Eligibility for Cenvat credit on capital goods and input services assembled at site upheld, credit allowed and demands set aside

The document rejects denial of cenvat credit where plant and machinery assembled at site are used in manufacture of dutiable goods, finding a Board Circular on goods embedded to earth inapplicable to credit entitlement; consequently cenvat credit on capital goods is permissible and demands based on denial are set aside. It further accepts entitlement to cenvat credit on input services for setting up/installation in similar factual circumstances, relying on tribunal precedent, and accordingly sets aside demands arising from denial of such input service credit.

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Issues: (i) Whether cenvat credit is admissible on capital goods and plant and machinery assembled at site which are alleged to be embedded to earth and thereby immovable; (ii) Whether cenvat credit is admissible on input services used for setting up the plant after omission of the words "setting up" w.e.f. 01.04.2011.

Issue (i): Whether cenvat credit is admissible on capital goods/plant and machinery assembled at site alleged to be immovable.

Analysis: The definition of capital goods in Rule 2(a) of the Cenvat Credit Rules, 2004 contemplates goods "used in the factory of the manufacturer of the final products." Tests for determining movability versus immovability were applied: nature of annexation, object of annexation, intention of the parties, functionality, permanency and marketability. Reliance was placed on the principles summarised in the cited apex authority that mere attachment to earth does not automatically render goods immovable where attachment is not intended to be permanent and the goods can be dismantled or marketed.

Conclusion: Cenvat credit on capital goods/plant and machinery assembled at site is admissible; denial of credit on the ground that such goods are embedded to earth and immovable is set aside. This conclusion is in favour of the assessee.

Issue (ii): Whether cenvat credit on input services used for setting up the plant is admissible despite omission of the words "setting up" w.e.f. 01.04.2011.

Analysis: Prior tribunal decisions dealing with eligibility of input service credits post-amendment were followed. The authorities distinguishing the cited precedents were considered and the tribunal applied its line of consistent decisions extending credit for relevant input services where those services materially relate to establishment and functioning of the manufacturing unit.

Conclusion: Cenvat credit on input services used for setting up/establishment-related activities is admissible; the demand based on denial of such input service credits is set aside. This conclusion is in favour of the assessee.

Final Conclusion: The impugned order is set aside and the appeal is allowed, resulting in cancellation of the demands relating to denial of cenvat credit on capital goods and input services.

Ratio Decidendi: Where goods attached to earth can be dismantled, relocated or sold and the attachment is not intended to be permanent, such goods are movable for the purposes of capital goods and eligible for cenvat credit; similarly, input services which materially relate to establishment and functioning of the manufacturing unit remain eligible for credit notwithstanding the omission of the phrase "setting up" w.e.f. 01.04.2011.

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