CENVAT credit for job-worked manufacture under exemption notification cannot be denied by reclassifying the activity as a service.

A job worker manufacturing goods for a principal under Notification No. 214/86-CE remains entitled to CENVAT credit on eligible input services used in that manufacture, and Rule 6(1) of the CENVAT Credit Rules, 2004 cannot be invoked to deny such credit. The activity is treated as manufacture, not as an exempted or non-taxable Business Auxiliary Service, so the same job-work process cannot be recharacterised as a service merely to attract credit restrictions. On that basis, the article states that denial of credit on input services is not justified where the output is job-worked manufactured goods cleared under the notification.

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Issues: (i) Whether CENVAT credit of input services used in the manufacture of job-worked goods cleared under Notification No. 214/86-CE was admissible under Rule 6(1) of the CENVAT Credit Rules, 2004; (ii) whether the job-work activity could be treated as an exempted or non-taxable Business Auxiliary Service so as to deny credit on input services.

Issue (i): Whether CENVAT credit of input services used in the manufacture of job-worked goods cleared under Notification No. 214/86-CE was admissible under Rule 6(1) of the CENVAT Credit Rules, 2004.

Analysis: The credit issue was governed by the settled position that a job worker manufacturing goods on behalf of a principal manufacturer and clearing them under the relevant exemption notification is not barred from availing credit on inputs or input services used in that manufacture. The reasoning followed the principle earlier accepted in the larger bench decision in Sterlite Industries and applied in later tribunal decisions, holding that Rule 6(1) could not be invoked to deny credit where the activity was manufacture of job-worked goods cleared under the exemption notification.

Conclusion: Credit of input services was admissible and could not be denied under Rule 6(1).

Issue (ii): Whether the job-work activity could be treated as an exempted or non-taxable Business Auxiliary Service so as to deny credit on input services.

Analysis: The activity undertaken by the appellant was manufacture within the meaning of the excise law and not the provision of a service. A unit cannot be treated simultaneously as a manufacturer and a service provider in relation to the same activity. On that basis, the alleged Business Auxiliary Service characterisation and the corresponding denial of credit on the footing of exempted or non-taxable output service was rejected.

Conclusion: The job-work activity was not taxable as a service for the purpose of denying credit, and the Revenue's objection failed.

Final Conclusion: The demand, interest, and penalty were unsustainable, and the appeal succeeded with the adjudication order set aside.

Ratio Decidendi: A job worker clearing goods manufactured under the exempted job-work notification remains entitled to credit on eligible input services, and the same manufacturing activity cannot be recharacterised as an exempted service merely to invoke Rule 6 restrictions.

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