CENVAT credit on factory lubricants and hydraulic oil allowed where items were indispensable to manufacturing machinery.

Hydraulic oil and hadilin used inside the factory to run hydraulic and die-casting machines were treated as eligible for CENVAT credit because they had a direct and indispensable functional role in manufacturing. The Tribunal noted that hydraulic oil was essential for operation of the hydraulic machine, while hadilin functioned as a lubricant and coolant necessary for proper die-casting and product flow. As the goods were used in or for manufacturing equipment and not for excluded office-premises use, the denial of credit was unsustainable and credit was allowed.

---

---

Issues: Whether hydraulic oil and hadilin used in the factory for operating hydraulic and die-casting machines were eligible for CENVAT credit as capital goods or, in the alternative, as inputs.

Analysis: The goods were used in the factory for manufacture of the final products and were not covered by any exclusion applicable to office-premises use. Hydraulic oil was essential for the functioning of the hydraulic machine, and even a partial shortage would stop the machine. Hadilin was used as a lubricant in the die-casting machine to cool the product and ensure flow of lead, without which the machine could not produce quality goods. The goods therefore had a direct and indispensable functional role in the manufacturing machinery. The Tribunal also noted the support drawn from the Board circular and the principle that items used in or for manufacturing equipment may qualify for credit.

Conclusion: The appellant was entitled to CENVAT credit on the goods, and the denial of credit was unsustainable.

---