Cenvat credit for captive power plant inputs remains available where the plant supports manufacture of dutiable goods.

Cenvat credit on duty-paid capital goods and inputs used to set up and operate a captive power plant was held admissible where the electricity generated was used in manufacturing dutiable final products. The fact that the plant became a fixed structure did not defeat credit, because the controlling test was use in the factory for manufacturing activity; arguments based on the plant's excisability and turnkey-project authorities were rejected. Where ER-1 returns disclosed the credit position and the demand arose from audit verification, no suppression or intent to evade was established, so extended limitation and penalty were also unavailable.

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Issues: (i) whether Cenvat credit on capital goods and inputs used for setting up and operating a captive power plant was admissible when part of the electricity generated was used captively in manufacturing dutiable final products; (ii) whether invocation of the extended period of limitation and imposition of penalty were sustainable.

Issue (i): whether Cenvat credit on capital goods and inputs used for setting up and operating a captive power plant was admissible when part of the electricity generated was used captively in manufacturing dutiable final products.

Analysis: The disputed items were held to satisfy the definition of capital goods and inputs under the Cenvat Credit Rules, 2004 because they were received in the factory and used for manufacturing activity. The fact that the assembled power plant became a fixed structure did not disentitle credit, since the relevant test under the rules is use in the factory by a manufacturer of final products. The reliance on excisability of the plant as a whole and on the circular and authorities concerning turnkey projects was held to be misplaced, as those authorities did not govern admissibility of credit on duty-paid capital goods and inputs. The reasoning in earlier decisions recognizing credit where captive power generation supports manufacture of dutiable goods was followed.

Conclusion: Credit was admissible and the denial of Cenvat credit was unsustainable, in favour of the assessee.

Issue (ii): whether invocation of the extended period of limitation and imposition of penalty were sustainable.

Analysis: The material showed regular filing of ER-1 returns and disclosure of the credit position, with the demand arising from audit verification. No positive act of suppression or intent to evade duty was established. In a dispute turning on interpretation of complex credit provisions, bona fide belief and full disclosure negatived the foundation for extended limitation and penal action.

Conclusion: The extended period and penalty were not sustainable, in favour of the assessee.

Final Conclusion: The impugned demand, interest, limitation invocation, and penalty were set aside, and the appeal succeeded with consequential relief.

Ratio Decidendi: Cenvat credit cannot be denied merely because duty-paid capital goods and inputs are used to erect a power plant that becomes a fixed structure if those goods are used in the factory of the manufacturer and the plant supports manufacture of dutiable final products; absent suppression or intent to evade, extended limitation and penalty are not available.

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