Cenvat credit on inputs survives when final goods are duty-paid, even if the process is later questioned as non-manufacture.

Where final goods are cleared on payment of excise duty, Cenvat credit on imported or locally procured inputs used in their manufacture cannot be reversed merely because the Department later disputes the intermediary process as not amounting to manufacture. The accepted duty payment on the finished goods was the ative factor, and the fact that duty paid on clearance exceeded the credit availed further showed no recoverable irregularity. The demand for reversal of credit was therefore unsustainable and relief was granted to the assessee.

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Issues: Whether Cenvat credit availed on imported or locally procured inputs is recoverable merely because the Department disputes the process undertaken on such inputs as not amounting to manufacture, when the processed goods are cleared on payment of excise duty.

Analysis: The decisive factor was that the processed goods were treated as dutiable and duty was actually paid on their clearance. The settled principle applied was that where duty on the final product has been accepted, Cenvat credit taken on the inputs used for such goods cannot be reversed only because the intermediary process is later alleged not to amount to manufacture. The fact that the duty paid on clearance exceeded the credit availed reinforced the absence of any recoverable irregularity.

Conclusion: The demand for reversal of Cenvat credit was not sustainable and the issue was answered in favour of the assessee.

Ratio Decidendi: Once the final goods are cleared on payment of duty and such duty treatment is accepted, Cenvat credit on the inputs used for those goods cannot be denied or reversed merely because the process is later held not to constitute manufacture.

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