Cenvat credit on capital goods used in another unit remains admissible when goods stay within the assessee's manufacturing set-up

Cenvat credit on imported capital goods was held admissible where the goods remained within the assessee's own manufacturing set-up and were used for manufacture of dutiable final products, even though they were shifted to another unit and the credit was reversed and re-availed. The demand was also held time-barred because the notice was issued more than five years after availment of credit while the relevant facts were already known to the department, making the extended limitation period inapplicable. The impugned demand and penalty were therefore unsustainable and the assessee obtained full relief.

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Issues: (i) whether Cenvat credit on imported capital goods was admissible when the goods were used in another unit of the assessee and the credit was later reversed and re-availed; (ii) whether the demand was barred by limitation.

Issue (i): whether Cenvat credit on imported capital goods was admissible when the goods were used in another unit of the assessee and the credit was later reversed and re-availed.

Analysis: The credit-related dispute turned on whether the capital goods were used in or in relation to manufacture of the final products and whether they remained within the assessee's own manufacturing set-up. The record showed that the goods were shifted between the assessee's units, the assessee had sought common registration, and the capital goods were not alienated. The reasoning followed the settled principle that credit cannot be denied merely because the capital goods were installed or used in another premises of the same assessee, so long as they were used for manufacture of dutiable final products.

Conclusion: The credit was admissible and the denial was unsustainable, in favour of the assessee.

Issue (ii): whether the demand was barred by limitation.

Analysis: The notice was issued more than five years after availment of credit, while the relevant facts were already within the knowledge of the department. In such circumstances, invocation of the extended period was not justified.

Conclusion: The demand was time-barred, in favour of the assessee.

Final Conclusion: The impugned demand and penalty could not be sustained, and the assessee obtained full relief.

Ratio Decidendi: Cenvat credit on capital goods cannot be denied when the goods are used by the assessee in its own manufacturing operations and are not alienated, even if installed or used in another unit or premises of the same assessee; the extended period of limitation is unavailable where the material facts were known to the department.

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