CENVAT credit distribution to job workers and contractual manufacturers was treated as admissible under the pre-amendment rule.

Prior to 01.04.2016, Rule 7 of the CENVAT Credit Rules, 2004 was construed to allow an input service distributor to pass credit to job workers and contractual manufacturers treated as manufacturing units of the principal manufacturer. The provision was read purposively in light of CENVAT's beneficial objective of preventing tax cascading, and the later amendment inserting "outsourced manufacturing units" was treated as clarificatory rather than creating a new entitlement. On that construction, the credit distributed to the appellant for the pre-amendment period was admissible.

---

---

Issues: Whether, for the period prior to 01.04.2016, an input service distributor could distribute CENVAT credit under Rule 7 of the CENVAT Credit Rules, 2004 to a contractual manufacturer or job worker.

Analysis: The expression "its manufacturing units" in the unamended Rule 7 was held to be wide enough to include manufacturing units operating for the principal manufacturer, including job workers and contractual manufacturers. The decision applied a purposive construction, noting that CENVAT is a beneficial scheme intended to avoid cascading of taxes. The larger bench ruling and subsequent coordinate bench decisions were followed to hold that the amendment introducing "outsourced manufacturing units" with effect from 01.04.2016 merely clarified the existing position and did not create a new right.

Conclusion: The credit distributed by the input service distributor to the appellant for the period prior to 01.04.2016 was admissible, and the appellant was entitled to avail it.

Final Conclusion: The disallowance of CENVAT credit, interest, and penalty could not be sustained, and the appeal succeeded.

Ratio Decidendi: Prior to 01.04.2016, Rule 7 of the CENVAT Credit Rules, 2004 permitted distribution of input service credit to job workers and contractual manufacturers functioning as manufacturing units of the principal manufacturer, and the later amendment was clarificatory.

---