Cenvat credit on goods used for a dedicated power line to the factory was upheld due to functional nexus with manufacture.

Cenvat credit was held admissible on duty-paid goods used to erect a dedicated transmission line exclusively supplying electricity to the factory. The objection that the line was immovable property and lay outside the factory premises was rejected because immovability alone does not defeat credit where the goods are used in relation to manufacture and satisfy the user test. The line had an immediate functional nexus with manufacture by ensuring uninterrupted power supply for cement production, so denial of credit was unsustainable.

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Issues: Whether Cenvat credit was admissible on goods used for erection of a dedicated transmission line exclusively supplying electricity to the appellant's factory.

Analysis: Electricity was essential for manufacture of cement and the transmission line was undisputedly erected for the appellant's exclusive use. The duty-paid goods were used for laying the dedicated line and the credit was denied mainly on the ground that the transmission line was immovable property and outside the factory premises. That reasoning was rejected as immovability by itself is not a valid ground to deny credit where the items are used in relation to manufacture and satisfy the user test. The reasoning also drew support from the fact that the dedicated line had an immediate and functional nexus with the manufacturing activity by ensuring uninterrupted supply of power to the factory.

Conclusion: Cenvat credit on the goods used in the dedicated transmission line was admissible and the denial of credit was unsustainable.

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