CENVAT credit on expansion-related services remained admissible, while the demand was time-barred and penalty could not survive.

CENVAT credit on erection, commissioning, installation and allied services used for expansion of an existing manufacturing facility remained admissible after 01.04.2011, because the main limb of Rule 2(l) of the CENVAT Credit Rules, 2004 continued to cover services used directly or indirectly in relation to manufacture, and the deletion of "setting up of a factory" did not narrow that width. The disputed services were not hit by the exclusions for construction of building, civil structure or foundation work. The demand was also time-barred, as the notice was issued beyond the normal period without valid invocation of extended limitation or allegations of suppression, and penalty under Rule 15(1) could not survive once the demand failed on merits and limitation.

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Issues: (i) Whether CENVAT credit on erection, commissioning, installation and allied services used for expansion of an existing manufacturing facility is admissible post-01.04.2011 despite deletion of the phrase "setting up of a factory" from Rule 2(l) of the CENVAT Credit Rules, 2004; (ii) whether the demand is barred by limitation; and (iii) whether penalty under Rule 15(1) is sustainable.

Issue (i): Whether CENVAT credit on erection, commissioning, installation and allied services used for expansion of an existing manufacturing facility is admissible post-01.04.2011 despite deletion of the phrase "setting up of a factory" from Rule 2(l) of the CENVAT Credit Rules, 2004?

Analysis: The services were used for expansion of an already functioning factory and for installation and operationalisation of plant and machinery in the expanded facility. The main limb of the definition of input service retained wide amplitude and continued to cover services used directly or indirectly in or in relation to manufacture of final products. Deletion of the phrase "setting up of a factory" from the inclusive portion did not curtail that substantive width. The services in dispute did not fall within the specific exclusions relating to construction of building or civil structure or laying of foundation for support of capital goods.

Conclusion: Credit on the disputed services was admissible on merits and denial solely on the basis of deletion of the phrase "setting up of a factory" was unsustainable, in favour of the assessee.

Issue (ii): Whether the demand is barred by limitation?

Analysis: The credit pertained to October 2014 to June 2015 and the notice was issued on 02.11.2016. The normal period then applicable was one year, and the notice did not invoke the extended period or allege suppression, fraud or wilful misstatement with intent to evade duty. The period for taking credit was to be reckoned from the date of availment of credit, and the later amendment extending limitation could not revive a time-barred demand. The dispute was interpretational and did not justify extended limitation.

Conclusion: The demand was barred by limitation, in favour of the assessee.

Issue (iii): Whether penalty under Rule 15(1) is sustainable?

Analysis: Once the demand failed on merits and limitation, the foundation for penalty and the consequential interest demand did not survive. No independent basis remained for sustaining penalty.

Conclusion: Penalty was unsustainable, in favour of the assessee.

Final Conclusion: The credit was held admissible, the demand was held time-barred, and the penalty and interest did not survive, resulting in setting aside of the impugned order and allowance of the appeal with consequential relief.

Ratio Decidendi: Services integrally connected with manufacture in an existing facility remain eligible as input services under the broad main limb of Rule 2(l), and exclusion clauses must be strictly construed; where no suppression or extended-period ground is established, limitation runs from the date of availment of credit and penalty cannot stand if the demand itself fails.

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