CENVAT credit demand requires prior factual finding on use of damaged inputs before any duty liability can be upheld.

The Tribunal erred in treating the CENVAT credit duty demand as premature without first deciding the ative factual question whether the damaged inputs had actually been used in the manufacture of final products and whether duty had been paid. The dispute concerned inputs damaged during transit, with penalty and interest also imposed by the adjudicating authority. By proceeding on the view that the goods were still in the factory and might yet be usable, the Tribunal failed to examine the core factual basis for the demand. Its order could not stand, and the matter had to be reconsidered afresh in accordance with law.

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Issues: Whether the Tribunal was justified in treating the demand of duty on CENVAT credit as premature and in proceeding without first examining whether the damaged inputs had in fact been used in the manufacture of final products.

Analysis: The demand related to inputs damaged during transit, and the adjudicating authority had also imposed penalty and interest. The Tribunal set aside the order on the footing that the damaged goods were still in the factory and that the inputs might yet be usable. The Court found that the Tribunal did not properly examine the decisive factual question whether the respondent had used the inputs for manufacture and whether duty had been paid, which was necessary before deciding the legality of the demand.

Conclusion: The Tribunal's order could not stand and the matter was required to be reconsidered afresh in accordance with law.

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