CENVAT credit on stock-transferred inputs cannot be denied merely for lack of direct purchase between sister units.

CENVAT credit on inputs transferred between units of the same group could not be denied merely because the receiving unit did not purchase them directly or the sending unit did not sell them in the usual commercial sense. The credit rules were read as requiring procurement of inputs for manufacture, not a narrow purchase condition, and the substitution of "procured" for "purchase" in Rule 7(4) reflected that position. As the record did not show that the inputs were unused or that duty had not been suffered, recovery of the credit was unsustainable and the assessee was held entitled to the benefit of CENVAT credit.

---

---

Issues: Whether excise duty could be recovered on CENVAT credit taken on inputs received by one unit from another unit of the same group on stock transfer, in the absence of purchase by the receiving unit or sale by the sending unit.

Analysis: The applicable credit provisions did not make purchase by the receiving unit a sine qua non for availment of credit. The record did not show that the inputs were not used in manufacture or that duty had not been suffered. The substitution of the word "procured" for "purchase" in Rule 7(4) of the CENVAT Credit Rules, 2002 by Notification No. 13/03 dated 01.03.2003 was treated as reflecting the legislative position that procurement, and not purchase in the narrow sense, was the relevant requirement. The credit provisions were construed as granting entitlement to input credit, and not as creating a charging provision by implication.

Conclusion: Recovery of the credit was not sustainable, and the assessee was entitled to the benefit of CENVAT credit.

Final Conclusion: The demand was set aside and the appeal was allowed.

Ratio Decidendi: Where the governing credit rules do not expressly require purchase as a condition for availing input credit, stock-transferred inputs cannot be denied credit merely because they were procured from another unit rather than purchased directly by the claimant.

---