Cenvat credit on fabrication materials allowed where steel items were used for capital goods and no contrary evidence was shown.

Cenvat credit on steel and allied items used to fabricate a furnace, pollution control equipment and other capital goods was found admissible where the goods were received in the factory, their purchase was undisputed, and a Chartered Engineer's certificate supported their use in fabrication. The denial of credit was not sustained because no contrary evidence, diversion proof, or counter-certificate was produced, and the mere fact that the items were used in construction or became embedded to earth was not decisive. Applying the user test, items used in manufacturing equipment or integral plant components can qualify if they satisfy the functional test of capital goods. The demand and penalty were set aside.

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Issues: Whether Cenvat credit was admissible on steel and allied items used in the fabrication of furnace, pollution control equipment and other capital goods, and whether the denial of credit could be sustained for want of proof.

Analysis: The disputed items were received in the factory and their purchase was not in dispute. A Chartered Engineer's certificate was produced explaining the use of the items in fabrication, but it was not considered by the adjudicating authority and no contrary material was brought on record to dislodge it. In the absence of evidence of diversion or any contra-certificate, the finding that the goods were ineligible merely because they were used in construction or embedded to earth was not accepted. Applying the user test recognised by the Supreme Court, items used in fabrication of machinery or integral plant components can qualify for credit where they are used in the manufacturing set-up and satisfy the functional test of capital goods.

Conclusion: Cenvat credit was held to be admissible, and the demand and penalty were set aside in favour of the assessee.

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