Manufacture through processing of CI castings can support Cenvat credit where usability changes and goods become fit for customer use.

Processing purchased CI castings by shot blasting, grinding, erasing, chipping, painting, oiling, proof machining and measuring was treated as manufacture because the operations changed the material's usability and made it fit for customer use; on that basis, Cenvat credit on the inputs was stated to be allowable. Clearance of the processed goods on payment of duty was also treated as reversal of Cenvat credit to the extent required by the Revenue's objection. The stated effect was that denial of credit was not sustainable where the statutory test of manufacture was met, and duty payment on clearance could operate as reversal of the credit.

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Issues: (i) Whether the processes undertaken on purchased CI castings amounted to manufacture so as to entitle the assessee to Cenvat credit on the inputs; (ii) whether clearance of the processed goods on payment of duty could be treated as reversal of the Cenvat credit.

Issue (i): Whether the processes undertaken on purchased CI castings amounted to manufacture so as to entitle the assessee to Cenvat credit on the inputs.

Analysis: The assessee purchased raw CI castings and subjected them to processes such as shot blasting, grinding, erasing, chipping, painting, oiling, proof machining and measuring. These processes changed the usability of the material and made it fit for the customers' use. On these facts, the activity satisfied the statutory test of manufacture.

Conclusion: The activity amounted to manufacture and the denial of Cenvat credit was not sustainable.

Issue (ii): Whether clearance of the processed goods on payment of duty could be treated as reversal of the Cenvat credit.

Analysis: The assessee had cleared the CI castings on payment of duty. In the circumstances, the duty payment was treated as reversal of the credit to the extent required by the Revenue's objection.

Conclusion: The duty payment was treated as reversal of Cenvat credit.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where purchased goods undergo processes that change their usability and render them fit for customer use, the activity constitutes manufacture under the excise law, and credit cannot be denied merely because the processed goods are cleared on payment of duty.

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