Cenvat credit on steel items used for machinery support structures was held admissible under the user test.

Cenvat credit on CTD bars, TMT bars and similar steel items used to fabricate support structures inside the factory was admissible where the structures formed part of machinery needed for its functioning. The user test was applied, and items used for furnaces, chimneys and material handling systems were treated as part of the relevant capital goods rather than as civil structures. Revenue reliance on cases involving general civil or roofing structures was held inapposite on the facts. The later amendment to the definition of input in Explanation II to Rule 2(a) was treated as prospective, so it did not defeat the credit claim for the relevant period; denial of credit and penalties was unsustainable.

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Issues: Whether cenvat credit was admissible on CTD bars, TMT bars and similar steel items used for fabrication of support structures within the factory, so as to treat the fabricated items as capital goods or their components, spares or accessories.

Analysis: The steel items were used to fabricate support structures for machinery such as furnaces, chimneys and material handling systems, and were not used for raising civil structures. The Tribunal applied the user test and held that where such structurals are worked upon and become part of the machinery necessary for its functioning, they are to be treated as part of the relevant capital goods. The reliance placed by the Revenue on authorities dealing with civil structures and general roofing or maintenance structures was found inapplicable on facts. The Tribunal also followed the later view that the amendment to the definition of input in Explanation-II to Rule 2(a) operated prospectively and did not defeat the credit claim for the relevant period.

Conclusion: Cenvat credit on the disputed steel items used for fabrication of support structures was admissible, and the denial of credit and consequential penalties could not be sustained.

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