Cenvat credit on capital goods for job-work manufacture was upheld; exemption-based denial and penalties were rejected.

Cenvat credit on capital goods used exclusively in job-work manufacture under Notification No. 214/86-CE could not be denied merely because the finished goods were treated as exempted for clearance purposes. The reasoning followed the earlier view that goods manufactured for the principal manufacturer under the job-work notification are not exempted goods for Rule 6(2) of the CENVAT Credit Rules, 2002, so denial of credit on the capital goods lacked basis. Credit was held admissible, and the penalties were set aside.

---

---

Issues: Whether Cenvat credit on capital goods used exclusively for manufacture of goods on job work basis under Notification No. 214/86-CE could be denied on the ground that the job-worked goods were exempted, and whether the penalties imposed were sustainable.

Analysis: The disputed capital goods were used in the same manufacturing activity for which input credit had already been treated as admissible in the context of job-worked goods. The earlier decision relied upon held that goods manufactured on behalf of the principal manufacturer under the job-work notification did not constitute exempted goods for this purpose, and therefore Rule 6(2) of the CENVAT Credit Rules, 2002 did not justify denial of credit merely because the final goods were cleared under the job-work arrangement. On that reasoning, there was no valid basis to treat the capital goods differently from the inputs used in the same process.

Conclusion: Cenvat credit on the capital goods was admissible, the denial was unsustainable, and the penalties were liable to be set aside.

---