Job-work Cenvat credit held safe from exempted-goods reversal when duty is paid by the principal manufacturer

Cenvat credit on inputs used by a job worker was held not reversible under the exempted goods provision where the goods moved under the prescribed job-work challan procedure and the finished goods were returned to the principal manufacturer. The Tribunal applied the settled principle, following Sterlite Industries and later approval of that approach, that the special job-work procedure prevents mechanical invocation of the reversal rule when duty is ultimately discharged at the principal manufacturer's end. On that basis, the credit on inputs used in the job-work activity was not hit by the exemption-based reversal requirement, and the demand and penalty were unsustainable.

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Issues: Whether Cenvat credit taken on inputs used by a job worker in goods processed under the job-work procedure was liable to reversal under the rule applicable to exempted goods.

Analysis: The goods were received for job work under the prescribed challan procedure and the finished goods were returned to the principal manufacturer. The dispute turned on whether the job-work clearance attracted the reversal provision for exempted final products. The Tribunal followed the settled view that credit cannot be denied merely because inputs are used in job work where duty ultimately stands paid at the principal manufacturer's end. It relied on the Larger Bench decision in Sterlite Industries and the subsequent approval of the principle that the special procedure for job work prevents the mechanical application of the reversal rule. The Tribunal held that the credit available on inputs used in the job-work activity was not hit by the exemption-based reversal provision.

Conclusion: The demand and penalty were unsustainable, and the appeal succeeded with consequential relief.

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