In the present case, the following question has been raised:

"Whether the duty-paid goods not undergoing manufacture as per definition by Section 2(f) of the Central Excise Act, 1944, if undergoes process of cutting, whether such processed goods shall be manufactured, and entitle an assessee to Cenvat credit".

It was argued by the revenue that when the input had not undergone the process called "manufacture" by strict definition of the term, in whatever manner the goods are utilised, that shall not entitle the assessee to the Cenvat credit.

Mere export of the non-manufactured goods shall not entitle them to the relief under law. Therefore, the adjudicating authority was justified to impose appropriate duty denying the Cenvat credit.

After going through the matter in detail, honorable tribunal has held that:

It appears that the learned Commissioner was satisfied with the process undertaken by the respondent/assessee to be called "manufacture" and as a result of such process, export was done. Hence the respondent/assessee was entitled to the Cenvat credit. ……….. Once the learned Appellate Authority on thorough examination of the process could find that the exported goods although does not amount to manufacture, did not disentitle the respondent/assessee to the Cenvat Credit.

Honorable Tribunal has further held that, there should not strict reliance on the statutory definition of manufacture. The liberal interpretation with regard to input credit in respect of any item in or in relation to the manufacture not disentitling the respective Cenvat credit. 

(For full text of judgment - visit 2007 -TMI - 2173 - CESTAT, KOLKATA)

Cenvat credit: liberal nexus test allows input credit where processing, though not strict manufacture, relates to production. A liberal interpretive approach to input credit was applied: strict textual reliance on the statutory definition of manufacture is not determinative for denial of Cenvat credit. Processes that alter or prepare duty-paid goods, even if not amounting to manufacture as narrowly defined, may be regarded as operations in relation to manufacture and therefore qualify for Cenvat credit if a reviewing authority finds a sufficient nexus between input use and the production or export activity.