CENVAT credit for special-purpose locomotive used to move molten metal within the factory was held admissible.

CENVAT credit was held admissible on locomotive engines, locomotive parts and spare parts used within the factory to haul torpedo ladle cars carrying molten metal in the manufacturing process. The Tribunal treated the locomotive as a special-purpose machine and an accessory to capital goods because it enabled movement of molten metal from the blast furnace to the steel melting shop and other in-factory locations, where manual handling was impracticable due to weight and temperature. It held that such use was directly or indirectly in relation to manufacture and that denying credit would be inconsistent with the wider CENVAT scheme. Accordingly, the credit claim was allowed.

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Issues: Whether CENVAT credit on locomotive engines, locomotive parts and spare parts used for hauling torpedo ladle cars within the factory for transportation of molten metal in the manufacturing process is admissible.

Analysis: The locomotive was used only to haul torpedo ladle cars carrying molten metal from the blast furnace to the steel melting shop and other in-factory locations. The transportation of molten metal was held to be an essential part of the manufacturing process, and the handling could not be done manually because of the extreme weight and temperature involved. The locomotive was found to be a special-purpose machine used to facilitate the movement of the torpedo ladle car, and therefore functioned as an accessory to the capital goods used in the factory. The Tribunal also held that the goods were used directly or indirectly in relation to the manufacture of the final product and that the denial of credit was inconsistent with the wider CENVAT scheme.

Conclusion: CENVAT credit on the impugned locomotive engines, locomotive parts and spare parts was admissible, and the denial of credit was unsustainable.

Ratio Decidendi: A special-purpose locomotive used within the factory to haul a torpedo ladle car carrying molten metal in the course of manufacture qualifies as an accessory and is eligible for CENVAT credit when it is used directly or indirectly in relation to manufacture.

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