Job-work removal of inputs fell under CENVAT Rule 4(5)(a), so credit reversal demand could not stand.

Removal of inputs for job work was governed by Rule 4(5)(a) of the CENVAT Credit Rules, because the inputs were sent for further manufacture and not removed as such from the factory. Rule 3(5) therefore did not apply, as that provision covers removal of inputs as such and requires reversal of the credit taken. The later withdrawal of permission could not alter the character of the original job-work removal or defeat otherwise admissible credit on receipt of the inputs. The demand for reversal of CENVAT credit, together with the connected penalty and redemption fine, was unsustainable and was set aside in favour of the assessee.

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Issues: Whether removal of inputs for job-work attracted Rule 3(5) of the CENVAT Credit Rules, 2004, or fell within Rule 4(5)(a) of the CENVAT Credit Rules, 2004, so as to exclude the demand for reversal of CENVAT credit.

Analysis: Rule 3(5) applies where inputs are removed as such from the factory, requiring payment of an amount equal to the credit taken. Rule 4(5)(a) permits a manufacturer to send inputs, or goods partially processed from them, to a job worker for further processing and retain the credit, subject to receipt back within the prescribed time. The removal in question was for further manufacture on job-work basis, and the later withdrawal of permission could not change the character of the removal or defeat credit otherwise admissible on receipt of inputs. The situation was therefore governed by Rule 4(5)(a), not Rule 3(5).

Conclusion: The demand for reversal of CENVAT credit and the connected penalty and redemption fine were not sustainable and were set aside in favour of the assessee.

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