CENVAT credit reversal not required where duty on finished products was accepted despite later non-manufacture allegation.

CENVAT credit on duty-paid inputs is not required to be reversed merely because the processing activity is later alleged not to amount to manufacture under Section 2(f) of the Central Excise Act, 1944, where duty on the finished products has been paid and accepted. The appellant had procured duty-paid inputs, processed them, discharged central excise duty on the final products, and filed returns. Applying the settled principle that acceptance of duty on the final product protects the input credit, the Tribunal rejected the departmental demand for reversal. The demand was therefore unsustainable and relief was given to the assessee.

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Issues: Whether CENVAT credit taken on raw materials was required to be reversed merely because the process undertaken on those materials was later alleged not to amount to manufacture under Section 2(f) of the Central Excise Act, 1944.

Analysis: The appellant had procured duty-paid inputs, undertaken processing, paid central excise duty on the finished products, and filed the necessary returns. The departmental stand that the process did not amount to manufacture was rejected in view of the principle that once duty on the final product has been accepted, the CENVAT credit availed on inputs need not be reversed even if the activity is subsequently treated as not amounting to manufacture. The Tribunal also noted that the same view had been followed in later precedent and in the appellant's own subsequent period.

Conclusion: The demand for reversal of CENVAT credit was unsustainable and the issue was decided in favour of the assessee.

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