Cenvat credit on capital goods for captive power generation remains admissible despite partial sale of electricity outside the factory.

Cenvat credit on a DG set and control panel used to generate electricity was treated as admissible where the major portion of the electricity was consumed in the factory and only part was sold outside. The note distinguishes capital goods credit from input credit: under Rule 57AD(3) and Rule 6(4) of the Cenvat Credit Rules, 2001/2002, denial applies only when capital goods are used exclusively for exempted goods, not when they are used partly for dutiable manufacture and partly for exempted clearances. A Supreme Court ruling on inputs was held inapplicable. The denial of credit was therefore unsustainable.

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Issues: Whether Cenvat credit on a DG set and control panel used for generation of electricity is admissible when the major portion of electricity is used in the factory and only a part is sold outside.

Analysis: Rule 57AD(3) of the Central Excise Rules, 1944 and Rule 6(4) of the Cenvat Credit Rules, 2001/2002 deny credit on capital goods only where such capital goods are used exclusively in the manufacture of exempted goods. The disputed credit was denied solely because a portion of the electricity generated was sold outside, while the order itself accepted that the major portion was used in the factory. The legal position applicable to capital goods credit is different from input credit. For capital goods, denial arises only on exclusive use for exempted goods, and not where the capital goods are used partly for dutiable manufacture and partly for exempted clearances. The cited Supreme Court ruling on inputs did not govern the present capital goods credit issue. Earlier Tribunal decisions were consistent with this interpretation.

Conclusion: The credit on the DG set and control panel was admissible and the denial was unsustainable.

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