CENVAT credit on free-of-cost inputs remains admissible; purchase is not a condition precedent for credit entitlement.

CENVAT credit on inputs received free of cost from customers remains available where the inputs are received in the factory and duty has been paid on them. The reference in Rule 57AE(3) to recording the person from whom inputs are purchased was treated as a procedural record-keeping requirement, not a substantive condition for credit. Entitlement to credit was traced to Rule 57AB and the CENVAT credit scheme, under which credit follows duty-paid inputs used in the manufacturing process. Accordingly, credit cannot be denied solely because the manufacturer did not purchase or own the inputs before receipt.

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Issues: Whether CENVAT credit is admissible on inputs received free of cost from customers though not purchased by the manufacturer or owned by it.

Analysis: The dispute turned on the construction of Rule 57AE(3) of the Central Excise Rules, 1944, which refers to maintenance of records of inputs and the person from whom they are purchased. The substantive entitlement to credit, however, flows from Rule 57AB of the Central Excise Rules, 1944 and the corresponding CENVAT credit scheme, which allow credit of duty paid on inputs received in the factory. The reference to purchase in the record-keeping provision was treated as procedural only, and not as a condition precedent for availing credit. The earlier Tribunal decisions relied on held that inputs need not be acquired by purchase for credit to be available.

Conclusion: CENVAT credit could not be denied merely because the inputs were received free of cost and not purchased by the manufacturer.

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