Cenvat credit on capital goods remains available where generated electricity is partly sold and not used exclusively for exempted goods.

Cenvat credit on capital goods used for a diesel generating set and air compressor was held admissible where part of the electricity generated was sold to another unit. Rule 6(4) permits denial of credit only when capital goods are used exclusively in the manufacture of exempted goods or in providing exempted services. The mere sale of some electricity did not establish exclusive use for exempted production. Credit could not be denied unless it was shown that the electricity generated was used only for exempted goods, so the denial of credit was unsustainable.

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Issues: Whether Cenvat credit on capital goods used for a diesel generating set and air compressor was admissible when a portion of the electricity generated was sold to another unit.

Analysis: Rule 6(4) of the Cenvat Credit Rules permits denial of credit only where capital goods are used exclusively in the manufacture of exempted goods or in providing exempted services. The capital goods were not used exclusively for exempted production. Merely because part of the electricity generated was sold to others did not establish exclusive use for exempted goods. Credit could not be denied unless it was shown that the electricity generated was used only in the manufacture of exempted goods.

Conclusion: The denial of Cenvat credit was unsustainable and the appeal succeeded.

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