Cenvat credit on steel items used for machinery supports allowed under the user test and integral-function principle

Cenvat credit was held admissible on MS rods, sheets, channels, plates and flats used to fabricate structurals supporting machinery such as crushers, kilns and hoppers, because those supports were integral to erection and functioning of the machinery. The user test was applied to treat the steel items as eligible when used in machinery support structures, and the contrary Larger Bench ruling was distinguished as dealing with mere construction material on different facts. The denial of credit was therefore not sustainable, and credit on the disputed goods was allowed.

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Issues: Whether cenvat credit was admissible on MS rods, sheets, channels, plates and flats used in fabrication of structurals for supporting machinery and whether the denial of credit by relying on the Larger Bench decision was justified.

Analysis: The impugned goods were used to fabricate structurals supporting crushers, kilns, hoppers and other machinery, and without such structurals the machinery could not be erected or function. The earlier decision in the assessee's own case had applied the user test and treated similar steel items used in erection of machinery as eligible for credit. The contrary decision relied on by the Revenue was held distinguishable on facts, since the present case involved goods used in fabrication of structural supports integral to the machinery and not mere construction material.

Conclusion: The denial of cenvat credit was not sustainable and the assessee was entitled to credit on the disputed goods.

Final Conclusion: The appeal was allowed and the order of the Tribunal was set aside, resulting in relief to the assessee.

Ratio Decidendi: Steel items used in fabrication of structurals that are integral to the erection and functioning of machinery qualify for cenvat credit when they satisfy the user test and fall within the inclusive scope of capital goods or their parts and components.

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