Cenvat credit on returned defective goods remains admissible while stock stays in the factory under Rule 16.

Duty-paid defective corrugated boxes returned to the factory for remaking, refinement or reconditioning qualify for Cenvat credit under Rule 16. Credit cannot be denied merely because the returned stock remains in the factory, since the duty liability on such goods arises only when they are removed after processing, not while they are still held in stock. The commentary notes that the appellate authority had accepted the availability of credit in principle and erred in disallowing it only on the ground of continued factory storage. The denial of credit was therefore incorrect, and credit was admissible on the returned goods.

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Issues: Whether Cenvat credit was admissible on duty-paid returned defective corrugated boxes kept in the factory, and whether credit could be denied merely because the returned stock was lying in the factory.

Analysis: The returned goods were duty-paid and were received back for being remade, refined or reconditioned. The appellate authority had already accepted, in principle, that credit under Rule 16 was available, and disallowed only the amount relatable to stock still lying in the factory. Under Rule 16, the liability to pay duty on such returned goods arises on removal after processing, not while the goods remain in the factory. Therefore, mere retention of the returned goods in stock was no valid ground to deny the credit.

Conclusion: The denial of credit was incorrect, and the assessee was entitled to the Cenvat credit on the returned goods.

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