CESTAT Allows CENVAT Credit on Expansion Services; Komatsu India Gets ₹84 Lakh Relief, Demand Held Time-Barred

March 30, 2026 : The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed the appeal filed by Komatsu India Private Limited, holding that CENVAT credit amounting to ₹84.08 lakh on input services used for expansion of its manufacturing facility is admissible under the CENVAT Credit Rules, 2004. The Tribunal also held that the demand raised by the department was barred by limitation.

The appeal arose from an Order-in-Appeal dated 29 December 2017, which had upheld denial of credit availed on services such as erection, commissioning and installation, consulting engineering, and manpower supply, used for expansion of the appellant’s manufacturing facility.

Background

Komatsu India, engaged in the manufacture of dump trucks, had set up an additional facility adjacent to its existing plant for production of hydraulic excavators. During the period from October 2014 to June 2015, it availed CENVAT credit on input services used for installation and operationalisation of plant and machinery in the expanded facility.

A show cause notice dated 2 November 2016 proposed denial and recovery of the credit along with interest and penalty.

Key Issue: Scope of “Input Service” Post-2011 Amendment

The department argued that after deletion of the phrase “setting up of a factory” from Rule 2(l) with effect from 1 April 2011, services used for setting up or expansion of a manufacturing facility would not qualify for credit. It further contended that the services fell within the exclusion clause relating to construction activities.

Rejecting these arguments, the Tribunal held that expansion of an existing manufacturing facility cannot be equated with setting up of a new factory. It emphasized that the main limb of the definition of “input service” continues to have wide amplitude and covers services used directly or indirectly in relation to manufacture, unless specifically excluded.

The Bench observed that deletion of the phrase “setting up of a factory” from the inclusive portion does not curtail the scope of the substantive definition.

Services Not Covered by Exclusion Clause

On facts, the Tribunal found that the services in question—erection, commissioning and installation, consulting engineering, and manpower supply—were directly connected with installation and operationalisation of plant and machinery.

It noted that the show cause notice failed to establish that these services were used for construction of buildings, civil structures, or foundation work so as to attract the exclusion clause.

Accordingly, the denial of credit was held to be unsustainable on merits.

Limitation: Demand Time-Barred

On limitation, the Tribunal noted that the relevant period was October 2014 to June 2015, whereas the show cause notice was issued on 2 November 2016.

It held that:

• The applicable limitation period was one year;
• The notice did not invoke the extended period nor allege suppression, fraud, or wilful misstatement;
• The credit was availed based on proper invoices and duly recorded in statutory returns.

The Tribunal further clarified that limitation must be computed from the date of availment of credit, and not from return filing dates.

Since the dispute was interpretational in nature, invocation of the extended period was not justified. The demand was therefore held to be time-barred.

Final Outcome

In view of its findings on both merits and limitation, the Tribunal set aside the impugned order and held that:

• CENVAT credit is admissible;
• Demand of duty is unsustainable;
• Interest and penalty also do not survive.

The appeal was allowed with consequential relief.

Cause Title: M/s. Komatsu India Private Limited v. Commissioner of GST and Central Excise
Case No.: Excise Appeal No. 41094 of 2018
Coram: Mr. P. Dinesha (Member Judicial) and Mr. Vasa Seshagiri Rao (Member Technical)