Cenvat credit remains valid where inputs are damaged during manufacture and do not survive in the finished product

Cenvat credit on inputs used in manufacture is not required to be reversed merely because the inputs were damaged or became defective during the manufacturing process. The Tribunal treated the decisive factor as whether the inputs were received for use in or in relation to manufacture, not whether each input ultimately remained identifiable in the finished product. Following earlier coordinate-bench rulings, it noted that line rejection, assembly damage, or similar manufacturing loss does not undo credit already validly availed. The Revenue's challenge therefore failed, and the order allowing credit on the damaged inputs was upheld.

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Issues: Whether Cenvat credit taken on inputs that were received in good condition but got damaged or became defective during the course of manufacture is required to be reversed.

Analysis: The inputs were issued for use in the manufacture of the final product and the damage occurred during the manufacturing process. Credit eligibility depends on the inputs having been used in or in relation to manufacture, and not on whether every input ultimately forms part of the finished product. The Tribunal followed its earlier coordinate-bench decisions holding that line rejection or damage during assembly or manufacture does not defeat the credit already taken.

Conclusion: The credit was not liable to be reversed and the Revenue's challenge failed.

Final Conclusion: The order allowing credit on the damaged inputs was upheld, and the Revenue appeal was not accepted.

Ratio Decidendi: Where inputs are received for manufacture and become damaged or defective during the manufacturing process, Cenvat credit already availed is not reversed merely because the inputs do not survive in the finished product.

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