Cenvat credit on transformer oil used for testing need not be reversed when the oil was not cleared as such.

Transformer oil used in the factory for inspection and testing of transformers was not treated as cleared as such when part of it was later drained and the required quantity refilled before dispatch. The fact that the oil formed part of the assessable value did not by itself prove removal in its original form, because the decisive point was its use in the manufacturing process. On that basis, reversal of Cenvat credit was held unwarranted. The earlier decision in the same assessee's case was distinguished because it did not examine the use of the oil for inspection and testing.

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Issues: Whether the respondent was required to reverse Cenvat credit taken on transformer oil on the ground that the oil was cleared as such along with the finished transformers.

Analysis: The transformer oil purchased by the respondent was used in the factory during the manufacturing process for inspection and testing of transformers. The oil was filled into the transformers for such purpose, later drained, and the required quantity was again filled before dispatch, while only the balance was sent in barrels for logistical convenience. The finding that the oil was included in the assessable value did not by itself establish that the oil was cleared as such, because the principal basis for the order was that the oil had been used in the manufacturing process and not merely removed in its original form. The earlier decision in the respondent's own case was held distinguishable because the issue of use for inspection and testing was not examined there.

Conclusion: The transformer oil was not cleared as such and reversal of credit was not warranted.

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