Cenvat credit on repair and maintenance inputs accepted where goods supported machinery essential to manufacturing activity.

Cenvat credit was treated as admissible for goods used to repair and maintain capital goods and plant and machinery within the factory because such upkeep had a direct nexus with manufacture and was necessary for production of final excisable goods. Goods used for civil work remained ineligible, and the credit already reversed for that portion was not in dispute. The operative principle was that inputs used for maintaining machinery essential to manufacturing activity qualify for credit, whereas inputs attributable to civil construction do not.

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Issues: Whether Cenvat credit was admissible on goods used for repair and maintenance of capital goods and plant and machinery within the factory, and whether credit attributable to goods used in civil work remained ineligible.

Analysis: The disputed goods, other than those admittedly used in civil work and reversed during investigation, were found to have been used for repair and maintenance of capital goods that were essential for manufacture of the final excisable products. The eligibility of credit depended on whether the use of the goods had a direct nexus with manufacturing activity, and upkeep of machinery necessary for production was treated as part of that nexus. Since manufacturing cannot be carried on without proper repair and maintenance of the capital goods, the inputs used for such upkeep were held to qualify for credit.

Conclusion: Cenvat credit was admissible on the goods used for repair and maintenance of capital goods and plant and machinery, while the portion already reversed for civil work was not in dispute.

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