Cenvat credit for duct fabrication materials used in a humidifier system is available as capital goods and inputs.

GP coils, GP sheets and aluminium sections used to fabricate an integral air-duct system for a humidifier machine were treated as eligible for Cenvat credit because the ducts were necessary for the machine's functioning and formed part of the capital goods as components or accessories. The same materials were also covered as inputs under the unamended Rule 2(k), since goods used in manufacturing capital goods deployed in the factory were within the provision. The later amendment excluding items used in construction or support structures was held inapplicable to the relevant period and not shown to be retrospective or merely clarificatory, so credit, interest and penalty were unsustainable.

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Issues: Whether GP coils, GP sheets and aluminium sections used for making air ducts for a humidifier machine qualified for Cenvat credit either as capital goods, components or accessories of capital goods, or as inputs, and whether the amendment to the relevant input definition affected the assessee's claim.

Analysis: The humidifier machine was accepted as falling under Chapter 84 and eligible as capital goods. The dispute was confined to the materials used for fabricating ducts attached to that machine. Applying the user test, the materials used to fabricate an integral duct system necessary for the functioning of the humidifier machine were held to be part of the capital goods as components or accessories under Rule 2(a)(A)(iii) of the Cenvat Credit Rules, 2004. The materials were also treated as inputs under Rule 2(k), since goods used in the manufacture of capital goods which are further used in the factory were covered by the unamended provision. The amendment introducing exclusions for items used in construction of structures or support was held inapplicable to the period in dispute and not shown to be retrospective or merely clarificatory.

Conclusion: The assessee was entitled to Cenvat credit on the disputed materials, and the denial of credit, interest and penalty was unsustainable.

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