Cenvat credit outside the factory is not admissible where the rule confines inputs to use within production premises.

Under Rule 2(f) of the Cenvat Credit Rules, 2001, the definition of "inputs" was read as a single provision requiring use for manufacture or other purposes within the factory of production, so credit was not admissible on inputs used outside the factory. The earlier Rule 57A position was distinguished because it lacked the same express factory-based restriction, and the demand challenge therefore failed on the credit issue. As the dispute turned on interpretation of the credit rule rather than contumacious conduct, the penalty was held unsustainable and deleted.

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Issues: Whether Cenvat credit was admissible on inputs used outside the factory premises, and whether penalty was sustainable in a matter turning on interpretation of the credit rule.

Analysis: The definition of "inputs" in Rule 2(f) of the Cenvat Credit Rules, 2001 was read as a single, comprehensive definition requiring the goods to be used for manufacture of final products or for any other purpose within the factory of production. The limitation "within the factory of production" was held to apply to the entire definition and not merely to the later illustrative items. The earlier decision under Rule 57A of the Central Excise Rules, 1944 was distinguished because that rule did not contain the same express factory-based restriction. Since the credit disallowance followed from the wording of the 2001 Rules, the demand-related challenge failed. However, as the dispute involved interpretation of the rule, the penalty was considered unsustainable.

Conclusion: Credit on inputs used outside the factory was not admissible. Penalty was set aside.

Final Conclusion: The appeal failed on the substantive credit issue but succeeded to the limited extent of deletion of penalty.

Ratio Decidendi: Where the definition of "inputs" expressly confines use to the factory of production, credit cannot be availed for inputs used outside that factory, and penalty may be deleted when the dispute is one of interpretation.

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