Cenvat credit on steel items used to erect factory machinery is available when tied to manufacture of capital goods.

Steel items used for erection of essential parts of factory machinery may qualify as "inputs" under the Cenvat Credit Rules, 2002 where they are used in the manufacture of capital goods further used in the factory. Rule 2(g) was applied in a wide sense, and goods integrally connected with manufacture, including construction or erection of plant and machinery necessary for production, fall within the input definition. The contrary reliance on an exemption ruling was distinguished because the issue concerned the scope of input under the Cenvat framework. The assessee was entitled to Cenvat credit on the disputed items.

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Issues: Whether steel items such as cement, MS CTD bars, MS rounds, TMT, plates, MS angles, MS channels, beams and rails used for erection of essential parts of factory machinery were eligible as inputs for Cenvat credit under the Cenvat Credit Rules, 2002.

Analysis: Rule 2(g) of the Cenvat Credit Rules, 2002 defines "input" in very wide terms and expressly includes goods used in the manufacture of capital goods which are further used in the factory. The items in question were used for manufacturing essential parts of the factory and satisfied both the capital goods test and the user test. The reasoning adopted was consistent with the earlier view that inputs used in activities integrally connected with manufacture, including construction or erection of plant and machinery necessary for production, fall within the ambit of input. The contrary reliance on an exemption case was distinguished because the question here turned on the scope of the input definition under the Cenvat framework.

Conclusion: The assessee was entitled to Cenvat credit on the disputed items.

Ratio Decidendi: Goods used in the manufacture of capital goods that are further used in the factory are inputs for Cenvat credit, and the definition of input must be given a wide construction where the goods are integrally connected with manufacture.

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