Cenvat credit and captive consumption rules applied to a newly registered unit and inter-unit clinker transfers.

Cenvat credit on capital goods, input services and inputs used to set up a new unit could not be denied merely because common registration for the two units was obtained later, especially where the units were eventually covered by a single registration and the credit merged in the common account. A credit objection based on an amended input-service definition also could not be sustained when it was not specifically raised in the show cause notice and lacked a supporting factual finding. Clinker transfers between the original unit and the new unit, once treated as a single factory under common registration, were in the nature of captive consumption and qualified for the captive-consumption benefit, so no central excise duty was payable.

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Issues: (i) Whether Cenvat credit on capital goods, input services and inputs used for setting up the new unit could be denied merely because the common registration for the two units was granted subsequently; (ii) Whether duty was payable on clinker cleared from the original unit to the new unit after the grant of common registration.

Issue (i): Whether Cenvat credit on capital goods, input services and inputs used for setting up the new unit could be denied merely because the common registration for the two units was granted subsequently.

Analysis: The credit related to goods and services used for establishing the new unit before it became operational. The timing of registration could not by itself defeat otherwise admissible credit, particularly when the units were ultimately covered by a single registration and the credit would stand merged in the common account. The attempt to deny input service credit on a ground not specifically raised in the show cause notice was beyond its scope, and no specific factual finding was recorded identifying only those services hit by the amended definition of input services.

Conclusion: The denial of Cenvat credit on capital goods, input services and inputs was not sustainable and was set aside.

Issue (ii): Whether duty was payable on clinker cleared from the original unit to the new unit after the grant of common registration.

Analysis: Once the two units were treated as a single factory under common registration, transfers of clinker from one unit to the other were in the nature of captive consumption. On that footing, the clearances were covered by the benefit of the captive consumption notification and could not be subjected to central excise duty.

Conclusion: The duty demand on clinker clearance was unsustainable and was set aside.

Final Conclusion: The impugned order was unsustainable in full, and the assessee was entitled to relief on both the credit disallowance and the duty demand.

Ratio Decidendi: Where units are ultimately covered by common registration, credit used for setting up the unit cannot be denied merely because it was taken before registration, and clearances between such units are to be treated according to their common-factory character for captive-consumption benefit.

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