Cenvat credit on job work service tax cannot be reversed merely because fewer goods were returned after processing.

Cenvat credit on service tax paid for job work charges was admissible to the manufacturer because Rule 3(1) permits credit on input services and the reversal provision in Rule 3(5) applies to inputs and capital goods removed as such, not to input services. The fact that a lesser quantity of goods was received back after job work did not, by itself, justify reversal of the credit, since there was no express statutory requirement for such reversal in relation to service tax on job work charges. The appeals were allowed and the denial of credit was set aside.

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Issues: Whether Cenvat credit of service tax paid on job work charges was admissible to the manufacturer, and whether such credit was required to be reversed merely because a lesser quantity of goods was received back after job work.

Analysis: Rule 3(1) of the Cenvat Credit Rules, 2004 enables a manufacturer to avail credit on input services received by the manufacturer of the final product. In contrast, the reversal provision in Rule 3(5) is directed to inputs and capital goods removed as such and does not expressly extend to input services. Since service is intangible and there is no statutory requirement that it must be received in the factory in the same manner as goods, the credit is available on the service tax actually paid on the job work charges. The mere fact that the quantity of goods returned after job work is lesser does not create a basis for reversal of credit on input services.

Conclusion: The credit on job work related service tax was admissible and was not liable to be reversed because lesser quantity of goods was received back after job work.

Final Conclusion: The appeals were allowed and the denial of Cenvat credit was set aside.

Ratio Decidendi: Credit on an input service, once received by the manufacturer and duly suffered service tax, cannot be reversed merely on account of shortages in the quantity of goods returned after job work, unless the statute expressly requires such reversal.

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