CENVAT credit for ancillary plant capital goods allowed where the unit supplied essential raw material to the main factory.

An ancillary gas compression and dehydration unit that supplied essential raw material through a pipeline to the main manufacturing factory was treated as part of the manufacturing setup for CENVAT purposes. The court found that the Duliajan facility did not produce the final polymers but operated only as a captive, functionally linked plant for the Lepetkata unit, where manufacture was completed. A Revenue circular on CNG dispensing units was held inapplicable because it addressed a different factual context. On that basis, capital goods installed at the ancillary unit qualified for CENVAT credit, and the appellant was entitled to the credit claimed.

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Issues: Whether the gas compression and dehydration unit at Duliajan formed part of the appellant's manufacturing unit at Lepetkata so as to entitle the appellant to CENVAT credit on capital goods installed at Duliajan.

Analysis: The unit at Duliajan did not manufacture the final product, but compressed and dehydrated natural gas and transferred it through a pipeline to the Lepetkata unit, where the polymers were manufactured. The final product could not be manufactured without the gas supplied by the Duliajan unit, and the record showed that the Duliajan facility functioned only as a captive and ancillary plant for the Lepetkata manufacturing unit. The circular relied on by the Revenue was held inapplicable because it concerned CNG manufacturers and premises where the final product was merely dispensed, whereas the present case involved transfer of raw material to the main unit for manufacture of the final product.

Conclusion: The Duliajan unit was to be treated as part of the manufacturing setup for the purpose of CENVAT credit, and the appellant was entitled to avail CENVAT credit on the capital goods installed there.

Final Conclusion: The appeal succeeded on the core question of law, with the appellant's entitlement to CENVAT credit on the capital goods at Duliajan affirmed.

Ratio Decidendi: Where an ancillary unit functionally linked to the main factory supplies essential raw material for manufacture of the final product, capital goods used in that ancillary unit may qualify for CENVAT credit as goods used in the factory of manufacture.

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