Eligible Cenvat credit for inputs used in capital goods and interest on wrongly taken credit sustained under Rule 14.

Inputs used in manufacturing capital goods that were themselves deployed in producing final products qualified as eligible input credit under Rule 2(k) of the Cenvat Credit Rules, 2004; the denial of Cenvat credit was therefore set aside. Rule 14 was applied on its plain disjunctive wording so that interest became payable once credit was taken wrongly, even if it was not utilised and was later reversed; the argument that reversal before utilisation extinguished interest liability was rejected. The credit denial was overturned, while the liability to pay interest on wrongly availed credit was sustained and only the quantification of interest was remanded.

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Issues: (i) Whether credit was admissible on inputs used in the manufacture of capital goods which were themselves used in manufacturing the final products; (ii) whether interest was payable on wrongly taken Cenvat credit for the period it remained in the credit account though not utilised and was later reversed.

Issue (i): Whether credit was admissible on inputs used in the manufacture of capital goods which were themselves used in manufacturing the final products.

Analysis: The inputs were used for manufacturing capital goods that were deployed in the manufacture of the final products. The goods fell within the scope of the definition of input under Rule 2(k) of the Cenvat Credit Rules, 2004. The conclusion was also supported by earlier orders in the assessee's own cases and by the principles laid down on eligible inputs for credit.

Conclusion: Credit on the subject inputs was admissible and the denial was set aside in favour of the assessee.

Issue (ii): Whether interest was payable on wrongly taken Cenvat credit for the period it remained in the credit account though not utilised and was later reversed.

Analysis: Rule 14 of the Cenvat Credit Rules, 2004 provides for recovery with interest where credit is taken or utilised wrongly or is erroneously refunded. The disjunctive wording of the rule was applied as written, and the position that reversal before utilisation extinguishes interest liability was rejected. The authorities cited for the assessee were held inapplicable on the facts, while the view taken in the Supreme Court and followed by High Courts was treated as governing.

Conclusion: Interest was held payable on the wrongly taken credit for the period it remained in the account, and the matter was remanded only for computation of the interest amount.

Final Conclusion: The denial of Cenvat credit was overturned, while the liability to pay interest on wrongly availed credit was sustained and the quantification of interest was sent back for fresh determination.

Ratio Decidendi: Where credit is taken or utilised wrongly, Rule 14 permits recovery with interest on the occurrence of any one of the specified events, and inputs used to manufacture capital goods employed in producing final products can qualify for credit under the Cenvat framework.

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