Cenvat credit for outside-factory power generation allowed where electricity was used in the manufacturing factory.

Cenvat credit on inputs and capital goods used to generate electricity in a power project outside the factory was admissible where the electricity was consumed in the assessee's manufacturing operations. The settled test was whether the goods were used in relation to the production process and whether the generated power ultimately served the factory; mere generation outside the factory did not justify denial. Applying that principle, the credit could not be disallowed solely on the basis of location, and the assessee succeeded on the issue.

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Issues: Whether Cenvat credit on inputs and capital goods used for generating electricity in a power project located outside the factory, where the electricity was consumed in the assessee's factory, was admissible.

Analysis: The dispute had already been settled by the Supreme Court and by earlier Tribunal decisions holding that credit is not denied merely because the electricity is generated outside the factory, so long as the power so generated is consumed in the assessee's manufacturing operations. The relevant test was whether the creditable inputs and capital goods were used in relation to the production process and whether the generated electricity ultimately served the assessee's factory. Applying that settled position, the denial based solely on the location of generation outside the factory could not be sustained.

Conclusion: Cenvat credit was admissible and the assessee succeeded on this issue.

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