Cenvat credit cannot be denied when duty-paid inputs are used and the final product is cleared on payment of duty.

Cenvat credit on inputs used to manufacture Polybion Vitamin B Complex Syrup was not deniable merely because the department later questioned the final product's classification or excisability. The assessee had classified the product under Chapter 30 and cleared it on payment of duty, and there was no material to show that it knowingly claimed credit for a product excluded by Chapter Note 4. The controlling principle applied was that Modvat/Cenvat credit is intended to prevent double taxation, so factual duty payment on inputs and duty-paid clearance of the final product support allowance of credit. The demand for reversal was therefore unsustainable.

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Issues: Whether Cenvat credit on inputs used in the manufacture of Polybion Vitamin B Complex Syrup could be denied on the ground that the final product was alleged to be non-excisable or misclassified.

Analysis: The appellant had classified the final product under Chapter 30 and cleared it on payment of duty. There was no material showing that the appellant knew the product was excluded by Chapter Note 4, and the departmental testing itself showed only a small alcohol content. The controlling principle applied was that where duty has in fact been paid on the inputs and the final product is cleared on payment of duty, the input credit cannot be denied merely because the department later disputes the classification or excisability of the final product. The Tribunal followed the view that Modvat/Cenvat relief is meant to avoid double taxation and that the factual payment of duty on inputs is material.

Conclusion: Cenvat credit could not be denied, and the demand for reversal of credit was unsustainable.

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