Capital goods credit depends on factory receipt and use, not ownership, where machinery supports manufacture of dutiable final products.

Modvat credit on capital goods was admissible where machinery was received in the factory and used to manufacture the final product, even though it had been purchased by another concern and was not owned by the user. Rule 2(b) of the Cenvat Credit Rules, 2002 ties capital goods to their use in the factory, and Rule 3 allows credit on duty paid capital goods received in that factory; ownership is not a ative factor. Use of the machine for job work and the fact that the first product was an intermediate product did not defeat credit, because the intermediate product was further used to make dutiable final products. Disallowance of credit was therefore unjustified.

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Issues: Whether modvat credit on capital goods was admissible when the machinery was installed in the appellant's factory and used in the manufacture of the final product, though the machinery was purchased by another concern and not owned by the appellant.

Analysis: Rule 2(b) of the Cenvat Credit Rules, 2002 defines capital goods by reference to use in the factory of manufacture of the final product, and Rule 3 permits credit of duty on capital goods received in the factory. The decisive factors are receipt in the factory and use in manufacture; ownership is not material. The fact that the machine was used for job work and that the product first manufactured was an intermediate product did not defeat credit, since the intermediate product was further used in the appellant's factory for manufacture of dutiable final products. The arrangement was also revenue neutral because the credit would be reversed when the machine was ultimately removed.

Conclusion: The credit was admissible, and disallowance of modvat credit was unjustified.

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