CENVAT credit on captive power plant capital goods upheld where factory operations were functionally integrated and power served manufacture.

Orissa HC considered whether a captive power plant and a coke oven plant formed one factory for CENVAT credit on capital goods, holding that functional integration, shared operational features and common manufacturing use could establish a single factory despite physical separation. It also addressed whether partial supply of generated electricity to another unit, and the non-excisable character of electricity, defeated credit eligibility, holding that the decisive question was whether the power was used in producing the assessee's excisable final goods. Surplus electricity diverted elsewhere did not by itself bar credit, and the capital goods credit relating to the captive power plant was upheld.

---

---

Issues: (i) Whether the captive power plant and the coke oven plant constituted part of the same factory so as to permit CENVAT credit on capital goods used in the power plant; (ii) Whether the fact that electricity generated in the captive power plant was partly supplied to another unit and electricity itself was non-excisable disentitled the assessee from CENVAT credit.

Issue (i): Whether the captive power plant and the coke oven plant constituted part of the same factory so as to permit CENVAT credit on capital goods used in the power plant.

Analysis: The statutory definition of factory was read to include premises where excisable goods are manufactured or a manufacturing process connected with such production is carried on. The relevant departmental instructions recognised that separate premises may still form one factory where processes are interlinked and there are common features such as shared power supply and other operational integration. On the facts, the power plant and coke oven plant were found to be integrally connected in the manufacturing chain, and the mere physical separation of locations did not negate their character as part of the same factory.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether the fact that electricity generated in the captive power plant was partly supplied to another unit and electricity itself was non-excisable disentitled the assessee from CENVAT credit.

Analysis: The Court held that the relevant inquiry was whether the power generated was used in the manufacture of the assessee's excisable final products. Surplus electricity could be utilised or supplied elsewhere, and such diversion did not by itself defeat credit eligibility. Electricity was treated as not being the final product for the purpose of the dispute, and the use of generated power in the assessee's manufacturing activity was sufficient to sustain the credit claim.

Conclusion: The issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The capital goods credit claimed in relation to the captive power plant was upheld, and the appeal failed.

Ratio Decidendi: Where manufacturing facilities are functionally interlinked and the generated power is used in producing the assessee's excisable final goods, CENVAT credit on capital goods is not denied merely because the power plant is physically separate or surplus electricity is supplied to another unit.

---