Cenvat credit on embedded capital goods and inputs was upheld, while extended limitation failed absent suppression.

Cenvat credit was treated as admissible on capital goods, inputs and refractory items used within the factory for fabrication of capital goods and manufacture, including items embedded in the plant, where the record supported such use and the factory was transferred as a going concern with assets and liabilities assumed. Credit was also recognised for refractory items used in boilers and furnaces connected with the manufacturing process. On limitation, the extended period could not be invoked because monthly returns and books disclosed the credit and the dispute was interpretational, with no material showing suppression or intent to evade duty. The demand was therefore set aside on merits and limitation.

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Issues: (i) Whether Cenvat credit was admissible on capital goods, inputs and refractory items used for fabrication of capital goods and for manufacture within the factory premises, including items embedded in the plant. (ii) Whether the demand could be sustained by invoking the extended period of limitation.

Issue (i): Whether Cenvat credit was admissible on capital goods, inputs and refractory items used for fabrication of capital goods and for manufacture within the factory premises, including items embedded in the plant.

Analysis: The items in dispute were shown to have been used in the manufacture of capital goods within the factory, and the record included a Chartered Engineer's certificate supporting such use. Credit cannot be denied merely because the resulting capital goods are embedded, when they are used for manufacture of the finished products. The transfer of the factory as a going concern and the assumption of assets and liabilities also supported the assessee's entitlement to credit in respect of the transferred capital goods and inputs. The refractory items used in boilers and furnaces were likewise connected with the manufacturing process.

Conclusion: The credit was admissible and the disallowance was unsustainable; this issue is decided in favour of the assessee.

Issue (ii): Whether the demand could be sustained by invoking the extended period of limitation.

Analysis: The assessee had filed monthly returns and maintained books reflecting the availment of credit, while the dispute turned on interpretation of the credit eligibility provisions. No material was produced to establish suppression with intent to evade duty. In such circumstances, invocation of the extended period was not justified.

Conclusion: The extended period of limitation could not be invoked; this issue is also decided in favour of the assessee.

Final Conclusion: The impugned demand was set aside on merits as well as on limitation, and the assessee was held entitled to consequential relief according to law.

Ratio Decidendi: Cenvat credit is not to be denied where inputs and materials are used within the factory for fabrication of capital goods required for manufacture, and the extended period cannot be invoked in the absence of suppression when the dispute is essentially interpretational.

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