Cenvat credit on capital goods denied where the output service became taxable only after receipt of the goods.

Cenvat credit on air compressors was denied because eligibility was tested by reference to the taxability of the output service on the date the capital goods were received. The goods were received on 05.05.2005, while the intended service became taxable only from 16.06.2005. On that basis, receipt of the capital goods before the output service entered the service tax net meant credit was not admissible. The High Court decision relied on by the assessee was distinguished on facts, and the matter was decided in favour of the Revenue.

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Issues: Whether Cenvat credit on air compressors received before the relevant output service was brought into the service tax net was admissible.

Analysis: The capital goods were received on 05.05.2005 and were intended for use in providing commercial and industrial construction services by way of pipeline services, which became taxable only from 16.06.2005. The controlling principle applied was that eligibility to Cenvat credit is to be determined with reference to the taxability of the final product or output service on the date of receipt of the capital goods. Since the goods were received before the output service became taxable, the later taxability did not support availment of credit. The cited High Court decision was found distinguishable on facts.

Conclusion: Cenvat credit was not admissible, and the appeal was decided in favour of the Revenue and against the assessee.

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