Cenvat credit on steel and welding items used in capital goods fabrication upheld; retrospective denial amendment rejected.

Cenvat credit was held admissible on structural steel items and welding electrodes used to fabricate support structures and machine parts for capital goods such as kilns, conveyors, pollution control equipment, hoppers and storage tanks. Applying the user test, the Tribunal treated such items as parts, components or accessories of capital goods under Rule 2(a) of the Cenvat Credit Rules, 2004. It also held that the 7 July 2009 amendment was not clarificatory and could not operate retrospectively to deny credit for the relevant period. The Revenue challenge failed, and the penalty based on disallowance of credit did not survive.

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Issues: Whether Cenvat credit was admissible on structural steel items and welding electrodes used in fabrication of support structures and machine parts for capital goods, and whether the penalty sustained by the adjudicating authority could stand.

Analysis: The items were found to have been used for fabrication of support structures and for setting up machines and machine parts such as kiln, conveyor systems, pollution control equipment, hopper and storage tank. The Tribunal applied the user test to hold that goods used in such fabrication could be treated as parts, components or accessories of capital goods within Rule 2(a) of the Cenvat Credit Rules, 2004. It also followed the view that the 7 July 2009 amendment could not be treated as clarificatory and retrospective so as to deny credit for the relevant period. On that basis, the credit on the disputed items was held admissible.

Conclusion: The Revenue's challenge failed and the order allowing the assessee's credit claim was upheld; the penalty based on the disallowance did not survive.

Final Conclusion: Cenvat credit on the disputed steel items and welding electrodes used in fabrication of support structures for capital goods was held allowable, resulting in dismissal of the Revenue appeal.

Ratio Decidendi: Structural items used in the fabrication of support structures for capital goods, when satisfying the user test, fall within the ambit of capital goods as components, spares or accessories under Rule 2(a) of the Cenvat Credit Rules, 2004, and the amendment restricting such credit operates prospectively.

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