CENVAT credit on duty-paid combi packs upheld where later processing was not treated as manufacture.

CENVAT credit could not be denied on combi packs received after duty-paid clearance merely because later testing, re-packing, palletization and shrink-wrapping were alleged not to amount to manufacture. The Tribunal applied settled authority that, once the Department has accepted the goods as dutiable and duty has been paid on clearance, a later challenge to the recipient's processing does not justify reversal of credit. On that basis, the demand for duty, interest and penalty was held unsustainable and was set aside, granting the assessee complete relief.

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Issues: Whether the demand, interest, and penalty raised on the ground that the activities undertaken on the combi pack did not amount to manufacture, thereby disentitling the assessee to CENVAT credit, were sustainable.

Analysis: The assessee received combi packs from a job worker after duty had been paid on their clearance and, after testing, re-packing, palletization, and shrink-wrapping, cleared them on payment of duty. The decision turned on the line of authority holding that once the Department has accepted the goods as dutiable and duty has been paid on their clearance, CENVAT credit cannot be denied or reversed merely because a later stage activity is questioned as not amounting to manufacture. The Tribunal followed the view that such denial is inconsistent with the settled legal position and noted the support of earlier High Court decisions recognizing credit availability in similar circumstances.

Conclusion: The demand, interest, and penalty were not sustainable and were set aside.

Final Conclusion: The appeal succeeded and the assessee obtained complete relief against the impugned demand and penalties.

Ratio Decidendi: Where goods are cleared on payment of duty and the Department has treated the activity as manufacturing for duty purposes, CENVAT credit on such duty-paid goods cannot be denied merely on a later objection that the recipient's subsequent processing was not manufacture.

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