Cenvat credit on components and inputs used for capital goods was allowed, and related penalties were set aside.

Cenvat credit was held admissible on disputed items used as components, accessories or inputs in the manufacture of capital goods deployed in the factory for producing dutiable goods. The analysis applied the statutory definitions of "input" and "capital goods" to treat the items as qualifying for credit where they formed part of the manufacturing chain. As the credit claim was accepted, the consequential penalties had no separate sustainable basis and were set aside.

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Issues: Whether Cenvat credit was admissible on the disputed items used as components, accessories or inputs for manufacture of capital goods used in the factory, and whether the consequential penalties were sustainable.

Analysis: The disputed items were found to be either components of capital goods or inputs used in the manufacture of capital goods, which were in turn used in the factory for manufacturing dutiable goods. On that basis, the statutory definition of input and capital goods supported credit eligibility, and the finding of no separate sustainable basis for penalty followed from the acceptance of credit entitlement.

Conclusion: Cenvat credit on the disputed items was admissible, and the penalties imposed were set aside.

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