Cenvat credit on inputs for steam and electricity generation remains admissible despite later supply of power outside the factory.

Cenvat credit was held admissible on inputs used within the factory for generating steam and electricity, because Rule 2(g) of the Cenvat Credit Rules, 2002 covers goods used in or in relation to manufacture, including fuel for such generation. The later supply of the electricity to the electricity board grid outside the factory did not by itself defeat credit entitlement. On that basis, denial of credit was unsustainable, and the related duty demand and interest could not be maintained.

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Issues: Whether Cenvat credit was admissible on inputs used for generating steam and electricity, where the electricity was ultimately supplied outside the factory.

Analysis: Rule 2(g) of the Cenvat Credit Rules, 2002 treated as inputs goods used in or in relation to manufacture, including fuel used for generation of electricity or steam used for manufacture of final products within the factory of production. The dispute turned on whether credit could be denied merely because the electricity generated from steam was supplied to the electricity board grid outside the factory. Following the binding view that credit is allowable so long as the inputs are used within the factory for generating steam or electricity for manufacture, the later external supply of electricity does not defeat credit entitlement.

Conclusion: Cenvat credit on the disputed inputs was admissible and the denial was unsustainable, in favour of the assessee.

Final Conclusion: The demand of duty and related interest could not be sustained, and the appeal succeeded.

Ratio Decidendi: Credit on inputs used within the factory for generation of steam or electricity is allowable even if the resulting electricity is subsequently supplied outside the factory.

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