Cenvat credit for co-generation plant capital goods upheld where captive use was disclosed and extended limitation failed.

Cenvat credit on capital goods used in a co-generation plant was admissible where the plant generated power for captive use in sugar manufacture and only the surplus was sold outside, because the goods were not used exclusively for exempted products; the disallowance was unsustainable. A demand raised beyond the normal period was also held time-barred, as the assessee had already disclosed the plant and its intended use to the department, so suppression of facts could not be alleged and the extended limitation period could not be invoked. Credit, interest and penalty were set aside.

---

---

Issues: (i) Whether Cenvat credit on capital goods used in the co-generation plant was admissible when the plant supplied power to the sugar factory and the surplus power was sold outside; (ii) Whether the demand was barred by limitation in the absence of suppression of facts.

Issue (i): Whether Cenvat credit on capital goods used in the co-generation plant was admissible when the plant supplied power to the sugar factory and the surplus power was sold outside.

Analysis: The co-generation plant was established within the factory for use of the generated power in the manufacture of sugar and molasses, and the department had been informed of this arrangement. The materials on record showed that the power generated was partly consumed in-house and only the surplus was proposed to be sold outside. In such a situation, the capital goods could not be treated as used exclusively for the manufacture of exempted goods. The condition denying credit on capital goods used exclusively for exempted products was therefore not attracted.

Conclusion: Cenvat credit on the capital goods was admissible and the disallowance was unsustainable.

Issue (ii): Whether the demand was barred by limitation in the absence of suppression of facts.

Analysis: The record showed prior intimation to the department regarding erection of the co-generation plant and its intended use. Once such disclosure was made, suppression of facts could not be alleged. The show cause notice was issued beyond the normal period, and the extended period could not be invoked on the facts recorded.

Conclusion: The demand was time-barred.

Final Conclusion: The appeal succeeded on both merits and limitation, and the credit demand, interest, and penalty were set aside.

Ratio Decidendi: Where capital goods in a co-generation plant are used partly for captive manufacture and the assessee has disclosed the relevant facts to the department, Cenvat credit cannot be denied on the theory of exclusive use for exempted goods, and the extended period cannot be invoked without suppression of facts.

---