Cenvat credit on coal rejects stayed admissible where the inputs had already been used in the manufacturing stream.

Cenvat credit remained admissible on coal that was introduced into the feeder pipe and used in the manufacturing stream, even though part of it was later found to have low Gross Calorific Value and was segregated for coal bedding within the factory. The decisive point was that the inputs had already been put to use in or in relation to manufacture, so their subsequent rejection or diversion for ancillary internal use did not break the required nexus with manufacturing activity. Denial of credit on that basis was therefore unsustainable.

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Issues: Whether Cenvat credit is admissible on coal that was fed into the manufacturing process, later found to have low Gross Calorific Value, and then used within the factory for coal bedding.

Analysis: The coal was admittedly introduced into the feeder pipe and subjected to the manufacturing process. The mere fact that, after such use, some coal was segregated on the basis of low GCV and transferred for ancillary use within the factory did not mean that it had not been used in or in relation to manufacture. The principle applied was that once inputs are put to use in the manufacturing stream, subsequent rejection or removal of part of the input does not, by itself, disentitle credit where the input had the required nexus with manufacture.

Conclusion: Cenvat credit on the coal rejects was admissible, and denial of credit was unsustainable.

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