Cenvat credit on common inputs remains available where exempted and dutiable goods are both cleared under the Rule 6 scheme.

Where a manufacturer uses common inputs for both exempted rectified spirit and dutiable denatured spirit, Cenvat credit cannot be denied merely because the department disputes the manner of manufacture or because the dutiable product was cleared only during part of the relevant period. The note states that the denaturing process amounted to manufacture of denatured spirit, and that compliance with the Rule 6 scheme for common inputs supported entitlement to credit. The fact that some consignments of denatured spirit were cleared during the period was sufficient to treat the assessee as manufacturing both exempted and dutiable goods. Accordingly, denial of Cenvat credit on common inputs was not sustainable.

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Issues: Whether Cenvat credit on common inputs could be denied on the ground that denatured spirit was not manufactured, and whether the appellant was entitled to credit when exempted rectified spirit and dutiable denatured spirit were both cleared during the relevant period.

Analysis: The appellant used common inputs in the manufacture of both exempted rectified spirit and dutiable denatured spirit and followed the scheme under Rule 6 of the Cenvat Credit Rules. The finding that denatured spirit was not manufactured was rejected, as the process of denaturing involved manufacture of denatured spirit and not merely mixing toxin in a tanker. The fact that only some consignments of denatured spirit were cleared during the period did not disqualify the appellant from treating itself as a manufacturer of both exempted and dutiable goods. Credit on common inputs was therefore not liable to be denied merely because a substantial part of the output was exempted.

Conclusion: The denial of Cenvat credit was not sustainable, and the appellant was entitled to the credit claimed.

Ratio Decidendi: When a manufacturer clears both exempted and dutiable final products and maintains the scheme prescribed for common inputs, Cenvat credit cannot be denied merely because the dutiable product was manufactured only during part of the relevant period or because the department disputes the manner in which the dutiable product came into existence.

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