Cenvat credit on plant modernisation consultancy remains available despite incidental carbon credit income.

Consultancy services used to modernise a captive power plant employed in the manufacture of excisable paper were treated as input services for Cenvat credit purposes. The fact that the modernisation also generated carbon credit income did not change the character of the services, because that income was only incidental and not the purpose of the services obtained. The non-dutiable or non-taxable nature of the carbon credit revenue did not defeat credit eligibility. Accordingly, denial of Cenvat credit was held unsustainable, and credit remained admissible with consequential relief.

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Issues: Whether consultancy services used for modernisation of the captive power plant were eligible input services for Cenvat credit, even though the same modernisation resulted in earning carbon credit income.

Analysis: The consultancy services were used for modernisation of the power plant, which was admittedly employed in the manufacture of excisable paper. The earning of certified emission reduction revenue was only a consequence of the plant improvement and was not the purpose for which the services were obtained. The fact that the resulting income was neither dutiable nor taxable did not alter the character of the services as being in relation to modernisation of the plant used for manufacture.

Conclusion: The services qualified as input services and Cenvat credit was admissible.

Final Conclusion: The impugned denial of credit was unsustainable, and the appeal succeeded with consequential relief.

Ratio Decidendi: Consultancy services used for modernisation of plant employed in manufacture remain input services for Cenvat credit purposes, and the incidental generation of non-taxable income from such modernisation does not defeat credit eligibility.

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