CENVAT credit for contractor-used inputs depends on works-contract abatement, while extended limitation requires proven wilful suppression.

CENVAT credit may be claimed by a manufacturer for eligible duty-paid inputs received at its premises and used through a contractor to fabricate storage tanks and mechanical piping for manufacture of excisable goods. The notes distinguish cases where the contractor does not take works-contract composition-scheme abatement, in which credit remains available, from cases where abatement is taken, where allowing manufacturer credit would create a double benefit. Extended limitation requires proof of wilful suppression, fraud, collusion, or intent to evade duty; regular returns, audits, and disclosure of requested records do not establish those conditions. Credit must therefore be re-quantified after excluding time-barred demand and abatement-linked inputs.

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Issues: (i) Whether a manufacturer may avail CENVAT credit on inputs used by a contractor in fabricating storage tanks and mechanical piping, where the contractor has or has not availed service-tax abatement under the works contract composition scheme; (ii) Whether the extended period of limitation was invocable for recovery of the disputed credit.

Issue (i): Whether a manufacturer may avail CENVAT credit on inputs used by a contractor in fabricating storage tanks and mechanical piping, where the contractor has or has not availed service-tax abatement under the works contract composition scheme.

Analysis: Credit under the Cenvat Credit Rules, 2004 requires eligible inputs, receipt in the manufacturer's factory, compliance with prescribed conditions, and valid duty-paying documents. The inputs were received at the appellant's premises, the appellant bore the incidence of duty, and the materials were used in relation to manufacture of excisable products through fabrication of storage tanks and piping. Credit is attached to the inputs and their use, rather than ownership of the goods or the identity of the person undertaking fabrication.

Analysis: Where the contractor did not avail abatement, the statutory conditions for credit stood satisfied and there was no legal basis to deny the manufacturer credit merely because the contractor used the inputs. However, where the contractor opted for service-tax abatement under the works contract composition scheme, the scheme incorporated the value of goods in the concessional taxation arrangement and barred credit to the contractor. Allowing the manufacturer credit on the same inputs would result in an impermissible double benefit.

Conclusion: The appellant is entitled to CENVAT credit on inputs where the contractor did not avail service-tax abatement, but is not entitled to such credit where the contractor availed abatement under the works contract composition scheme. The issue is partly in favour of the assessee.

Issue (ii): Whether the extended period of limitation was invocable for recovery of the disputed credit.

Analysis: The appellant regularly filed statutory returns, underwent departmental audits, and supplied the documents and information sought. The prescribed returns did not require disclosure of the particular use of inputs. In these circumstances, failure by the department to scrutinise available records or issue notices within time could not establish wilful suppression, fraud, collusion, or intent to evade duty.

Conclusion: The extended period of limitation is not invocable. The issue is in favour of the assessee.

Final Conclusion: The credit liability requires re-quantification by excluding the time-barred demand and by allowing credit only for inputs not covered by the contractor's abatement benefit.

Ratio Decidendi: A manufacturer satisfying the CENVAT credit conditions may claim credit for inputs used through a contractor, but cannot claim credit where the same inputs have already yielded the contractor a concessional works-contract abatement benefit; extended limitation requires proof of wilful suppression or equivalent intent.

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