Cenvat credit on steel and structural items for capital goods cannot be denied merely because the structure is embedded to earth.

Cenvat credit was admissible on duty-paid steel and structural items used in fabrication or erection of components, parts, accessories and support structures of identifiable capital goods in a power plant. The decisive test was whether the goods functioned as components, spares or accessories of capital goods under the Cenvat Credit Rules, 2004; if so, credit could not be denied merely because the fabricated machinery or support structure became embedded to earth. The items were treated as part of the relevant machinery on a user-based examination of their actual use, and the summary denial without proper verification was unsustainable.

---

---

Issues: Whether Cenvat credit on steel items, structural items and other materials used for fabrication or erection of components, parts, accessories and support structures of capital goods in a power plant was admissible, and whether the related penalty could survive.

Analysis: The disputed items were described in invoices as parts, components or accessories of identifiable capital goods such as boiler parts, conveyor parts, cable trays, hydro coils and pollution control system components. The relevant test was whether the duty-paid goods were used as components, spares or accessories of capital goods, which is sufficient to attract credit under the Cenvat Credit Rules, 2004. The fact that the fabricated machinery or structures became embedded to earth did not by itself defeat credit eligibility. Applying the user test, the structural items used for support structures of capital goods were treated as part of the relevant machinery and therefore within the ambit of capital goods. The denial was also found to be based on a summary approach without proper examination of actual use of the items.

Conclusion: Cenvat credit on the disputed items was held admissible, the denial was unsustainable, and the appeal was allowed.

Ratio Decidendi: Where duty-paid steel or structural items are used as components, spares, accessories or support structures of identifiable capital goods, credit cannot be denied merely because the resulting structure is embedded to earth or treated as immovable.

---