Cenvat credit cannot be denied where duty on final products was accepted, even if manufacture is disputed.

Cenvat credit on inputs, input services and capital goods could not be denied merely on the ground that the assessee's process was said not to amount to manufacture, where duty on the final products had been paid and accepted by the department. The settled position applied was that once such duty is accepted, credit used for payment of duty on cleared goods cannot be reversed only because the goods are later characterised as non-dutiable or the activity as non-manufacture. The denial of credit was therefore held unsustainable and set aside in favour of the assessee.

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Issues: Whether Cenvat credit taken on inputs, input services and capital goods could be denied on the premise that the process undertaken by the assessee did not amount to manufacture, when duty on the final products had been paid and accepted by the department.

Analysis: The Department had restored the assessee's registration on the basis that the processes undertaken amounted to manufacture and had treated the duty paid on the cleared goods as Government revenue. In such a situation, the credit availed on inputs, input services and capital goods could not be disallowed merely by contending that the goods were non-dutiable or that the activity was not manufacture. The settled view applied was that once duty on final products is accepted, credit utilised for payment of such duty cannot be reversed on the ground of absence of manufacture.

Conclusion: The denial of Cenvat credit was not sustainable and was set aside, in favour of the assessee.

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