Capital goods credit for insulation material used as an accessory to a humidification plant was upheld under the Cenvat scheme.

Resin bonded insulation material used in a factory's humidification plant as roof bonding material was treated as an accessory to specified capital goods. Because the material supported the plant's efficiency and life, it fell within the credit scheme under Rule 2 of the Cenvat Credit Rules, 2002, which covers accessories to capital goods. On that basis, capital goods credit was available and denial of credit could not be sustained. The corresponding demand for credit, interest and penalty was therefore unsustainable.

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Issues: Whether resin bonded insulation material used in the humidification plant of the factory as roof bonding material qualified as an accessory to specified capital goods and was therefore eligible for capital goods credit under the Cenvat Credit Rules, 2002.

Analysis: The item was used as insulation material in the humidification plant to bond its roof and to improve the plant's efficiency and life. On that basis, it was treated as an accessory to the humidification plant, and accessories to capital goods are covered within the credit scheme under Rule 2 of the Cenvat Credit Rules, 2002. Since the humidification plant was itself specified capital goods, denial of credit could not be sustained.

Conclusion: The item was eligible for capital goods credit. The demand of credit, interest and penalty was unsustainable.

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