Cenvat credit on job-work inputs upheld where intermediate clearances under Notification 214/86-CE were not treated as exempted goods.

Goods cleared without payment of duty under Notification No. 214/86-CE were not treated as exempted goods for Rule 6(1) of the Cenvat Credit Rules, 2004 where the job-work arrangement formed part of the statutory scheme and the final manufacturer remained liable to pay duty on the end product. Cenvat credit on inputs used in such manufacture was therefore not barred merely because the intermediate goods left the job-worker's premises without duty. The Punjab and Haryana High Court distinguished contrary reliance on a Supreme Court decision on the basis that it did not concern the same notification. Rule 6(1) was held inapplicable on the facts, and credit entitlement was upheld.

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Issues: Whether goods cleared without payment of duty under Notification No. 214/86-CE dated 25.03.86 are treated as exempted goods for the purpose of Rule 6(1) of the Cenvat Credit Rules, 2004, and whether Cenvat credit on inputs used in job-work manufacture is disallowable on that basis.

Analysis: Rule 6(1) of the Cenvat Credit Rules, 2004 bars credit on inputs used in the manufacture of exempted goods, but the provision has to be read with the exemption notification governing job-work clearances. The assessee was entitled to avail credit where the final manufacturer remained liable to pay duty on the end product. The Court followed the principle that credit is not denied merely because an intermediate stage product is cleared without duty when the statutory scheme and notification permit such treatment, and distinguished the contrary reliance placed on another Supreme Court decision on the ground that it did not concern the same notification.

Conclusion: Rule 6(1) was held not to be attracted in the facts of the case, and the assessee's entitlement to Cenvat credit was upheld.

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