Cenvat credit on insulating material for storage tanks allowed as component of capital goods

Perlite powder used to line storage tanks as insulating material for low-temperature storage of manufactured gases was treated as eligible for Cenvat credit because it functioned as a component or accessory of the capital goods in the manufacturing system. Credit could not be denied merely on the basis of the material's classification, and the cited circular supported availability of credit on components, spares and accessories of specified capital goods. The denial of credit, interest and penalty was therefore not justified.

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Issues: Whether perlite powder used as insulating material in storage tanks for low-temperature storage of manufactured gases qualified for Cenvat credit as capital goods or as a component/accessory thereof.

Analysis: The perlite powder was used to line the walls of storage tanks and functioned as insulating material necessary for maintaining the temperature of the tanks used in the manufacture and storage of the final product. The storage tank formed part of the manufacturing system, and the benefit of credit could not be denied merely because of the classification of the material. The Tribunal also relied on the circular clarifying that credit is available on components, spares and accessories of specified capital goods irrespective of classification.

Conclusion: The perlite powder was eligible for Cenvat credit, and the denial of credit, interest and penalty was not justified.

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