Cenvat credit on storage tanks used in manufacturing was upheld despite their being embedded to the earth.

Cenvat/Modvat credit on inputs used to construct storage tanks employed in the manufacturing process was held admissible, because the tanks functioned as part of the factory machinery for storing water, syrup and molasses. Their erection on a concrete base and embedding in the earth did not by itself disqualify credit. The later specific inclusion of storage tanks in the definition of capital goods was treated as clarificatory, and the pre-amendment position was read liberally in favour of credit.

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Issues: Whether Cenvat/Modvat credit was admissible on inputs used in the construction of storage tanks, including syrup and molasses storage tanks, for the period prior to the specific inclusion of storage tanks in the definition of capital goods.

Analysis: The storage tanks were used in the factory for storing water, syrup and molasses connected with the manufacturing activity. The benefit had already been extended to the water storage tank as a component of the boiler and the same reasoning applied to the other storage tanks as well. The fact that the tanks were erected on a concrete foundation and became embedded to the earth did not by itself deny credit on the inputs used in their construction. The later insertion of storage tank in the definition of capital goods was treated as clarificatory, and the prior position was construed liberally in favour of credit.

Conclusion: Credit on the inputs used in the construction of the storage tanks was admissible and the issue was decided in favour of the assessee.

Ratio Decidendi: Credit cannot be denied on inputs used to construct storage tanks used in the manufacturing process merely because the tanks are embedded to the earth, where the tanks function as part of the factory machinery and the credit provisions are applied liberally.

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