Cenvat credit on factory construction services remained admissible before the 2011 exclusion, which operated prospectively only.

Before the 2011 exclusion, services used for setting up a factory could fall within the inclusive definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004, so construction-related services for the assessee's own factory premises were eligible for Cenvat credit. The later amendment excluding construction services was substantive rather than clarificatory and therefore operated prospectively, not retrospectively. On that basis, denial of credit was unsustainable, the Cenvat demand was set aside, and the related penalty also did not survive.

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Issues: Whether Cenvat credit was admissible on construction services used for setting up the assessee's own factory premises during the relevant period, and whether the subsequent amendment excluding construction services operated retrospectively.

Analysis: The dispute turned on the scope of the definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004, as applicable to services used for setting up a factory. The prior authorities relied on an earlier Larger Bench view, but that view had been set aside by the High Court, and the later judicial approach treated services used for construction of factory premises as falling within the pre-amendment inclusive definition. The amendment introduced in 2011 excluding construction services was held to be substantive and not clarificatory, and therefore not retrospective. The credit issue was also supported by the rule-making framework under the Central Excise Act, 1944.

Conclusion: Cenvat credit was admissible on the construction services in question, and the denial of credit was unsustainable.

Final Conclusion: The demand of Cenvat credit was set aside and the appeal succeeded, with the related penalty also not surviving.

Ratio Decidendi: Before the 2011 exclusion, services used for setting up a factory fell within the ambit of input service under Rule 2(l) of the Cenvat Credit Rules, 2004, and the later exclusion of construction services operated prospectively only.

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