2005 (11) TMI 150 - AT - Central Excise

Manufacturing process damaged inputs: Cenvat credit ruling upheld, consistency in application of credit rules

The Tribunal upheld the Commissioner's decision that Cenvat credit on damaged inputs during the manufacturing process need not be reversed. The Tribunal ... Cenvat/Modvat - Line rejection Issues:1. Reversal of Cenvat credit on damaged inputs during the manufacturing process.Analysis:The judgment involves a Revenue appeal against an Order-in-Appeal where the Commissioner held that the Cenvat credit taken on inputs damaged during the manufacturing process need not be reversed. The Commissioner highlighted that the basic eligibility for availing credit is that the input should be put to use in the manufacturing process. In this case, it was established that the damaged inputs were initially received in good condition and were used in the manufacture of final products. The Commissioner also referred to previous decisions by CEGAT to support the conclusion that the credit availed on the damaged inputs is not liable to be reversed, even under the Cenvat Credit Rules.The issue at hand was whether the damaged inputs should lead to the reversal of Cenvat credit. The Commissioner emphasized that the inputs were used in the manufacturing process before getting damaged, and as per the Cenvat Credit Rules, a manufacturer is eligible to take credit on inputs used in or in relation to the manufacture of final products. The Commissioner relied on previous rulings to support the decision that the credit need not be reversed, drawing analogies from cases involving breakage of glass bottles and damage to picture tubes during the manufacturing process.In response to the Revenue appeal, the Tribunal upheld the decision of the Commissioner, stating that the rejection of inputs during the manufacturing process, known as line rejection, does not warrant the denial of credit if the inputs were issued for manufacture. The Tribunal referred to previous cases to support this stance, including instances where inputs damaged during the assembly process of motor vehicles were deemed eligible for credit. The Tribunal concluded that there was no infirmity in the impugned order, affirming the legality and correctness of the decision. The Revenue appeal was consequently rejected.In conclusion, the judgment clarifies that the Cenvat credit on inputs damaged during the manufacturing process may not necessarily need to be reversed, provided the inputs were initially used in the manufacturing of final products. The decision is supported by the interpretation of relevant rules and previous legal precedents, ensuring consistency in the application of credit rules in similar scenarios.