Cenvat credit on cables outside the factory was denied, but penalty was deleted for bona fide dispute over credit eligibility.

Cenvat/Modvat credit on electric cables laid partly outside the factory to supply power to the plant was held inadmissible because Rule 2(b) of the Cenvat Credit Rules, 2001 confines credit to capital goods used in the factory in the manufacture of final products. The Tribunal followed the Larger Bench view in Vikas Industrial Gas and rejected reliance on decisions concerning pipelines, conveyor belts and ropeways on the facts found. The penalty was set aside because the dispute arose from interpretation of the credit provisions and no mala fide intent was found. The result was confirmation of the credit disallowance with deletion of penalty, granting only partial relief to the assessee.

---

---

Issues: (i) Whether Modvat credit was admissible on electric cables laid partly outside the factory premises for supplying power to the assessee's plant. (ii) Whether the penalty imposed on the assessee was sustainable.

Issue (i): Whether Modvat credit was admissible on electric cables laid partly outside the factory premises for supplying power to the assessee's plant.

Analysis: The credit was claimed on cables used for an express feeder line from the sub-station to the plant, but only a small part of the cables was used within the factory and the remaining length was laid outside the factory premises. Credit under Rule 2(b) of the Cenvat Credit Rules, 2001 was confined to capital goods used in the factory in the manufacture of final products. The Tribunal applied the Larger Bench view in Vikas Industrial Gas and held that the cited decisions on pipelines, conveyor belts and ropeways did not assist the assessee on the facts found.

Conclusion: Modvat credit on the cables was not admissible and the denial of credit was upheld.

Issue (ii): Whether the penalty imposed on the assessee was sustainable.

Analysis: The dispute turned on interpretation of the statutory credit provisions and there was no finding of mala fide intent. In such circumstances, penalty was considered unwarranted.

Conclusion: The penalty was not sustainable and was set aside.

Final Conclusion: The disallowance of Modvat credit was confirmed, but the penalty was deleted, resulting in only partial relief to the assessee.

Ratio Decidendi: Cenvat credit on capital goods is available only when the goods are used within the factory in the manufacture of final products, and penalty is not justified where the dispute arises from bona fide interpretation of the credit provisions.

---