Cenvat credit already used to pay duty cannot be reversed again merely because the activity is later held not to be manufacture.

Where Cenvat credit on duty-paid inputs has already been utilised to discharge duty on finished goods, the same credit is treated as exhausted and cannot be demanded again for reversal simply because the underlying activity is later held not to amount to manufacture. A further reversal would amount to a second recovery of the same credit. The commentary also notes that this approach was accepted by the Gujarat High Court in Creative Enterprises and affirmed by the Supreme Court, supporting the view that the reversal demand is unsustainable on these facts.

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Issues: Whether Cenvat credit already utilised for payment of duty on finished goods could again be demanded for reversal when the activity was held not to amount to manufacture.

Analysis: The disputed goods were produced from duty-paid inputs and the duty on the finished products had been paid by utilising the very Cenvat credit availed on those inputs. The effect of such utilisation was that the credit stood exhausted for payment of duty and could not be demanded again. A further reversal would amount to a second recovery of the same credit. The Tribunal also noted that the Gujarat High Court had accepted this approach in Creative Enterprises, and that view had been affirmed by the Supreme Court.

Conclusion: The demand for reversal of Cenvat credit was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where Cenvat credit has already been utilised to discharge duty on the finished goods, the same credit cannot be demanded again for reversal merely because the activity is later held not to amount to manufacture.

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