Modvat/Cenvat credit on duty-paid inputs cannot be denied merely because an intermediate process is not manufacture.

Duty-paid inputs remained eligible for Modvat/Cenvat credit even though the intermediate drawing of wire rods into wires was not treated as manufacture. The Tribunal accepted that credit could not be denied merely because the department contended that no manufacture had taken place, where duty had already been levied and collected on clearance of the goods. It also treated the matter as revenue neutral and held that the credit was validly utilised under the Modvat/Cenvat scheme. On that basis, the denial of credit was unsustainable and the impugned orders were set aside.

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Issues: Whether the assessee was entitled to avail Modvat/Cenvat credit on duty-paid wires used as inputs, even though the drawing of wires from wire rods was not a process amounting to manufacture.

Analysis: The Tribunal noted that the department was seeking to deny credit solely on the ground that wire drawing did not amount to manufacture, although duty had been levied and collected on the goods cleared from the factory. It relied on earlier Tribunal authority holding that where duty is collected on clearance of the goods, the department cannot simultaneously deny credit by contending that no manufacture took place. The Tribunal also treated the situation as revenue neutral and held that the credit had been validly utilised under the applicable Modvat/Cenvat scheme.

Conclusion: The assessee was entitled to the credit, and the denial of Modvat/Cenvat credit was unsustainable.

Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: Duty-paid inputs cannot be denied Modvat/Cenvat credit merely because an intermediate process is not manufacture, especially where duty has been collected on clearance and the situation is revenue neutral.

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