Cenvat credit on power-generation inputs allowed where electricity used in manufacture was functionally integrated with production

An amount described as equal to duty on raw materials used for generating electricity was treated as duty for Cenvat purposes, because the distinction from duty itself was considered artificial where the department had already treated it as duty foregone. Inputs used to generate electricity consumed in manufacturing final products were held to qualify as inputs, and credit could not be denied merely because the assessee did not directly receive the raw materials. The Tribunal accepted the functional integration of captive power generation with manufacture and allowed Cenvat credit on the inputs used for such power generation.

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Issues: Whether the amount equal to duty paid by one unit on raw materials used for generation of electricity purchased by another unit of the same company could be treated as duty for the purpose of availing Cenvat credit, and whether credit was admissible on inputs used for generation of such power.

Analysis: The dispute turned on whether a payment described as an amount equal to duty was materially different from duty itself. The Tribunal held that such a distinction was artificial where the department had itself treated the amount as duty foregone on the inputs used for generation of power. It further held that, for Cenvat purposes, the inputs used for generation of electricity used in manufacture of final products fell within the definition of input, and a narrow construction that denied credit merely because the assessee did not directly receive the raw materials would defeat the scheme of the credit provisions. The Tribunal also relied on the accepted commercial and functional integration of power generation and use in the manufacture of final products.

Conclusion: The amount equal to duty was to be treated as duty for availing Cenvat credit, and the assessee was entitled to credit on the inputs used for generation of electricity.

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