CENVAT credit reversal not required where inputs are cleared after partial processing and duty payment neutralises the credit.

CENVAT credit need not be reversed again where inputs are removed as such or after partial processing and duty is paid on the cleared goods in a manner that effectively neutralises the credit already taken. The Tribunal treated clearance of cold rolled steel strips, after conversion into slitted steel strips, as covered by Rule 3(3)(b) of the Cenvat Credit Rules, 2004, and relied on prior decisions that further reversal cannot be insisted upon once the credit has effectively stood reversed through duty payment. On that basis, the demand for reversal of credit, interest and penalty was unsustainable and was set aside, with consequential relief to the assessee.

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Issues: Whether CENVAT credit was liable to be reversed, and demand of duty, interest and penalty could be sustained, when inputs were removed as such after partial processing on payment of duty.

Analysis: The inputs were cold rolled steel strips used in manufacture of bearings and were converted into slitted steel strips as required. The cleared goods were subjected to duty payment, and the Tribunal treated such payment as satisfying the statutory treatment under Rule 3(3)(b) of the Cenvat Credit Rules, 2004, which permits utilisation of credit where inputs are removed as such or after partial processing. The Tribunal also relied on prior decisions holding that where credit has effectively stood reversed through duty payment on the cleared goods, a further reversal cannot be insisted upon.

Conclusion: The demand for reversal of CENVAT credit, along with interest and penalty, was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned order confirming demand and penalty was annulled, with consequential relief to follow.

Ratio Decidendi: Where inputs are removed as such or after partial processing and duty is paid in a manner that effectively neutralises the credit taken, the credit cannot be demanded to be reversed again.

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