CENVAT credit on defective imported inputs: demand and penalty held unsustainable where final product duty exceeded the credit taken.

CENVAT credit on imported defective and damaged refractory bricks was examined where the goods were used in manufacture before clearance of final products on duty payment. The Tribunal noted that the Revenue's allegation of no manufacture was unsupported by evidence and that similar credit had been accepted in precedent. As the duty paid on the final products exceeded the credit availed on the inputs, the demand and penalty were found unsustainable and consequential relief followed.

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Issues: Whether the demand of duty and penalty was sustainable where the assessee had taken credit on imported defective and damaged refractory bricks, the goods were later used in manufacture, and duty paid on the final products exceeded the credit taken.

Analysis: The assessee asserted that the imported inputs were defective and damaged, that the duty-paying documents had been defaced by the jurisdictional officers, and that the goods were used in manufacture before clearance of final products on payment of duty. The Revenue's objection that no manufacture had taken place was found to be unsupported by evidence. The Tribunal also noted that similar credit had been allowed in the cited precedent. Since the duty paid on the cleared final products exceeded the credit availed, the alleged demand was not maintainable.

Conclusion: The duty demand and penalty were held unsustainable and the appeal was allowed in favour of the assessee.

Final Conclusion: The impugned order was set aside and the assessee was granted consequential relief.

Ratio Decidendi: Where the alleged non-manufacture is not proved and the duty paid on final products exceeds the credit availed on inputs, the resultant demand is not sustainable.

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