Cenvat credit on inputs for capital goods used in manufacture remains admissible under the amended credit framework.

Cenvat credit was treated as admissible where inputs were used to manufacture capital goods that were then used in the factory for producing final products. The analysis notes that Rule 57D(2) and later explanatory provisions under the amended Cenvat framework recognised such inputs as eligible, so denial of credit could not be sustained on the ground that no parallel enabling provision existed in the new regime. The note also records that the arrangement was revenue neutral, because duty on the capital goods could have been offset by corresponding credit. On that basis, the assessee's credit claim was allowed.

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Issues: Whether credit of duty paid on inputs used in the manufacture of capital goods, which were further used in the factory for manufacture of final products, was admissible for the relevant period, and whether the denial could be sustained in view of the alleged absence of a parallel enabling provision under the new Cenvat regime.

Analysis: The existing scheme under Rule 57D(2) protected credit on inputs even where such inputs were used to manufacture capital goods which were not themselves chargeable to duty. The subsequent amendments, including Explanation 2 introduced by Notification No. 6/2001-C.E. (N.T.) and the corresponding Explanation under the Cenvat Credit Rules, 2002, clarified that inputs include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. On that footing, and consistently with the cited Tribunal decisions, the disputed inputs qualified for credit. Independently, the transaction was also revenue neutral, since the duty incidence on the capital goods could have been offset by corresponding credit available to the assessee.

Conclusion: Credit was admissible and the denial was unsustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: Where inputs are used in the manufacture of capital goods that are themselves used in the factory for production of final goods, Cenvat credit cannot be denied when the applicable rules and their explanatory provisions treat such inputs as eligible, and a revenue-neutral structure further supports the grant of credit.

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