Cenvat credit on fabrication materials upheld where MS items were used to erect capital goods with direct manufacturing nexus.

Cenvat credit was held admissible on MS angles, MS plates, MS channels and similar items used to fabricate and erect capital goods such as a furnace, chimney and gasifier for manufacture of the final product. The tribunal applied the user test and followed jurisdictional High Court rulings recognising that goods with a direct functional nexus to fabrication of capital goods and machinery qualify for credit. It also noted that the larger bench decision relied on by the department had subsequently been treated as no longer good law. Denial of credit was therefore unsustainable.

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Issues: Whether Cenvat credit was admissible on MS angles, MS plates, MS channels and similar items used for fabrication and erection of capital goods.

Analysis: The items were shown by the Chartered Engineer's certificate to have been used in the fabrication and erection of capital goods such as furnace, chimney and gasifier, which were necessary for manufacture of the final product. The reasoning followed the jurisdictional High Court decisions holding that such goods, when used for fabrication of capital goods and machinery, satisfy the user test and are eligible for credit. The order further noted that the larger bench decision relied on by the department had been treated as no longer good law by later judicial decisions.

Conclusion: Cenvat credit on the impugned items was admissible and the denial of credit was unsustainable.

Ratio Decidendi: Goods used for fabrication and erection of capital goods are eligible for Cenvat credit when they have a direct functional nexus with manufacture and satisfy the user test.

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