand cannot be sustained on a basis different from the specific allegation in the show cause notice. Observations extending beyond the notice were immaterial, and the credit disallowance was unsustainable.

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Issues: Whether Cenvat credit was admissible on goods received back by the manufacturer as rejected goods, and whether denial of credit could survive when the show cause notice proceeded on the basis that only waste and scrap had been received.

Analysis: The dispute turned on the nature of the returned material and the scope of the show cause notice. The record, as accepted in the appellate findings and not challenged further, showed receipt of rejected finished goods such as pipes, fittings and related material, and not waste and scrap or ash. Once that factual finding attained finality, the foundation of the notice failed. A demand cannot survive on a basis different from the specific allegation in the notice, and observations going beyond that allegation were not material to the adjudication of the credit entitlement.

Conclusion: Cenvat credit on the returned rejected goods was admissible and the denial of credit was unsustainable.

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