Cenvat credit for textile processors cannot be denied on a technical separate-accounts objection when pro rata credit is confined to dutiable clearances.

Cenvat credit for a textile processor cannot be denied merely because separate accounts for inputs used in dutiable and exempt clearances were not maintained, where credit was availed only on the duty attributable to dutiable clearances and exempt-output credit was foregone on a pro rata basis. The analysis treats the Board circular for the textile sector as binding on the Revenue and states that maintaining records of production, clearances and duty-paying documents was sufficient for compliance. On that basis, the denial and recovery of credit were found unjustified and the assessee was held entitled to the credit claimed.

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Issues: Whether denial of Cenvat credit was justified on the ground that separate accounts of inputs used for dutiable and exempted clearances were not maintained, despite pro rata credit availed and the applicable Board circular for the textile sector.

Analysis: The appellant was engaged in processing textile fabrics and availed Cenvat credit only to the extent of the duty relatable to dutiable clearances, while forgoing credit in respect of exempt clearances on a pro rata basis. The records reflected receipt, consumption, and utilisation of inputs, and the dispute turned on the interpretation of the requirement of separate accounts under the Cenvat scheme. The Board's circular issued for the textile industry stated that processors doing job work and processing on their own could take credit on duty-paid inputs for dutiable clearances and that it would be sufficient if manufacturers kept account of production, clearances, and credit on the strength of duty-paying documents. That circular was treated as binding on the Revenue. The denial of credit was also found to rest on a purely technical objection, though the appellant had not taken credit on inputs attributable to exempted goods.

Conclusion: Denial and recovery of Cenvat credit was not justified, and the appellant was entitled to the credit claimed.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where a textile manufacturer avails Cenvat credit only on the duty attributable to dutiable clearances and follows the binding Board circular by maintaining production and clearance accounts, credit cannot be denied merely on a technical objection regarding separate accounts.

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