CENVAT credit on factory diesel locomotive allowed as input because internal transport was integral to manufacturing activity.

CENVAT credit was admissible on a diesel locomotive used within the factory to move raw materials and finished goods because the equipment was integrally connected with the manufacturing process. Although it did not qualify as capital goods on tariff classification, its use in relation to manufacture brought it within the wider concept of inputs for credit purposes. The earlier Tribunal view on diesel locomotives and similar internal transportation equipment was followed, and the disallowance was found unsustainable.

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Issues: Whether CENVAT credit was admissible on a diesel locomotive used within the factory for transporting raw materials and finished goods, either as capital goods or as an input.

Analysis: The diesel locomotive was used for handling raw materials and finished goods within the factory. It was held not to fall within the capital goods category on the basis of the tariff heading, but its use in the manufacturing process was undisputed. Goods used in or in relation to manufacture qualify as inputs for CENVAT credit purposes. The earlier Tribunal view on diesel locomotive and analogous factory transportation equipment was followed to hold that such equipment is integrally connected with the manufacturing activity and assists internal movement necessary for production.

Conclusion: CENVAT credit on the diesel locomotive was admissible as an input, and the disallowance was unsustainable.

Ratio Decidendi: Goods used in or in relation to manufacture, even if not covered as capital goods, are eligible for CENVAT credit as inputs where they are integrally connected with the manufacturing process.

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