CENVAT credit on internal railway materials was upheld as integral to the manufacturing process.

CENVAT credit was held admissible on rails, locomotives, wagon wheels, crossings and related railway material used within the factory for internal movement of raw materials, semi-finished goods, intermediate goods, slag and final products. The Tribunal accepted that such items had a sufficient nexus with manufacture because they formed an integral and inseparable part of the production process. Incidental use for other purposes did not break that character. Relying on a Supreme Court ruling on identical facts and consistent Tribunal decisions, CESTAT Kolkata set aside the denial of credit and allowed the appeal with consequential relief.

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Issues: Whether CENVAT credit was admissible on rails, locomotives, wagon wheel, crossings and other railway material used within the factory for transporting raw materials, semi-finished goods, intermediate goods, slag and final products.

Analysis: The use of the items within the factory for internal transportation of materials connected with manufacture was admitted on record. The dispute was whether such use had the requisite nexus with production. Relying on the settled principle that railway track material used for handling raw materials and process goods forms an integral and inseparable part of the manufacturing process, the Tribunal held that incidental use for other purposes did not destroy that character. The Tribunal followed the Supreme Court decision on identical facts and also noted consistent Tribunal decisions allowing credit on similar items.

Conclusion: The credit was admissible and the denial of CENVAT credit was unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Railway materials used within the factory for internal movement of raw materials and process goods have a sufficient nexus with manufacture and are eligible for CENVAT credit when they form an integral part of the production process.

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