2026-VIL-1607-CESTAT-HYD-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise – Eligibility of services used for setting up manufacturing facility after 01.04.2011 - Department denied credit on the ground that the relevant services were received before commencement of commercial production and that the expression setting up stood deleted from the inclusive portion of Rule 2(l) of CENVAT Credit Rules 2004 with effect from 01.04.2011 - Whether CENVAT credit can be denied on input services used for setting up a manufacturing facility merely because such services were received before commencement of commercial production and because the word setting up was deleted from the inclusive portion of Rule 2(l) – HELD – Deletion of the words setting up from the inclusive limb of the definition does not automatically mean that every service connected with setting up of a manufacturing facility stands excluded from the definition of input service. The substantive portion of Rule 2(l) continued to cover services used by the manufacturer directly or indirectly in or in relation to manufacture of final products. A factory cannot manufacture its final products unless the manufacturing facility is first brought into existence and made operational - Services which have a direct and demonstrable nexus with creation or installation of the manufacturing facility satisfy the substantive part of the definition unless specifically covered by the exclusion clause. The test remains whether the services have a nexus with manufacture and not whether production had actually begun on the date of receipt of each service - The reasoning adopted that credit necessarily becomes inadmissible merely because the services were received prior to commencement of production is not sustainable – The demand relating to CENVAT credit on input services used for setting up the manufacturing facility is set aside - CENVAT Credit – Eligibility of credit on common services for maintenance of infrastructure, Location of facility in relation to factory premises, Nexus with manufacturing activity – Department denied credit principally because these facilities were situated outside the registered factory premises – Whether CENVAT credit can be denied on common services for maintenance of infrastructure such as roads, street lights and drainage merely because the facilities are located outside the physical boundary of the factory premises – HELD – Location of the facility outside the physical boundary of the factory cannot by itself be determinative of admissibility of input service credit - The test remains whether the service has a nexus direct or indirect with manufacture or the manufacturing business. Maintenance of approach roads, common roads, drainage, lighting and similar infrastructure facilitating operation of an industrial premises cannot be treated as wholly unrelated to manufacturing activity merely because the infrastructure is common or situated beyond the factory gate. Such facilities have a nexus with the manufacturing operation and the business activity of the manufacturer - The demand relating to common fixed expense services for maintenance of roads, street lights, drainage and allied infrastructure is set aside - CENVAT Credit – Eligibility of credit on goods as inputs under Rule 2(k), Distinction between capital goods and inputs - CENVAT credit on goods such as stainless steel stools, SS buckets, SS containers, drum racks, HDGI cable tray ladders, fire extinguishers and glass fittings. Department denied credit on the ground that these articles were not capital goods and had not been shown to be used directly in the manufacture of finished goods – Whether CENVAT credit can be denied on goods merely because they are not capital goods and not used directly as components in the final product – HELD – The expression ‘input’ has a wide amplitude and is not confined to goods that form part of the final product or are classified as capital goods. Rule 2(k) as applicable during the material period gave a wide meaning to inputs and subject to specified exclusions included goods used in the factory by the manufacturer in the manufacture of the final product - Department has not disputed that the goods were received and used within the factory. There is also no finding that they fall within any specific exclusion from Rule 2(k). Denial of credit solely for want of direct use in production cannot be sustained – The demand relating to CENVAT credit on goods such as SS stools, buckets, containers, drum racks, HDGI cable trays, fire extinguishers and glass fittings is set aside - CENVAT Credit – Adjustment of differential duty through supplementary GST invoice, Transitional provisions under CGST Act - Department rejected the supplementary invoice principally because of reference to an incorrect provision of Section 142 of CGST Act, discrepancy in quantity and charging of IGST – Whether differential duty liability can be satisfied through a supplementary GST invoice issued under the transitional provisions and whether mere procedural defects in the invoice preclude acceptance of the payment – HELD – Section 142(2)(a) of the CGST Act specifically contemplates issuance of supplementary invoice or debit note where the price of goods supplied prior to the appointed day is revised upwards after the appointed day. CBIC Circular No. 76/50/2018-GST dated 31.12.2018 clarifies that in such cases the rate and nature of tax applicable under GST would govern the supplementary invoice. Merely because IGST was paid on an inter-state supplementary invoice cannot by itself lead to the conclusion that the earlier differential liability remains unpaid. A mere clerical reference to an incorrect sub-clause if the substantive requirements otherwise stand satisfied shall not by itself be a ground to deny benefit. A substantive benefit should not ordinarily be denied merely on account of a procedural lapse – The issue relating to differential duty on CAS-4 valuation is remanded for verification of the payment made through the supplementary GST invoice. No double recovery shall be made if the payment is duly established - CENVAT Credit – Appropriation of credit reversed in statutory returns, Reconciliation of electronic credit ledger and statutory records, Negative balance not bar to credit reversal - Whether CENVAT credit can be denied to the extent reversal results in negative balance in electronic credit ledger when the entire reversal has been recorded in the statutory return – HELD – The relevant question is not merely what was the positive balance in the electronic credit ledger on the date of reversal but whether the appellant had in fact accounted for the entire reversal and whether the consequential tax liability if any arising from a negative balance stood discharged. If the appellant's statutory return records reversal of the entire amount and such reversal has either reduced available credit or increased its output tax liability to the corresponding extent, the same amount cannot again be demanded merely because part of the reversal produced a negative figure in the return. The necessary reconciliation between pre-GST CENVAT records, TRAN-1, GSTR-3B and electronic credit ledger is essentially factual and must be verified. The appellant shall be given credit for the entire amount to the extent the reversal or payment is established from the statutory records. There shall be no duplication of recovery – The issue relating to the alleged unappropriated amount out of the total reversal is remanded for reconciliation and verification of TRAN-1, GSTR-3B, CENVAT records and electronic credit ledger. Appropriate credit shall be given for the amount actually reversed or discharged - Central Excise - Invocation of extended period of limitation on interpretational issues – Whether extended period of limitation can be invoked on the basis of allegation of suppression when the underlying disputes are primarily interpretational in nature and the taxpayer was regularly filing statutory
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