CENVAT credit admissibility for specialised internal transport equipment upheld where locomotives function as manufacturing accessories and inputs.

CENVAT credit on locomotive engines, parts and spares used to haul torpedo ladle cars within an integrated factory is admissible where those locomotives are specially designed and deployed as accessories or components directly or indirectly in relation to manufacture. Applying the definitions of Capital Goods and Input under the CENVAT Credit Rules, 2004, the locomotives' role in transporting molten metal on purpose-built internal tracks forms part of the manufacturing chain and cannot be effected manually; accordingly such specialised internal-transport equipment qualifies for credit and denial of credit is not sustainable.

---

---

Issues: Whether CENVAT credit availed on locomotive engines, locomotive parts and spare parts used for hauling torpedo ladle cars within the factory for transportation of molten metal is admissible under the CENVAT Credit Rules, 2004.

Analysis: The issue invokes the definitions of 'capital goods' and 'input' under Rule 2(a)(A) and Rule 2(k) of the CENVAT Credit Rules, 2004 and the scope of goods that are accessories or components of capital goods. The facts establish use of specialised locomotives within the factory to haul torpedo ladle cars carrying molten metal at very high temperatures and very large weights, on purpose-built rail tracks inside the factory. The impugned locomotives are described as specially designed for hauling torpedo ladle cars, not for main-line high-speed operations, and no contrary specifications were provided by the Revenue. Relevant tribunal and appellate authorities have treated locomotives used in such integrated plant internal transportation as accessories or inputs when they are used directly or indirectly in relation to manufacture of final products. The locomotive's role in transporting molten metal between processing units inside the factory is part of the manufacturing chain and cannot be effected manually because of weight and temperature constraints; hence the locomotives function as accessories or capital goods within the meaning of the Rules.

Conclusion: CENVAT credit on locomotive engines, locomotive parts and spare parts used for hauling torpedo ladle cars within the factory for transportation of molten metal is admissible and the denial of credit is not tenable; the impugned order is set aside and the appeal is allowed with consequential reliefs in accordance with law.

Ratio Decidendi: Where specialised machinery or equipment (including locomotives) is procured and used within an integrated factory as an accessory or component directly or indirectly in relation to the manufacture of final products and is specially designed for that internal purpose, it falls within the scope of 'capital goods' or 'input' under the CENVAT Credit Rules, 2004 and is eligible for CENVAT credit.

---