Cenvat credit for job workers remains admissible where duty is ultimately paid on the final product in the manufacturing chain.

Cenvat credit on capital goods used by a job worker in intermediate processing under the prescribed job-work procedure was held admissible where the processed goods were cleared without duty to the principal manufacturer and duty was ultimately discharged on the final product in the manufacturing chain. The settled principle applied was that such clearance does not treat the intermediate output as an exempted final product for denying credit, and the scheme seeks to prevent duty cascading. On that basis, the demand, interest, and penalty were unsustainable, and the impugned order was set aside.

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Issues: Whether Cenvat credit on capital goods used by a job worker for carrying out intermediate manufacturing process on goods supplied under Notification No. 214/86-C.E. is admissible when the processed goods are removed without payment of duty to the principal manufacturer.

Analysis: The dispute turned on whether a job worker, who undertakes intermediate processing on goods supplied by the principal manufacturer and clears the processed goods under the prescribed job-work procedure, can be denied credit merely because the final duty is discharged at the principal manufacturer's end. The governing principle, applied from the settled line of authority, is that the job-work clearance does not make the intermediate output an exempted final product for the purpose of denying credit, and the statutory scheme is meant to avoid cascading of duty. The same reasoning applies to capital goods credit used in the job-work process where the final product is not exempt but duty is ultimately paid in the manufacturing chain.

Conclusion: Cenvat credit was admissible to the appellant, and the demand, interest, and penalty could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief according to law.

Ratio Decidendi: Credit cannot be denied to a job worker merely because processed goods are cleared without payment of duty under the prescribed job-work procedure when duty is ultimately discharged on the final product in the manufacturing chain.

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