Cenvat credit on capital goods handed to contractors affirmed where purchaser retained ownership and used goods in manufacture.

Cenvat credit on capital goods handed to a contractor for erection and commissioning is allowable where the purchaser retained ownership and ultimately used the installed goods in manufacture. The goods at issue qualified as capital goods under the CCR definition and remained appellant property despite being consigned to the contractor for installation; consequently credit availed was upheld. A prior departmental denial premised on the contractor's presumed entitlement to credit was rejected on similar facts, and penalties tied to the credit claim were set aside. Extended limitation for suppression or fraud was neither treated as determinative of entitlement nor applied to sustain denial.

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Issues: Whether the appellant is entitled to avail Cenvat credit on capital goods procured and received in its factory premises and handed over to the works contractor for erection and commissioning, and whether the demand based on extended period of limitation is invocable.

Analysis: The issue was examined under the Cenvat Credit Rules, 2004, including the definition of capital goods (Rule 2(a)) and entitlement to credit of duty paid on capital goods received in the factory (Rule 3(1)). The legal effect of the works contract valuation scheme and Rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006 was considered to determine whether restriction on credit for the works contractor prevents the recipient-manufacturer from availing credit on capital goods. The factual matrix establishes that capital goods were purchased by the appellant under duty-paid invoices, received at the appellant's factory, and remained the appellant's property while being handed to the contractor for installation; certain goods used by the contractor as inputs were not credited by the contractor. Prior decisions treating capital goods received and used in manufacture as admissible for credit were applied to the facts. On limitation, authorities showing that extended period cannot be invoked in absence of fraud, suppression or willful misstatement and where the dispute arises from an interpretation of law were relied upon; periodic audits and statutory returns filed by the appellant were noted.

Conclusion: Cenvat credit on the capital goods so procured and used is admissible to the appellant and the demand raised by invoking extended period is not sustainable; penalty imposed on the appellant is set aside (decision in favour of the assessee).

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