CENVAT credit on factory construction services allowed before the 2011 amendment, with later credit requiring recalculation.

CENVAT credit on input services used for construction or setting up of a factory was admissible for the period before 01.04.2011 because Rule 2(l) of the CENVAT Credit Rules, 2004 then covered services used directly or indirectly in or in relation to manufacture, including the inclusive scope of setting up a factory. The amendment excluding construction services was prospective, so it did not apply retrospectively to the earlier period. Credit was therefore admissible up to 01.04.2011, while credit for the period from 01.04.2011 to 31.07.2011 required recalculation as reversible credit; penalties were set aside.

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Issues: Whether CENVAT credit of input services used for construction or setting up of the factory was admissible for the period prior to 01.04.2011, and whether credit was inadmissible for the period after the amendment to Rule 2(l) of the CENVAT Credit Rules, 2004.

Analysis: The definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004 was held to cover services used in relation to setting up of a factory, because such services were used directly or indirectly in or in relation to manufacture and were within the inclusive part of the definition. The later amendment excluding construction services was treated as prospective, not retrospective, and therefore the pre-amendment period remained governed by the wider definition. On the facts, the credit was held admissible only up to 01.04.2011, while the period thereafter required recalculation of reversible credit.

Conclusion: Credit was admissible for the period before 01.04.2011 and not admissible for the period from 01.04.2011 to 31.07.2011. The matter was sent back for recalculation of the reversible credit and the penalties were set aside.

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