CENVAT credit allowed on support structures, electricity transmission inputs, and procedural invoice defects where functional nexus with manufacture was shown.

CENVAT credit was held admissible on structural steel items used to fabricate support structures for capital goods within the factory because the items had a direct functional nexus with the machinery and its effective working. Credit was also allowed on inputs and input services used for laying transmission lines and bringing electricity into the factory, as the nexus with manufacture was established and the relevant amendment was not treated as retrospectively curative. Further, service tax credit could not be denied merely because invoices were issued by sales offices not registered as Input Service Distributor, since the defect was procedural and did not defeat substantive entitlement. The disputed credit was therefore allowed in full and the impugned order was set aside.

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Issues: (i) Whether CENVAT credit was admissible on structural steel items used in fabrication of support structures for capital goods within the factory; (ii) whether CENVAT credit was admissible on inputs and input services used for laying transmission lines and bringing electricity from outside the factory premises; (iii) whether credit was admissible on service tax paid on invoices issued by sales offices not registered as Input Service Distributor.

Issue (i): Whether CENVAT credit was admissible on structural steel items used in fabrication of support structures for capital goods within the factory.

Analysis: Structural steel items such as M.S. angles, channels and beams, when used for fabrication of supporting structures on which capital goods are installed, were treated as eligible where the structural items became part of the machinery and its effective functioning. The application of the user test supported treating such fabricated structures as falling within the scope of capital goods under the credit rules.

Conclusion: Credit on the structural steel items used for support structures was admissible and the issue was decided in favour of the assessee.

Issue (ii): Whether CENVAT credit was admissible on inputs and input services used for laying transmission lines and bringing electricity from outside the factory premises.

Analysis: Credit was allowed for goods and services used in bringing electricity to the factory where they were used in or in relation to manufacture. The disputed credit on transmission lines and related erection activities was covered by the judicial view that such use has the requisite nexus with manufacture and that the relevant amendment could not be treated as retrospectively curative.

Conclusion: Credit on inputs and input services used for transmission lines and related erection activities was admissible and the issue was decided in favour of the assessee.

Issue (iii): Whether credit was admissible on service tax paid on invoices issued by sales offices not registered as Input Service Distributor.

Analysis: The credit was held allowable notwithstanding the fact that the invoices were issued by sales offices not registered as Input Service Distributor, the issue being governed by the view that such procedural objection did not defeat substantive entitlement to credit.

Conclusion: Credit on the invoices issued by the sales offices was admissible and the issue was decided in favour of the assessee.

Final Conclusion: The disputed CENVAT credit was held to be allowable in full, the impugned order was set aside, and the assessee obtained relief consequential to that finding.

Ratio Decidendi: Where goods or services are used with a direct functional nexus to manufacture or to the installation and effective working of capital goods, CENVAT credit cannot be denied merely because the items are structural supports or because of a procedural deficiency in invoice distribution, and an amendment will operate prospectively unless clearly shown to be clarificatory.

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