CENVAT credit for plant construction and installation services cannot be denied where full disclosure defeats extended limitation.

CENVAT credit cannot be denied merely because goods used in constructing and erecting a cement plant become part of an assembled immovable plant, where they are used as components or parts in the manufacturing stream and for manufacture of capital goods used in the factory. Credit on erection, commissioning and installation services used for setting up the plant before 01.04.2011 was also admissible because such services were used to install machinery and equipment necessary for commencement of manufacture, and no distinct ineligible service category was identified in the notice. The extended period of limitation was unavailable because the credit was disclosed in returns and records, audit had already occurred, and there was no suppression with intent to evade duty.

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Issues: (i) Whether CENVAT credit on goods used in construction and erection of the cement plant was inadmissible on the ground that the assembled plant became immovable property and, therefore, non-excisable. (ii) Whether CENVAT credit on erection, commissioning and installation services used for setting up the plant prior to 01.04.2011 was admissible. (iii) Whether the extended period of limitation could be invoked on the facts disclosed by the assessee.

Issue (i): Whether CENVAT credit on goods used in construction and erection of the cement plant was inadmissible on the ground that the assembled plant became immovable property and, therefore, non-excisable.

Analysis: The goods were used as components and parts for setting up the cement plant and for manufacture of capital goods further used in the factory. The disallowance was founded mainly on the view that after assembly and installation the plant became immovable property. That approach was held to be unsustainable in light of the later line of decisions applying the user test and recognizing credit eligibility where the goods are used in the manufacturing stream and for manufacture of capital goods used in the factory.

Conclusion: The disallowance of credit on the impugned goods was unjustified and was set aside in favour of the assessee.

Issue (ii): Whether CENVAT credit on erection, commissioning and installation services used for setting up the plant prior to 01.04.2011 was admissible.

Analysis: The services were availed for installation and commissioning of machinery and equipment without which the plant could not commence manufacturing. The record also did not specify any distinct ineligible service category in the show cause notice. Since setting up of factory was covered within the ambit of input service during the relevant period, the denial of credit lacked legal basis.

Conclusion: The disallowance of input service credit was set aside in favour of the assessee.

Issue (iii): Whether the extended period of limitation could be invoked on the facts disclosed by the assessee.

Analysis: The credit availed was reflected in the statutory returns and records, and the Department had already conducted audit and investigation much earlier. The assessee had also intimated the authorities in advance regarding its intention to avail credit. These facts negatived suppression of facts with intent to evade duty and did not justify invocation of the extended period.

Conclusion: The demand was time-barred and the extended period could not be invoked.

Final Conclusion: The impugned order was set aside and the appeal succeeded on merits as well as on limitation, with consequential relief according to law.

Ratio Decidendi: CENVAT credit cannot be denied merely because goods or services are used in setting up a plant that later becomes immovable, where they are otherwise used in the manufacture of capital goods or in relation to setting up of the factory and the assessee has made full disclosure so as to exclude suppression for limitation purposes.

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