Cenvat credit on captive power plant capital goods remains available where electricity is partly used for dutiable manufacture.

Rule 6(4) of the Cenvat Credit Rules, 2002 bars credit on capital goods only when they are used exclusively in the manufacture of exempted goods. Capital goods installed in a captive power plant remained eligible for Cenvat credit because the electricity generated was not used solely for exempted clearances; part of it was consumed within the factory for manufacture of the dutiable final product, sponge iron. The fact that surplus electricity was sold outside did not make the capital goods exclusively attributable to exempted goods. Credit on such capital goods was therefore allowable where the use was mixed and linked to dutiable production.

---

---

Issues: Whether capital goods used in a captive power plant were ineligible for Cenvat credit on the ground that a major portion of the electricity generated was sold outside the factory, and whether Rule 6(4) of the Cenvat Credit Rules, 2002 barred such credit.

Analysis: Rule 6(4) denies credit only where capital goods are used exclusively in the manufacture of exempted goods. The electricity generated in the captive power plant was not used solely for exempted clearance, because part of it was consumed within the factory for manufacture of the dutiable final product, sponge iron. On that factual footing, the capital goods could not be treated as exclusively used for exempted goods merely because surplus electricity was supplied outside.

Conclusion: The Tribunal was right in allowing Cenvat credit on the capital goods used in the captive power plant, and Rule 6(4) did not bar the credit.

Ratio Decidendi: Cenvat credit on capital goods is not barred under Rule 6(4) unless the goods are used exclusively for exempted goods; mixed use within the factory for manufacture of dutiable final products preserves eligibility.

---