CENVAT credit for unavoidable manufacturing loss in textile production must cover all inputs used in making finished fabric.

Rule 9A of the CENVAT Credit Rules, 2002 entitled a textile manufacturer to credit of duty paid on inputs used in the manufacture of finished goods, and the phrase "inputs of such finished product" had to be read in the context of the actual manufacturing process. Because unavoidable manufacturing loss is inherent in textile production, credit could not be restricted to the physical weight of the finished fabric alone. Where the department did not dispute the claimed loss, the rule did not justify denying credit on the lost portion of inputs. The assessee was therefore entitled to CENVAT credit on the total quantity and value of inputs that went into making the fabric.

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Issues: Whether, under Rule 9A of the CENVAT Credit Rules, 2002, the assessee was entitled to avail CENVAT credit on the total quantity and value of inputs used in manufacture of fabric, including the unavoidable manufacturing loss.

Analysis: Rule 9A entitled a manufacturer of textile goods to credit equal to the duty paid on inputs of the finished product lying in stock or in process or contained in finished products lying in stock on the relevant date. The expression "inputs of such finished product" had to be understood in the context of the manufacturing process and not in a purely theoretical manner. Since every manufacturing process involves some unavoidable loss, the inputs that actually went into producing the finished fabric could not be confined only to the physical weight of the finished product. The claimed 5% manufacturing loss was never disputed by the department at any stage, and the rule could not be construed to deny credit for such loss.

Conclusion: The assessee was entitled to CENVAT credit with reference to the total quantity and value of the inputs that went into the making of the fabric.

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