CENVAT credit on duty-paid clearances defeats denial based on alleged non-manufacture and removes related penalties.

Accepted duty-paid clearances can defeat a denial of CENVAT credit where the record shows manufacture and removal of final products on payment of duty. The text notes that Revenue's allegation of non-manufacture, based on the absence of an electricity connection, failed against evidence of duty-paid clearances accepted by the Department. The same approach was applied where duty-paid goods purchased from one unit were used in manufacture and the resulting products were again cleared on payment of duty. On that basis, demands and penalties founded solely on alleged non-manufacture were treated as unsustainable.

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Issues: Whether CENVAT credit and consequential penalties could be sustained when the goods were found to have been manufactured and cleared on payment of duty, and the duty payment had been accepted by the Revenue.

Analysis: The appellants were found to have received and used inputs, manufactured the goods and cleared the final products on payment of duty. The Revenue had proceeded on the basis that manufacturing was not possible for want of electricity connection, but the record showed duty-paid clearances accepted by the Department. On these facts, the accepted duty payment was treated as sufficient to negate denial of credit. The same reasoning applied to the second set of appeals, where duty-paid goods purchased from the first unit were used in manufacture and the final products were again cleared on payment of duty. The challenge based on alleged non-manufacture therefore failed, and the proceeding was found to be unsustainable.

Conclusion: CENVAT credit could not be denied, and the penalties and demands based on alleged non-manufacture were set aside in favour of the assessee.

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