CENVAT credit on temporarily removed inputs survives when goods return to the factory and are used in manufacture despite procedural lapses.

CENVAT credit remained available on duty-paid inputs temporarily taken out of the factory and later brought back for use in manufacture, because their re-entry and actual use were undisputed. The absence of prior permission and non-entry in records did not by itself defeat credit where the movement was for a temporary purpose such as shortage of space. On that basis, denial of credit was unsustainable, and the related demand and penalty could not be maintained.

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Issues: Whether CENVAT credit was admissible where duty-paid inputs were temporarily taken out of the factory, later brought back, and used in the manufacture of final products, notwithstanding absence of prior permission and non-entry in records; and whether the demand and penalty could be sustained.

Analysis: The return of the inputs to the factory and their use in manufacture was not disputed. The governing principle applied was that goods removed for shortage of space or for a temporary purpose, when brought back into the factory and put to use, do not lose the benefit of credit merely because prior permission was not taken. In the absence of any contrary authority, the entitlement to credit was upheld on the basis that the goods re-entered the factory and were used in the manufacturing process.

Conclusion: CENVAT credit was admissible, and the demand along with the proceedings based on denial of credit could not be sustained; the penalty also did not survive.

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