Cenvat credit on machinery parts used in cement manufacture allowed where functional nexus with production was established.

Credit on parts and other items used in plant and machinery for cement and clinker manufacture under erstwhile Rule 57Q of the Central Excise Rules, 1944 was treated as admissible where the items had a functional nexus with production. The analysis relied on the Supreme Court's ruling in the assessee's own case and earlier Supreme Court authority on credit for such machinery parts, as well as the principle that inputs used in the manufacturing process qualify when they are functionally connected to production. On that basis, denial of credit could not be sustained, and the consequent demand was set aside in favour of the assessee.

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Issues: Whether credit was admissible on parts and other items used in plant and machinery for manufacture of cement and clinker under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The issue was treated as settled by the Supreme Court in the appellant's own case and by earlier Supreme Court authority on credit for parts used in plant and machinery under the erstwhile Rule 57Q. The decision also noted that credit had been allowed for inputs used in the manufacturing process where they were functionally connected with the production of cement. On that basis, the denial of credit on the disputed items could not be sustained.

Conclusion: The credit was held admissible and the denial of credit, together with the consequential demand, was set aside in favour of the assessee.

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