Cenvat credit on returned defective goods was allowed where duty was paid and supporting documents were proper.

Cenvat credit was admissible on returned defective goods cleared under bond to a SEZ developer where the goods were lawfully received back under proper permission and documentation, and duty was later paid when replacement was not made within time. The restricted operation of Rule 16 of the Central Excise Rules, 2002 did not bar credit on these facts. Credit was also available under Rule 3 of the Cenvat Credit Rules, 2002, and the duty payment document was a permissible basis for credit under Rule 9. The appellant was entitled to take Cenvat credit of the duty amount paid on the returned goods.

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Issues: Whether credit of duty was admissible when goods cleared under bond to a SEZ developer were returned under proper procedure for replacement, duty on the returned goods was paid by the SEZ developer on failure of replacement, and the appellant claimed credit on the basis of the duty paid document.

Analysis: The goods had been cleared under bond under lawful procedure and were later received back as defective goods under proper permission and documentation. The duty was subsequently paid by the SEZ developer when replacement was not made within time, and the appellant accepted the reimbursement claim. On these facts, the restricted operation of Rule 16 of the Central Excise Rules, 2002 did not bar credit. The returned goods were received under proper documents showing duty payment, and credit was otherwise available under Rule 3 of the Cenvat Credit Rules, 2002. The document evidencing duty payment was also a permissible basis for credit under Rule 9 of the Cenvat Credit Rules, 2002.

Conclusion: The appellant was entitled to take Cenvat credit of the duty amount paid on the returned goods.

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