Cenvat credit on steel and allied items used in capital goods fabrication was held admissible, with penalties set aside.

Steel and allied items used in fabricating machinery, plant and supporting structures for manufacture of dutiable final products were treated as eligible for Cenvat credit because Rule 2(k) covers goods used in the manufacture of capital goods used in the factory, and Rule 2(a) recognises components, spares and accessories as capital goods. On that basis, the items qualified either as inputs or as parts of capital goods. Once credit was admissible, the penalties imposed on the company and its employee under Rule 15 read with Section 11AC were not sustainable and were set aside.

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Issues: Whether Cenvat credit was admissible on steel and allied items used either as components of capital goods or as inputs in the manufacture of capital goods used in the factory, and whether the penalties imposed on the company and its employee were sustainable.

Analysis: The disputed items were found to have been used in fabrication of machinery, plant, and supporting structures employed in the manufacture of dutiable final products. The definition of input under Rule 2(k) of the Cenvat Credit Rules, 2004 includes goods used in the manufacture of capital goods which are further used in the factory, and Rule 2(a) recognises components, spares, and accessories as capital goods. On that basis, the items in question qualified for credit. Once credit was held admissible, the penalties imposed under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 and the employee penalty were not sustainable.

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

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