Cenvat credit on liquid nitrogen upheld where oxygen escaped during manufacture and no exempted product was cleared.

Cenvat credit on liquid nitrogen was held admissible because the oxygen separated during the manufacturing process was not a manufactured product cleared from the factory. The process used liquid nitrogen as an essential input for producing nitrogen gas, and the oxygen merely escaped into the atmosphere. As no exempted or marketable final product emerged for clearance, the condition for reversal of credit on inputs allegedly used in exempted goods was not satisfied, so reversal of Cenvat credit was not required.

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Issues: Whether Cenvat credit on liquid nitrogen was required to be reversed on the footing that oxygen gas emerged during the process and escaped into the atmosphere.

Analysis: The input liquid nitrogen was used as an essential input in the manufacture of nitrogen gas. During the process, oxygen separated and escaped into the atmosphere. The Board's circular was relied upon for the proposition that gases produced and allowed to escape in the atmosphere are not to be treated as manufactured goods. Since the oxygen was not a manufactured product cleared from the factory, the condition for reversal of credit on inputs allegedly used for exempted goods was not attracted.

Conclusion: Reversal of Cenvat credit was not required and the assessee's credit was admissible.

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