Cenvat credit on job-work inputs cannot be denied merely because intermediate goods clear under Notification No. 214/86-CE.

Rule 3(1) of the Cenvat Credit Rules, 2002 permits credit on inputs used by a job worker in manufacturing intermediate goods under Notification No. 214/86-CE, where those goods are received for use in or in relation to the final manufacture. The notification is not to be treated as a complete exemption merely because duty is not paid at the intermediate stage. On that basis, credit on furnace oil used in such job-work manufacture was held admissible, and denial of credit solely because the goods were cleared under the notification was unsustainable.

---

---

Issues: Whether Cenvat credit was admissible on furnace oil used in the manufacture of goods cleared under Notification No. 214/86-CE on job work basis.

Analysis: Rule 3(1) of the Cenvat Credit Rules, 2002 specifically permits credit on inputs used in the manufacture of intermediate products by a job worker operating under Notification No. 214/86-CE, where such goods are received by the manufacturer for use in, or in relation to, the manufacture of final products. The notification is not treated as a complete exemption so as to deny credit merely because the job worker does not pay duty at the intermediate stage. The denial of credit on the footing that the goods were exempt was therefore unsustainable.

Conclusion: Credit could not be denied to the assessee on the ground that the goods manufactured under Notification No. 214/86-CE were exempt. The assessee was entitled to the Cenvat credit claimed.

Final Conclusion: The disallowance of credit and the consequential demand were set aside, and the appeal succeeded.

Ratio Decidendi: Where a rule specifically allows Cenvat credit for inputs used in job-work manufacture under a named exemption notification, the credit cannot be denied merely on the basis that the intermediate goods are not subjected to duty at the job-worker stage.

---