Cenvat credit on boiler spare parts allowed where equipment was not used exclusively for exempted goods and generated shared electricity.

Cenvat credit on spare parts used in a boiler generating steam and electricity was admissible because Rule 6(4) of the Cenvat Credit Rules, 2002 bars credit only where capital goods are used exclusively for exempted goods. The record showed that the boiler was not used exclusively for exempted production, and part of the electricity was supplied through distribution lines rather than being wholly captively consumed. Credit could therefore not be denied on the footing that some power was not used entirely within the captive setup. The denial of credit was set aside and the assessee's entitlement was upheld.

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Issues: Whether Cenvat credit on spare parts used in a boiler installed for generation of steam and electricity could be denied on the ground that a part of the electricity generated was supplied through distribution lines and not wholly captively consumed.

Analysis: Rule 6(4) of the Cenvat Credit Rules, 2002 prohibits credit only where capital goods are used exclusively for manufacture of exempted goods. The spare parts in question were used in boilers generating steam and electricity, and the record showed that the electricity was not generated exclusively for exempted goods. Since the boiler was not used exclusively for exempted production, the embargo under Rule 6(4) did not apply. The reasoning was also supported by the view that boiler parts used in a captive power plant, even where part of the power is sold, remain eligible for credit.

Conclusion: Denial of Cenvat credit was not justified, and the assessee was entitled to the credit claimed.

Final Conclusion: The order denying credit was set aside and the assessee's claim succeeded on the merits.

Ratio Decidendi: Capital goods or their spare parts are not hit by the exclusion in Rule 6(4) of the Cenvat Credit Rules, 2002 unless they are used exclusively for exempted goods; where the equipment is used for generation of steam and electricity and is not exclusively tied to exempted production, credit cannot be denied.

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