Cenvat credit on processed inputs cannot be denied where duty paid through the credit account exceeds the input credit taken.

Cenvat credit on inputs cannot be denied merely because galvanization is treated as a non-manufacturing process where the rules permit clearance of inputs as such or after partial processing on reversal of the credit attributable to those inputs. If the final goods are cleared on payment of duty through the Cenvat account, the duty paid on those goods can be set off against the credit position, and a demand is not sustainable where the duty discharged exceeds the credit taken on inputs. The resulting legal position is that credit denial on this ground is not maintainable on these facts.

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Issues: Whether Cenvat credit taken on inputs could be denied on the ground that the galvanization process did not amount to manufacture, and whether the duty paid through the Cenvat account could be adjusted against the demand.

Analysis: The inputs could be cleared as such or after partial processing on reversal of the credit attributable to those inputs. The denial of credit solely because the process was treated as non-manufacture was not sustainable where the rules permitted such clearance and the final goods had been cleared on payment of duty through the Cenvat account. The duty paid on the final products was found to be more than the credit taken on the inputs, and the demand was therefore not maintainable.

Conclusion: The demand of Cenvat credit was not sustainable and the assessee was entitled to succeed.

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