Rule 6 credit reversal not attracted where job-worked goods are used in duty-paid final manufacture.

Forgings cleared by a job-worker to the principal manufacturer without duty payment were not exempted goods for Rule 6 of the Cenvat Credit Rules, 2004, because the principal manufacturer ultimately discharged duty on the final product. The Tribunal applied the settled principle that common input and input service credit cannot be denied merely because duty was not paid at the intermediate job-work stage, where the goods are used in the manufacture of a duty-paid final product. Rule 6 therefore did not require reversal of credit, and the demand, interest and penalties were unsustainable.

---

---

Issues: Whether forgings cleared to the principal manufacturer without payment of duty, though duty was ultimately discharged by the principal manufacturer, could be treated as exempted goods so as to attract reversal of common credit under Rule 6 of the Cenvat Credit Rules, 2004.

Analysis: The common input and input service credit was denied on the premise that the job-worked forgings cleared without payment of duty were exempted goods. The Tribunal found that the goods cleared to the principal manufacturer had suffered duty at the hands of the principal manufacturer, and therefore the job-work clearances could not be characterised as exempted goods. Once the final product was duty paid, the bar against credit on exempted goods did not apply. The Tribunal relied on the settled principle that where an intermediate or job-worked product is ultimately used in the manufacture of a duty-paid final product, credit cannot be denied merely because duty was not paid at the job-worker's stage.

Conclusion: Rule 6 was held to be inapplicable and the appellant was not liable to reverse the credit. The demand, interest and penalties could not be sustained.

Final Conclusion: The appeal succeeded because the job-work clearances were not exempted goods in law once duty was paid on the final product by the principal manufacturer.

Ratio Decidendi: Credit on common inputs is not barred where goods cleared without duty at the job-worker stage are ultimately used in the manufacture of a duty-paid final product, because such clearances do not constitute exempted goods for Rule 6 purposes.

---