Cenvat credit cannot be denied for in-house job work ancillary to manufacture of dutiable final goods.

Where fabrication, welding, cutting and bending were carried out within the principal manufacturer's premises and resulted in an intermediate product used in the manufacture of dutiable final goods, the activity was treated as incidental or ancillary to manufacture. On that basis, Cenvat credit on input services from sub-contractors could not be denied merely because the intermediate activity was not separately subjected to duty, and Rule 6 of the Cenvat Credit Rules, 2004 was inapplicable to sustain the demand. The credit denial was set aside and the assessee succeeded.

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Issues: Whether the appellant was entitled to retain Cenvat credit on input services received from sub-contractors when the activity undertaken at the premises of the principal manufacturer was held to be manufacture and the demand was raised by invoking Rule 6 of the Cenvat Credit Rules, 2004.

Analysis: The activity consisted of fabrication, welding, cutting and bending undertaken within the premises of the principal manufacturer, resulting in emergence of a new product used as part of a larger plant or machinery. The process was treated as incidental or ancillary to the manufacture of the final dutiable goods cleared by the principal manufacturer. In such a situation, the activity could not be treated as a mere exempted service for the purpose of denying credit. The procedure contemplated by Notification No. 214/86-CE was also found to have lost much of its significance because the entire activity was carried out within the principal manufacturer's premises, and the reasoning in the cited Larger Bench ruling on job work and credit was applied.

Conclusion: The denial of Cenvat credit under Rule 6 was not sustainable and the appellant was entitled to succeed.

Final Conclusion: The impugned order was set aside and the appeal was allowed on the footing that the credit demand could not be sustained in law.

Ratio Decidendi: Where work undertaken within the principal manufacturer's premises results in manufacture of an intermediate product used in the production of dutiable final goods, Cenvat credit cannot be denied merely because the intermediate activity itself was not separately subjected to duty, especially when the substance of the transaction is job work ancillary to manufacture.

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