Cenvat credit on captive power generation remained admissible despite transfer of part electricity to sister units.

Cenvat credit on inputs and input services used in a captive power plant was held admissible where the electricity generated had a nexus with the assessee's manufacturing activity. Rule 2(k) and Rule 2(l) of the Cenvat Credit Rules, 2004 were applied to recognise credit for goods and services used in or in relation to manufacture, including captive generation of electricity. The Court accepted that credit remained available to the extent the power was generated for captive use, and it did not deny credit merely because part of the electricity was wheeled out or transferred to sister units treated as distinct units. The assessee was therefore entitled to the disputed credit.

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Issues: Whether Cenvat credit on inputs and input services used in the captive power plant for generation of electricity remained admissible when a part of the electricity was wheeled out or transferred to sister units.

Analysis: The definition of input and input service under Rule 2(k) and Rule 2(l) of the Cenvat Credit Rules, 2004 covers goods and services used in or in relation to manufacture, including for generation of electricity for captive use. The decisive consideration was whether the electricity generation retained the necessary nexus with manufacture. The Court accepted that where electricity is generated captively for the assessee's manufacturing activity, credit is available to that extent. On the facts, the sister units were treated as distinct units, and the credit attributable to electricity transferred outside the captive consumption of the factory could not be denied merely because part of the power was supplied to other units of the same assessee.

Conclusion: The appeal failed and the assessee was held entitled to the disputed Cenvat credit.

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