Cenvat credit for plant modernisation services remains admissible despite production beginning later, where nexus to dutiable manufacture is established.

Cenvat credit on input services used to renovate and modernise a plant was held admissible where the plant was intended for manufacture of dutiable goods, even though production had not begun when the services were received. The decisive factor was the nexus between the services and the eventual manufacture of dutiable final products; a gestation period before commencement of production did not sever that link. The services were not shown to have been used for exempted goods, and Notification No. 30/2004-CE did not alter the position on the facts. The denial of credit was therefore unsustainable.

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Issues: Whether Cenvat credit on input services used for renovation and modernization of a plant was admissible when the plant was subsequently used for manufacture of dutiable goods, notwithstanding that no dutiable goods were being manufactured at the time the services were received.

Analysis: The credit was denied below on the ground that, at the time of receipt of the services, the plant was not yet operational and no final products were being manufactured. The decision turned on the character and end use of the services. The services were for modernization and renovation of a plant meant for manufacture of dutiable goods, and the fact that the plant required a gestation period before commencing production did not break the nexus between the input services and the manufacture of dutiable final products. The exemption under Notification No. 30/2004-CE was not the basis for the renovated plant's output, and the services were not shown to have been used for exempted goods.

Conclusion: The Cenvat credit was admissible and the denial was unsustainable.

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