Cenvat credit on duty-paid free promotional items with spray guns was admissible where their cost formed part of assessable value.

Cenvat credit was allowable on duty-paid playing cards supplied free with spray guns because the Modvat/Cenvat scheme prevents duty cascading and extends to items used in relation to the final product, not only those physically incorporated in manufacture. The cards were bought on payment of duty, supplied along with the spray guns, and their cost was absorbed in the assessable value on which excise duty was paid. The definition of input did not require direct use in production. CESTAT Mumbai therefore held that denial of credit was unsustainable and credit was admissible.

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Issues: Whether duty paid on playing cards supplied free of cost along with spray guns was admissible as Cenvat credit as an input under the Cenvat Credit Rules, 2004.

Analysis: The scheme of Modvat/Cenvat is intended to avoid cascading of duty and permits credit where the duty-paid item goes into the final product directly or indirectly, or is used in relation to it. The playing cards were admittedly purchased on payment of duty, supplied along with the final product, and their cost was absorbed in the assessable value of the spray guns on which excise duty was ultimately paid. The definition of input did not require direct use in manufacture or physical incorporation in the final product. The Tribunal also relied on precedents allowing credit on bought-out items supplied along with the manufactured goods for promotional purposes.

Conclusion: Cenvat credit on the duty paid on the playing cards was admissible and denial of credit was unsustainable.

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