Cenvat credit on steel used to fabricate factory tanks remains available even where the finished tanks are exempted.

Steel plates and strips used to fabricate tanks for use within the factory qualified as inputs for Cenvat credit under Rule 2(k), even if they did not themselves meet the definition of capital goods. The decisive principle was that goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer, remain eligible as inputs. The exemption available to the fabricated tanks under Notification No. 67/95 did not defeat this credit entitlement, because the input definition protected such credit. The denial of Cenvat credit was therefore held unsustainable and the credit was admissible.

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Issues: Whether steel plates and strips used for fabrication of tanks, which were further used in the factory for manufacture of final products, were eligible for Cenvat credit either as capital goods or as inputs; and whether exemption to the fabricated tanks under Notification No. 67/95 could justify denial of credit.

Analysis: The goods in question were used in fabrication of tanks falling under Chapter 84. Even if such plates and strips did not themselves satisfy the definition of capital goods, the definition of input under Rule 2(k) included goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. On that basis, the steel plates and strips qualified as inputs. The exemption available to the fabricated capital goods did not affect the eligibility of the goods used in their manufacture, because the explanation to the input definition protected such credit entitlement.

Conclusion: The denial of Cenvat credit was unsustainable and the credit was admissible to the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Goods used in the manufacture of capital goods that are further used in the factory are eligible as inputs for Cenvat credit, even if the fabricated capital goods are exempted.

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