CENVAT credit on captive power plant equipment upheld where electricity supported manufacture of dutiable sugar products.

CENVAT credit was admissible on turbine, boiler, electrostatic precipitator, water treatment plant equipment and related items used to set up a captive power plant in a sugar factory, because the electricity generated was used in manufacturing dutiable final products. Credit could not be denied merely because the captive power plant or intermediate asset was treated as immovable property or as non-excisable, where the capital goods had a direct nexus with manufacture. The disallowance of credit and the related penalty were therefore set aside.

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Issues: Whether CENVAT credit was admissible on turbine, boiler, electrostatic precipitator, water treatment plant equipment and similar items used to set up a captive power plant in a sugar factory, when the plant generated electricity used in the manufacture of dutiable final products.

Analysis: The credit was denied on the ground that the captive power plant was immovable property and therefore not excisable. The tribunal followed its earlier view that credit cannot be denied merely because the intermediate or capital asset is not excisable, if the plant is used in or in relation to the manufacture of dutiable final products. The electricity generated by the captive power plant was used for manufacturing sugar, and the reasoning applied was that the capital goods and their components had the necessary nexus with the dutiable final product.

Conclusion: CENVAT credit was held to be admissible, and the disallowance of credit and the corresponding penalty were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded and the denial of credit could not be sustained.

Ratio Decidendi: Credit is allowable where capital goods or their components are used in or in relation to the manufacture of dutiable final products, even if the captive plant or intermediate asset is not itself excisable.

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