2026 (2) TMI 962 - AT - Central Excise

Cenvat credit admissibility: inputs put into the manufacturing process remain eligible even if later rejected and retained for factory use.

Cenvat credit on coal fed into the manufacturing process remains admissible where the material was put into the process and later segregated as ... Cenvat credit admissibility under Cenvat Credit Rules, 2004 for inputs used in or in relation to manufacture - rejection of inputs after commencement of the manufacturing process does not disentitle credit - stage-wise process/segregation as part of the manufacture or process in relation to manufacture - credit not to be denied on account of inputs becoming waste, refuse or by-product during manufacture - HELD THAT:- Admittedly, in this case the coal was put into the feeder pipe for further processing of manufacturing of aluminium ingots etc. when it was found having low grade Gross Caloric Value (GCV) and the same was moved, it does not mean that such coal has not been used in the process of manufacture. It is an admitted fact that initially the coal was used in the process of manufacture. In that circumstances, the cenvat credit on the coal in question, which has been removed being found having low Gross Caloric Value, the cenvat credit cannot be denied to the appellant in terms of Cenvat Credit Rules, 2004. Therefore, the appellant is entitled to take the cenvat credit on all the goods used in the manufacture of final products. Admittedly, the coal in question was used in the manufacture of excisable goods, therefore, the cenvat credit cannot be denied. Thus, we hold that no demand, by denying the cenvat credit on the coal rejects, is sustainable. Therefore, the impugned order is set aside and the appeal is allowed with consequential relief, if any. Issues: (i) Whether cenvat credit is admissible on coal that was fed into the manufacturing process, subsequently found to have low gross calorific value (GCV) and removed as rejects but retained and used within the factory premises (for coal bedding), for the period 2014-15 to 2017-18 (upto June 2017).Analysis: The admissibility hinges on whether the coal was used 'in or in relation to' manufacture within the meaning of Rule 2(k) of the Cenvat Credit Rules, 2004, and whether subsequent rejection of inputs after they have been put into the manufacturing process disentitles credit. Authoritative decisions (Asahi India Safety Glass Ltd. affirmed by the Supreme Court and Tribunal precedents) establish that manufacture comprises a series of integrally connected processes and that inputs put into the manufacturing process remain inputs for credit purposes even if later found defective or rejected. Central Excise Rules provisions (Rule 57A and Rule 57D of the Central Excise Rules, 1944) and the cited jurisprudence confirm that rejection or waste arising during manufacture does not per se negate entitlement to credit where the material was used in the manufacturing process. In the present facts, the coal was fed into the feeder pipe (thereby used in the manufacturing process) and later segregated on account of low GCV and retained within the factory for coal bedding; therefore it had been used in or in relation to manufacture.Conclusion: (i) Decision in favour of the appellant. Cenvat credit on the coal in question cannot be denied where the coal was put into the manufacturing process and subsequently removed as low GCV rejects but retained and used within the factory; the impugned denial of credit is unsustainable.