CENVAT credit on furnace oil used for steam generation is admissible when both units operate within the same factory premises

Furnace oil used to generate steam or electricity qualifies for CENVAT credit when the generated steam or electricity is consumed within the assessee's factory for manufacture of excisable goods. The inclusive meaning of "factory" is not confined to a single building or unit, so two units located in the same factory premises may be treated as part of the same factory for this purpose. Credit is denied only to the extent inputs are used in exempted goods; where both units manufacture dutiable goods and the steam or electricity is used in both units, proportionate credit remains admissible.

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Issues: Whether furnace oil used for generation of steam or electricity, when such steam or electricity is used in two units situated in the same factory premises, entitles the assessee to proportionate CENVAT credit.

Analysis: The definition of "input" under the CENVAT Credit Rules includes goods used as fuel or for generation of electricity or steam within the factory of production. The definition of "factory" under the Central Excise Act is inclusive and covers premises where manufacturing is carried on, and the statutory setting does not confine the expression to a single building or unit. Credit is denied only to the extent inputs are used in manufacture of exempted goods, while inputs used for manufacture of dutiable goods within the factory remain eligible. On the facts, both units were in the same factory and both manufactured excisable goods, so the steam generated from furnace oil and used in both units was within the permitted statutory use.

Conclusion: The assessee was entitled to CENVAT credit on the furnace oil used for generation of steam or electricity consumed in both units situated in the same factory premises.

Ratio Decidendi: Inputs used for generation of steam or electricity qualify for CENVAT credit when the generated steam or electricity is consumed within the assessee's factory premises for manufacture of excisable goods, and the factory may comprise more than one unit or premises.

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