Cenvat credit on rejected or scrapped inputs remains available when inputs were actually used in manufacture.

Cenvat credit on duty-paid inputs used in manufacture was not required to be reversed merely because the inputs were later rejected, damaged or scrapped during the manufacturing process. The Tribunal treated the decisive question as whether the inputs had been issued for intended use and actually consumed in production, rather than whether they were subsequently written off in the accounts. A book write-off alone was insufficient to show that the goods were cleared as such or remained unused, particularly where shop-floor rejection records and line-rejection accounting supported manufacturing use. The denial of credit was therefore unjustified.

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Issues: Whether Cenvat credit taken on inputs that were written off in the accounts on account of rejection, damage or scrapping during the manufacturing process was liable to be reversed.

Analysis: The dispute turned on whether the inputs had been put to intended use in manufacture or had remained unused and merely written off in the books. The Tribunal followed its earlier decision in the assessee's own case and the settled line of decisions that once duty-paid inputs are issued for manufacture and are actually used in the manufacturing process, subsequent rejection, damage or scrapping during that process does not alter the eligibility of the credit. The accounting entry of write-off, by itself, was held insufficient to treat the goods as cleared as such or to infer non-use, especially when the assessee's system showed shop-floor rejection notes and accounting treatment for line rejections.

Conclusion: Reversal of Cenvat credit was not warranted and the denial of credit was unjustified.

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