Cenvat credit eligibility for steel used in fabrication and maintenance affirmed where spares are incorporated into manufacturing plant.

The note addresses whether steel items used by a maintenance workshop for fabrication of spares and for repair/upkeep of plant and machinery qualify as "input" for Cenvat credit under Rule 2(k) (period June 2006-March 2011). Relying on the wide meaning of "used in or in relation to manufacture" (as recognised by higher court precedent) and on verified documentary proof including departmental details and a Chartered Engineer's certificate, the steel goods were held to have been used to manufacture spares incorporated into capital goods engaged in producing dutiable goods, satisfying Rule 2(k)/Explanation 2 and entitling the assessee to credit.

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Issues: (i) Whether steel items (angles, channels, plates, bars etc.) used in the Central Engineering Maintenance Shop for fabrication of spares and for repair and maintenance of plant and machinery are eligible for cenvat credit under Rule 2(k) of the Cenvat Credit Rules, 2004 for the period June 2006 to March 2011.

Analysis: The issue requires interpretation of the expression "used in or in relation to manufacture" and the scope of "input" under Rule 2(k) of the Cenvat Credit Rules, 2004, including Explanation 2 to Rule 2(k) as in force during the relevant period. Documentary material furnished by the appellant included department-wise letters specifying items manufactured from the subject steel goods, the exact machinery/capital goods where those spares were used, and a Chartered Engineer's Certificate certifying verification of those details. The position laid down by the Hon'ble Supreme Court in Kisan Co-operative Sugar Factory Ltd. recognises a wide import to the phrase "used in or in relation to manufacture" and expressly includes items used for maintenance, repair, upkeep or fabrication of plant and machinery within the ambit of admissible credit. Applying that legal framework to the verified factual material presented, the subject steel items were used to manufacture spares and parts incorporated into capital goods/plant and machinery employed in the manufacture of dutiable products, thereby satisfying the definition of "input" under Rule 2(k) and Explanation 2 as applicable in the material period.

Conclusion: The cenvat credit availed on the steel items used for fabrication of spares and for maintenance and repair of plant and machinery is admissible; the appeal is allowed in favour of the assessee and the impugned demand, interest and equal penalty confirmed by the adjudicating authority are set aside, with consequential relief, if any.

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