Cenvat credit on steel and HR sheets used to make capital goods was held admissible for factory use.

HR sheets and steel used to manufacture storage tanks and machinery parts were treated as eligible inputs for Cenvat credit because the storage tanks were admitted capital goods used in the sugar factory, and the Explanation to Rule 2 of the Cenvat Credit Rules, 2002 covers goods used in the manufacture of capital goods further used in the factory. The materials therefore qualified as inputs in the manufacture chain, supported by earlier tribunal and Supreme Court authority. Credit was admissible and the demand could not be sustained.

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Issues: Whether HR sheets and steel used in the manufacture of storage tanks and machinery parts were eligible for Cenvat credit as inputs under the Cenvat Credit Rules, 2002.

Analysis: The storage tanks were admitted to be capital goods and were used in the sugar factory for manufacture of sugar. The explanation to Rule 2 of the Cenvat Credit Rules, 2002 treats as inputs the goods used in the manufacture of capital goods which are further used in the factory of manufacture. Since the disputed goods were used to manufacture storage tanks and other components of machinery so used in the factory, they qualified as inputs. The conclusion was reinforced by earlier tribunal and Supreme Court authority relied upon in the order.

Conclusion: The credit was admissible and the demand could not be sustained.

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