Cenvat credit on lubricants allowed when rule covers inputs and machinery also makes exempted goods

Rule 57AA treated lubricating oils and greases as inputs without further qualification for the period it operated, so Cenvat credit could not be denied merely because the machinery also produced exempted goods when it was used for dutiable manufacture as well. Credit was, however, confined to the period for which the rule was shown to apply: it was not established for lubricants received in January and February 2001, but it was admissible for March to November 2001. The credit denial was therefore sustained only for the earlier period and set aside for the later period.

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Issues: Whether Cenvat credit on lubricating oils and greases used in machinery was admissible for the relevant period when the machinery was also used for manufacture of exempted goods.

Analysis: Rule 57AA of the Central Excise Rules, 1944 included lubricating oils and greases within the definition of input without any further qualification for the period when that rule operated. Rule 57AB applied to inputs or capital goods received in the factory on or after 1-3-2001. As no provision was shown to sustain credit for lubricants received in January and February 2001, credit for that period was not established. For March to November 2001, however, the rule position permitted credit, and the mere fact that exempted goods were also produced did not by itself disqualify the assessee when the machinery was used for manufacture of dutiable goods as well.

Conclusion: Cenvat credit was admissible for March to November 2001 and inadmissible for January to February 2001; the assessee succeeded only for the later period.

Final Conclusion: The credit denial was set aside only to the extent it related to the period from March to November 2001, leaving the earlier period undisturbed.

Ratio Decidendi: Where the governing rule expressly includes lubricating oils and greases as inputs, credit cannot be denied merely because exempted goods are also produced, but admissibility remains confined to the period for which the rule is shown to apply.

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