Cenvat credit on construction steel allowed, while pre-utilisation reversal still attracted interest under the earlier regime.

Cenvat credit on MS items such as angles, channels and beams used in construction-related activity was treated as admissible where the materials were linked to taxable output and fell within the credit scheme, and the contrary objection based on the earlier Larger Bench view was rejected. For the pre-amendment period under Rule 14 of the Cenvat Credit Rules, 2004, interest was held payable on credit that was taken and later reversed before utilization, because reversal did not remove liability under the prevailing regime. The appeal succeeded only on the credit issue, while the interest demand was sustained and the penalties were removed.

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Issues: (i) Whether Cenvat credit was admissible on MS items such as angles, channels and beams used in construction-related activity. (ii) Whether interest was payable on Cenvat credit that was taken and later reversed before utilization, for the period prior to the amendment of Rule 14 of the Cenvat Credit Rules, 2004.

Issue (i): Whether Cenvat credit was admissible on MS items such as angles, channels and beams used in construction-related activity.

Analysis: The credit claim was examined in the light of the settled position that cement, steel and similar items used in construction of port/warehouse structures can qualify for credit where the activity is linked to taxable output and the materials are treated as eligible inputs/capital goods within the credit scheme. The Tribunal followed the prevailing judicial view and rejected the Revenue's objection founded on the earlier Larger Bench view that had since been disapproved.

Conclusion: The credit on the MS items was held admissible and this issue was decided in favour of the assessee.

Issue (ii): Whether interest was payable on Cenvat credit that was taken and later reversed before utilization, for the period prior to the amendment of Rule 14 of the Cenvat Credit Rules, 2004.

Analysis: The Tribunal considered that the relevant period preceded the amendment which expressly linked interest to credit taken and utilized. In view of the governing decision on interest liability under the earlier regime, the fact that the credit had been reversed prior to use did not exempt the assessee from interest for the period in question.

Conclusion: Interest was held payable and this issue was decided in favour of the Revenue.

Final Conclusion: The appeal succeeded only on the credit issue, while the interest demand was sustained and the penalties were removed.

Ratio Decidendi: Under the pre-amendment regime, Cenvat credit on construction-related steel items may be admissible where used for providing taxable output, but interest liability can still arise on wrongly availed credit even if it is reversed before utilization.

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