CENVAT credit on fabrication inputs allowed, with no time bar for taking credit and no new grounds beyond the notice.

CENVAT credit on steel plates used to fabricate storage tanks was treated as admissible under the Cenvat Credit Rules, 2004, because the definition of inputs extends to goods used in or in relation to manufacture and the plates were consumed in the fabrication process. Credit was not denied merely because the goods were received before excise registration or because they were no longer in the same form, and no outer time limit existed under the relevant rules for taking credit during the period in question. The adjudication also could not rest on grounds not set out in the show cause notice. As the credit denial failed on merits, the related claim for interest under Rule 14 also did not survive.

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Issues: (i) whether CENVAT credit on steel plates received before excise registration and before 10.09.2004 was admissible under the Cenvat Credit Rules, 2004, including on the footing that the plates were used for fabrication of storage tanks as inputs for capital goods; (ii) whether denial of credit could be sustained on grounds not contained in the show cause notice, and whether the credit was barred for being taken after a long lapse of time; (iii) whether interest under Rule 14 of the Cenvat Credit Rules, 2004 was payable.

Issue (i): whether CENVAT credit on steel plates received before excise registration and before 10.09.2004 was admissible under the Cenvat Credit Rules, 2004, including on the footing that the plates were used for fabrication of storage tanks as inputs for capital goods.

Analysis: The relevant regime was held to be the Cenvat Credit Rules, 2004, because the factory came into existence only upon grant of registration. The definition of "inputs" is wide enough to cover goods used in or in relation to manufacture, and steel plates used for fabrication of storage tanks for a refinery could not be excluded merely because they were not themselves petroleum products. The fact that the plates had been consumed and were no longer in the same form did not, by itself, defeat credit. The authority also noted that credit was taken after collation of records for goods used in fabrication, and that no outer time limit was prescribed under the rules during the relevant period.

Conclusion: The denial of CENVAT credit was not sustainable; the issue was answered in favour of the assessee.

Issue (ii): whether denial of credit could be sustained on grounds not contained in the show cause notice, and whether the credit was barred for being taken after a long lapse of time.

Analysis: Adjudication was required to remain confined to the allegations in the show cause notice. Grounds such as absence of declaration under the earlier rules, non-availability of the same form of goods, and related transitional objections could not independently sustain the demand when they were not the foundation of the notice. On limitation of time, the rule permitting credit to be taken immediately on receipt did not create a mandatory outer time bar, and the later introduction of a specific time limit showed that no such limit existed earlier. The assessee had also produced material correlating receipt and consumption of the steel plates in the fabrication process.

Conclusion: The objections based on matters beyond the show cause notice and on delay in taking credit were rejected; the issue was answered in favour of the assessee.

Issue (iii): whether interest under Rule 14 of the Cenvat Credit Rules, 2004 was payable.

Analysis: Since the denial of credit did not survive on merits, the demand for interest resting on wrongful availment or utilization of credit also could not be sustained in the manner sought by the Department.

Conclusion: The Department's claim for interest was rejected.

Final Conclusion: The assessee succeeded on the substantive challenge to the denial of credit, and the Department's appeal seeking interest also failed, resulting in relief to the assessee and rejection of the Department's challenge.

Ratio Decidendi: Where the applicable credit rules do not prescribe an outer time limit, credit cannot be denied merely because it was taken after a long interval, and adjudication cannot be sustained on grounds not forming part of the show cause notice; the wide definition of inputs extends to goods used in relation to the manufacture process.

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