Cenvat credit for buyer-premises mounting services denied where the activity lacked nexus with manufacture and penalty was set aside.

Cenvat credit was denied for mounting services performed at the buyer's premises because the service lacked a direct or indirect nexus with manufacture of the assessee's own final product and was a post-manufacture activity. The agreement between the parties and inclusion of mounting cost in the sale value did not change the statutory character of the service. On limitation, the extended period was held not sustainable, so the demand was confined to the normal period. Penalty was also set aside because the dispute arose from interpretation of the credit provisions, not from conduct justifying penal consequences.

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Issues: (i) whether mounting services used at the customer's premises were eligible input services for the manufacturer's Cenvat credit claim; (ii) whether the extended period of limitation could be invoked for the credit demand; (iii) whether penalty was sustainable.

Issue (i): whether mounting services used at the customer's premises were eligible input services for the manufacturer's Cenvat credit claim.

Analysis: Rule 2(l) of the Cenvat Credit Rules, 2004 allows credit only for services used, directly or indirectly, in or in relation to manufacture of the final product and clearance up to the place of removal. The mounting activity was found to be a post-manufacture operation undertaken at the buyer's premises in the course of manufacturing a different final product, and not a service having nexus with the manufacture of body-built vehicles cleared by the assessee. The agreement between the parties could not alter the statutory character of the service, and the fact that mounting cost formed part of the sale value did not by itself establish eligibility.

Conclusion: The mounting service was not an eligible input service for the assessee's Cenvat credit claim.

Issue (ii): whether the extended period of limitation could be invoked for the credit demand.

Analysis: The dispute turned on interpretation of the credit rules and the record did not support invocation of the extended period as sustained by the respondent's challenge to that part of the demand. The limitation aspect was accepted in favour of the assessee, and the demand was confined to the normal period.

Conclusion: The extended period of limitation was not sustainable.

Issue (iii): whether penalty was sustainable.

Analysis: Since the controversy arose from interpretation of the credit provisions, the case did not warrant penal consequences. The penalty imposed in the adjudication order could not be upheld.

Conclusion: Penalty was not sustainable and was set aside.

Final Conclusion: The adjudication order was restored on the credit issue, but the demand was restricted by rejection of the extended period and the penalties were set aside.

Ratio Decidendi: Cenvat credit is admissible only for services having a direct or indirect nexus with manufacture of the assessee's final product, and a service used in a separate manufacturing activity at the buyer's premises does not qualify merely because it is commercially connected to the sale.

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