Cenvat credit need not be reversed for mere sale of inputs if they remain in the factory and are used in manufacture.
Mere sale of inputs to a principal manufacturer did not require reversal of Cenvat credit where the inputs remained in the factory and were used in manufacture of dutiable final products; ownership change alone was not treated as removal from the factory. The assessee's entitlement to credit was therefore accepted in principle. However, the exact quantum of admissible credit could not be verified because the stock position on the relevant date was not proved by adequate records, so the matter was remanded for fresh determination of credit based on actual inventory evidence.
Issues: (i) Whether credit on inputs sold to the principal manufacturer had to be reversed merely because ownership changed, when the inputs were retained in the factory and used in manufacture on job-work basis; (ii) whether the exact credit admissible required reconsideration in the absence of proof of stock position on the relevant date.
Issue (i): Whether credit on inputs sold to the principal manufacturer had to be reversed merely because ownership changed, when the inputs were retained in the factory and used in manufacture on job-work basis.
Analysis: Credit under the Cenvat scheme depends on receipt of duty-paid inputs and their use in manufacture of dutiable final products. A change in ownership by itself does not amount to removal from the factory where the inputs continue to remain in the premises and are used in the manufacture of goods cleared on payment of duty. The requirement to reverse credit applies to removal of inputs as such, not to a mere sale transaction unaccompanied by physical clearance from the factory in the circumstances found by the Tribunal. On that principle, the assessee's entitlement to credit was upheld.
Conclusion: The assessee was entitled to credit in principle and reversal was not warranted solely on account of sale to the principal manufacturer.
Issue (ii): Whether the exact credit admissible required reconsideration in the absence of proof of stock position on the relevant date.
Analysis: Although entitlement in principle was accepted, the assessee was still required to establish from records that the particular inputs were actually lying in stock on the relevant date and had been received after the creation of the separate companies. The annexure to sale invoices was not sufficient to quantify admissible credit. Since the stock position was not proved with adequate evidence, the quantification of credit had to be re-examined by the adjudicating authority.
Conclusion: The matter was remanded for fresh determination of the quantum of credit on the basis of evidence regarding actual stock lying in the factories on the relevant date.
Final Conclusion: The legal principle favouring availability of credit was accepted, but the exact entitlement was left for fresh verification of facts and records, resulting in remand.
Ratio Decidendi: Mere sale of inputs does not require reversal of Cenvat credit where the inputs are not removed from the factory and are used in the manufacture of dutiable final products, but the assessee must prove actual stock and eligibility for the quantified credit claimed.
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AI Drafter ✕
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