Capital goods credit cannot be denied for outside-factory use where the equipment is integrally connected with manufacture.

Capital goods credit under Rule 4 of the Cenvat Credit Rules, 2004 could not be denied merely because a portable weigh bridge was used outside the factory during the crushing season to weigh sugar cane, where that activity had a direct and integral nexus with manufacture. The weigh bridge was undisputedly capital goods, its ownership and acquisition were not in dispute, and there was no contrary evidence of removal from the factory or loss to revenue. A narrow reading requiring use only within the factory was rejected as inconsistent with the purpose of the credit scheme.

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Issues: Whether capital goods credit could be denied on a weigh bridge that was purchased for the factory but was used outside the factory during the crushing season for weighing sugar cane.

Analysis: The weigh bridge was undisputedly capital goods and its acquisition and ownership were not in dispute. Its use outside the factory was confined to weighing sugar cane during the crushing season, an activity found to be integrally connected with the manufacturing process in a sugar industry. In the absence of contrary evidence, the portable use of the weigh bridge did not show any removal from the factory so as to cause loss to revenue. A narrow construction of the requirement that capital goods must be used within the factory was held to defeat the spirit of the law.

Conclusion: Capital goods credit under Rule 4 of the Cenvat Credit Rules, 2004 could not be denied merely because the portable weigh bridge was used outside the factory for an activity integrally connected with manufacture.

Ratio Decidendi: Where capital goods have a direct and integral nexus with manufacture, credit cannot be refused solely because their use is outside the factory when such use is incidental to the manufacturing process and does not amount to removal from the factory.

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