Job-work scrap and process loss did not justify Cenvat credit reversal where inputs were properly accounted for.

Cenvat credit on copper rods sent to job workers could not be denied merely because part of the inputs was not received back in full, where the manufacturing process necessarily involved loss, end cuttings and scrap/off-cuts. The record showed that the retained scrap was used by the job worker to manufacture other goods, which were accounted for and cleared on payment of excise duty, with no evidence of diversion, unaccounted clearance or use of the inputs as such in breach of the job-work arrangement. On these facts, reversal of credit was not justified, and the connected confiscation and penalties were unsustainable.

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Issues: Whether Cenvat credit on copper rods sent to job workers was liable to be reversed on the ground that part of the inputs was not received back in full, and whether the confiscation and penalty imposed on that basis could be sustained.

Analysis: The dispute arose from inputs sent for job work for manufacture of intermediate products. The record showed that the manufacturing activity necessarily involved process loss, end cuttings, and emergence of scrap/off-cuts. The retained scrap and off-cuts were used by the job worker for manufacture of other goods, which were duly accounted for and cleared on payment of excise duty. There was no evidence of diversion of inputs, unaccounted clearance, or use of the goods as such in violation of the job-work arrangement. In these circumstances, the quantities not returned could not be treated as a basis for denial or reversal of credit at the principal manufacturer's end, and the allegation of breach of the job-work provisions was not made out.

Conclusion: The demand for reversal of Cenvat credit, along with the connected confiscation and penalties, was unsustainable.

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