Cenvat credit for job workers on duty-paid inputs is available when goods are processed under disclosed job-work arrangements.

A job worker manufacturing goods under a job-work arrangement may avail Cenvat credit on duty-paid furnace oil used in processing the job-worked goods, even where the final duty on clearance is paid by the principal manufacturer. The Tribunal applied the Larger Bench principle that credit is available on inputs used by the job worker in such manufacture. Because the credit was admissible and the movement of goods was disclosed through challans and records, denial of credit, invocation of the extended period and penalty were not sustainable.

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Issues: (i) Whether a job worker manufacturing goods under a job-work arrangement was entitled to Cenvat credit of duty paid on furnace oil used in the manufacture of the job-worked goods. (ii) Whether denial of credit, penalty and invocation of the extended period were sustainable.

Issue (i): Whether a job worker manufacturing goods under a job-work arrangement was entitled to Cenvat credit of duty paid on furnace oil used in the manufacture of the job-worked goods.

Analysis: The goods were received from the principal manufacturer under challans, processed by the job worker and returned for final clearance by the principal. The Tribunal applied the principle laid down in the Larger Bench decision that a job worker is entitled to take credit of duty paid on inputs used by him in the manufacture of job-worked goods, even where duty on the final product is discharged by the principal manufacturer. The fact that the earlier precedent arose under the erstwhile Rules did not prevent its application where the legal issue under the Cenvat Credit Rules was identical.

Conclusion: The job worker was entitled to avail Cenvat credit on furnace oil.

Issue (ii): Whether denial of credit, penalty and invocation of the extended period were sustainable.

Analysis: Since the credit itself was held admissible, the foundation for the demand and penalty did not survive. The record also showed that the movement of goods and the job-work process had been disclosed through challans and related records, which negatived suppression. In these circumstances, the extended period and penalty under the Central Excise Act could not be sustained.

Conclusion: Denial of credit, penalty and extended-period invocation were unsustainable.

Final Conclusion: The impugned orders were set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: A job worker is entitled to Cenvat credit on duty-paid inputs used in processing goods received under a job-work arrangement when the final duty liability is discharged by the principal manufacturer, and penalty or extended limitation cannot survive where the credit denial itself fails and the transaction is disclosed.

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