Cenvat credit cannot be denied for stock transfer inputs where receipt in factory satisfies substantive eligibility.

Cenvat credit under Rule 3 depends on receipt of duty-paid inputs in the factory, not on their commercial purchase. A procedural provision in Rule 7(4) cannot narrow the substantive entitlement to credit, and the later use of the term "procured" was treated as consistent with that intent. Inputs received from sister units under stock transfer invoices therefore could not be denied credit merely because they were not purchased in the ordinary sense. The demand and disallowance of credit were set aside.

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Issues: Whether Cenvat credit could be denied on inputs received from sister units under stock transfer invoices on the ground that the goods were not "purchased", and whether purchase was a prerequisite for credit under the Cenvat Credit Rules.

Analysis: Rule 3 of the Cenvat Credit Rules governs the entitlement to credit and focuses on receipt of inputs in the factory of manufacture. The expression "purchase" does not form part of the substantive eligibility condition. Rule 7(4), which deals with record-keeping and procedure, cannot override the substantive credit provision. The later substitution of the word "procured" for "purchased" in Rule 7(4) was treated as reflective of legislative intent, and the prior period could not be denied credit merely because the inputs moved on stock transfer basis from sister units.

Conclusion: Cenvat credit on the impugned inputs was admissible, and denial on the ground that the inputs were not purchased was unsustainable.

Final Conclusion: The demand and disallowance of credit were set aside, and relief followed in favour of the assessee.

Ratio Decidendi: Where the substantive credit provision requires receipt of duty-paid inputs in the factory, credit cannot be denied merely because the inputs were transferred from another unit and not purchased in the commercial sense, and a procedural rule cannot curtail the substantive entitlement.

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