Cenvat credit on inputs for capital goods used in factory production is allowable despite attachment to earth.

Cenvat credit was available on iron and steel items used to manufacture capital goods installed in the factory, because Rule 2(g) of the Cenvat Credit Rules, 2002 and Explanation (2) treat inputs used in the manufacture of capital goods as eligible when those capital goods are further used in the manufacturer's factory. The fact that the capital goods were attached to earth or were not themselves excisable goods was immaterial, since the decisive test was their use in production. Credit already reversed for items used for structural or construction purposes was noted separately, but denial of credit on the disputed inputs was not sustainable.

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Issues: Whether the appellants were entitled to Cenvat credit on iron and steel items used in the manufacture of capital goods installed in the factory.

Analysis: The credit claim was examined with reference to Rule 2(g) of the Cenvat Credit Rules, 2002 and Explanation (2), under which inputs include goods used in the manufacture of capital goods that are further used in the manufacturer's factory. The iron and steel items were used to manufacture capital goods such as kiln, material handling unit, hopper and pollution control system, and there was no dispute on such use. The fact that the capital goods were attached to the earth or were not themselves excisable goods was held to be immaterial so long as the inputs were used in capital goods that were in turn used for manufacture of the final product. Credit already reversed on items used for structural or construction purposes was noted.

Conclusion: The appellants were entitled to Cenvat credit on the disputed inputs and denial of credit was not sustainable.

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