Cenvat credit on duty-paid bought-out goods remains admissible for non-manufacturing clearance under Rule 16.

Rule 16 of the Central Excise Rules, 2002 permits Cenvat credit on duty-paid goods brought into a factory even where the subsequent activity does not amount to manufacture, provided the corresponding amount is paid on clearance. Applied to bought-out items used in cable jointing kits, this meant the credit was admissible despite the assembling process not constituting manufacture. The earlier Revenue-reliance decision was inapplicable because it related to a period before Rule 16 came into force. On that basis, the demand was unsustainable and the assessee's appeals were allowed.

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Issues: Whether Cenvat credit on bought-out items used in cable jointing kits was admissible where the activity of assembling/clearing such kits did not amount to manufacture.

Analysis: Rule 16 of the Central Excise Rules, 2002 permits credit of duty on goods brought into the factory for any reason and provides that where the subsequent process does not amount to manufacture, the assessee must pay an amount equal to the credit taken. The rule therefore contemplates availment of credit on such goods even in a non-manufacturing situation. The reference to the provisions relating to valuation and duty also supports the statutory scheme under which the credit mechanism operates for goods received and later cleared. Since the period involved was after the introduction of Rule 16, the earlier decision relied upon by the Revenue, rendered for a period when Rule 16 was not in force, was held inapplicable.

Conclusion: The Cenvat credit on the bought-out items forming part of cable jointing kits was admissible. The issue was decided in favour of the assessee.

Final Conclusion: The demand was unsustainable and the impugned order was set aside, with the appeals allowed.

Ratio Decidendi: Where duty-paid goods are brought into a factory and cleared after a process that does not amount to manufacture, Rule 16 of the Central Excise Rules, 2002 permits Cenvat credit on such goods, subject to payment of the corresponding amount on clearance.

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