Cenvat credit for captive power plant inputs allowed in principle, but township-related electricity consumption required credit reversal.

Cenvat credit on inputs and capital goods used in a wholly owned captive power plant was admissible in principle even though the plant was located away from the factory, because the electricity generated formed part of an integrated manufacturing arrangement and was used in the factory. Distance from the factory did not by itself defeat credit. However, credit attributable to electricity consumed in the township and not in the manufacture of excisable goods was inadmissible, so the inadmissible portion had to be re-quantified on remand.

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Issues: Whether inputs and capital goods used in a captive power plant located away from the factory were eligible for Cenvat credit, and whether credit could be denied to the extent electricity generated was used in the township and not in manufacture of excisable goods.

Analysis: The power plant was wholly owned by the appellant and functioned as a captive power plant for the factory. The reasoning followed the principle that the use of inputs for generation of electricity need not be confined within the factory premises when the electricity so generated is used in the factory and the captive unit forms part of one integrated manufacturing arrangement. On that basis, distance from the factory by itself was held not to defeat credit on inputs and capital goods used in the power plant. However, to the extent electricity was consumed in the township and not in the manufacture of excisable goods, the corresponding input credit was held inadmissible. Since the inadmissible portion required quantification, the matter had to be sent back for re-determination.

Conclusion: Cenvat credit on inputs and capital goods used in the captive power plant was admissible in principle, but the credit attributable to township consumption was not admissible and required re-quantification on remand.

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