Cenvat credit on fabrication and insulation materials is admissible when used as part of plant machinery, with limitation also defeated.

Cenvat credit is treated as admissible on steel items, foundation bolts, aluminium coils and aluminium sheets used in fabricating and erecting storage tanks and insulating pipes and tubes where those items form part of the plant and machinery used for manufacture. The commentary also notes that disclosure to the department about setting up the plant and taking credit negates suppression, so the extended limitation period cannot be invoked. On that basis, the demand fails on limitation and the foundation for penalty under Section 11AC does not survive.

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Issues: (i) whether Cenvat credit was admissible on steel items, foundation bolts, aluminium coils and aluminium sheets used in fabrication and erection of storage tanks and in insulation of pipes and tubes in the factory; (ii) whether the demand was barred by limitation and whether penalty under Section 11AC was sustainable.

Issue (i): whether Cenvat credit was admissible on steel items, foundation bolts, aluminium coils and aluminium sheets used in fabrication and erection of storage tanks and in insulation of pipes and tubes in the factory.

Analysis: The storage tanks formed an integral part of the plant and machinery used for manufacture and were treated as capital goods. Credit on steel items used for their fabrication and erection was supported by earlier decisions allowing such credit even where the fabricated structure was immovable. Aluminium coils and sheets used for insulation of pipes and tubes were also held to be part of the plant and eligible for credit. Foundation bolts used for installation of the stack, being used with machinery and falling within the relevant chapter classification, were similarly treated as admissible inputs for capital goods.

Conclusion: Cenvat credit on all the disputed items was held admissible in favour of the assessee.

Issue (ii): whether the demand was barred by limitation and whether penalty under Section 11AC was sustainable.

Analysis: The assessee had informed the department about setting up the new plant and the availment of Cenvat credit on capital goods and related items. In view of these disclosures, suppression of facts was not established and the extended period could not be invoked. Once the demand failed on limitation and on merits, the foundation for penalty also could not survive.

Conclusion: The demand was held time-barred and penalty under Section 11AC was not sustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Credit is admissible on inputs used for fabrication and erection of storage tanks and on insulation materials integrally used with plant machinery, and the extended period cannot be invoked where the assessee has made relevant disclosures to the department.

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