Cenvat credit on inputs cannot be denied when supplier duty was accepted and recipient otherwise meets credit conditions.

Cenvat credit on inputs cannot be denied merely because the supplier's process was later held not to amount to manufacture and the supplier's payment was characterised as a deposit rather than excise duty. Where the supplier's payment had been accepted in assessment, the recipient held valid invoices, and the inputs were used in manufacture, the credit scheme continued to apply. The departmental view at the recipient's end could not retrospectively recharacterise the supplier's duty payment or defeat otherwise eligible credit. On that basis, the disallowance of credit was not sustainable, and the related demand, interest, and penalty also fell.

---

---

Issues: Whether Cenvat credit availed by the recipient could be denied when the supplier's process was held not to amount to manufacture and the amount paid by the supplier was treated as a deposit rather than excise duty.

Analysis: The dispute turned on whether the input duty payment retained its character as excise duty for the purposes of Cenvat credit. The supplier's case had already been decided in its favour, with the process of cutting and slitting held not to create a dutiable product and the appeal allowed. The recipient had purchased the inputs, received invoices, and used them in its own manufacturing activity. The applicable credit scheme permits credit of duty paid on inputs used for manufacture, and credit cannot be denied merely because the department later takes the view that the supplier's payment was not legally due, when that payment had been accepted at the supplier's end. The decision also relied on the principle that the departmental view at the recipient's end cannot be used to recharacterise a duty payment already accepted in the supplier's assessment.

Conclusion: The credit disallowance was not sustainable and the assessee succeeded on this issue.

Final Conclusion: The demand, interest, and penalty could not be sustained, and the assessee was entitled to the consequential benefit of the allowed appeal.

Ratio Decidendi: Where duty paid by a supplier has been accepted in assessment and the recipient otherwise satisfies the conditions for credit, Cenvat credit cannot be denied merely because the supplier's activity is later held not to amount to manufacture or the payment is retrospectively characterised as a deposit.

---