Cenvat credit on spares used in an adjacent unit remains admissible when part of an integrated manufacturing setup.

Cenvat credit on spares and accessories used in an adjoining unit remained admissible where both units formed an integrated manufacturing setup and the final products were cleared on payment of duty from the registered unit. The controlling test was whether the goods were used in or in relation to manufacture of the dutiable final product; physical use in the adjacent premises was not decisive. Credit could not be denied merely because machinery or components were located or used in an adjoining unit, so long as they continued to form part of the assessee's manufacturing operations and were not alienated. The denial of credit was therefore unsustainable.

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Issues: Whether Cenvat credit on spares and accessories used in an adjacent unit was admissible when the manufacturing activity of both units was integrated and the final products were cleared on payment of duty from the registered unit.

Analysis: The disputed spares and accessories were used in the appellant's integrated manufacturing operations and were connected with the manufacture of excisable final products cleared from the registered unit. The objection that the goods were physically used in the adjacent unit was not ative, because the relevant test is whether the goods are used in or in relation to manufacture of the final product. The Tribunal also relied on its earlier decision in the appellant's own case and other similar rulings, noting that credit cannot be denied merely because the machinery or components are used in an adjoining premises, so long as they remain part of the assessee's manufacturing setup and are not alienated.

Conclusion: Cenvat credit was admissible and the denial of credit was unsustainable; the appeal succeeded.

Ratio Decidendi: Credit is available where the goods or machinery are used in or in relation to manufacture of dutiable final products within an integrated manufacturing setup, even if the use occurs in an adjacent premises forming part of the assessee's manufacturing operations.

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