CENVAT credit on renovation services allowed where factory use related to dutiable manufacture, not exempt clearances.

CENVAT credit on input services used for factory renovation and modernisation was admissible because the services were linked to manufacture of dutiable goods and were not established to have been used for exempted clearances. The record showed that the assessee used the renovated facility for in-house manufacture of partially oriented yarn on which excise duty was paid, while the exemption notifications relied on by the department were not shown to govern the relevant goods. As no exempted clearances were made during or after the renovation period, denial of credit was unsustainable and the disallowance was set aside.

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Issues: Whether CENVAT credit on input services used for renovation and modernisation of the factory was admissible when the services were relatable to manufacture of dutiable goods and the exempted clearances did not arise from the renovated unit during the relevant period.

Analysis: The credit was taken on services used for renovation and modernisation of the factory for in-house manufacture of partially oriented yarn on which excise duty was paid. The exemption notifications relied upon by the department were not shown to govern the goods for which the renovation was undertaken. The material on record showed that the services were not used for manufacturing exempted goods and that no clearances under exemption were made during and after the renovation period. On these undisputed facts, the denial of credit was unsustainable.

Conclusion: The CENVAT credit on the input services was admissible and the disallowance was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the impugned order was set aside, resulting in grant of the credit claim.

Ratio Decidendi: Input service credit cannot be denied where the services are used for manufacture of dutiable goods and are not established to have been used for exempted clearances.

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