CENVAT credit remains available where captive power supports dutiable manufacturing despite surplus electricity supplied outside the factory.

CENVAT credit on capital goods in a captive power plant is examined under the exclusive-use test in Rule 6(4): substantial captive use of electricity in manufacturing dutiable goods means surplus external supply does not itself establish exclusive use for exempt output. Specified common input services may similarly qualify for full credit under Rule 6(5) where not exclusively linked to exempt output. Credit on iron and steel repair items depends on their actual use in maintaining existing plant and machinery rather than their description. The discussion also addresses the sustainability of duty demands on waste and scrap from capital goods where factual findings lack demonstrated statutory or evidentiary infirmity.

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Issues: (i) Whether CENVAT credit on capital goods installed in a captive power plant was admissible where electricity was substantially captively consumed in manufacture of dutiable goods and only surplus electricity was supplied outside the factory; (ii) Whether full CENVAT credit on specified input services under Rule 6(5) was admissible in the same circumstances; (iii) Whether CENVAT credit on iron and steel items used for repair and maintenance of existing plant and machinery was admissible; (iv) Whether duty on clearance of waste and scrap arising from capital goods was sustainable under Rule 3(5).

Issue (i): Whether CENVAT credit on capital goods installed in a captive power plant was admissible where electricity was substantially captively consumed in manufacture of dutiable goods and only surplus electricity was supplied outside the factory.

Analysis: Rule 6(4) bars credit only where capital goods are used exclusively in manufacture of exempted goods or provision of exempted services. The captive power plant formed an integral part of the manufacturing unit, and electricity generated from it was substantially used in manufacturing dutiable products. Supply of surplus electricity outside the factory did not establish exclusive use of the capital goods for exempted output. The input-credit nexus principle applicable to inputs did not displace the distinct exclusive-use standard governing capital goods. The applicable Board circular also supported credit where exempt intermediate goods are captively consumed in manufacture of dutiable final products.

Conclusion: CENVAT credit on the capital goods was admissible; this issue is decided in favour of the assessee.

Issue (ii): Whether full CENVAT credit on specified input services under Rule 6(5) was admissible in the same circumstances.

Analysis: Rule 6(5) allowed full credit on specified common taxable services unless they were used exclusively in relation to exempted goods or exempted services. The services were not exclusively used for electricity supplied outside the factory, since the electricity was substantially consumed in producing dutiable final products. The Board clarification regarding the treatment of specified common services reinforced this interpretation.

Conclusion: CENVAT credit on the specified input services was admissible; this issue is decided in favour of the assessee.

Issue (iii): Whether CENVAT credit on iron and steel items used for repair and maintenance of existing plant and machinery was admissible.

Analysis: Eligibility depended on the actual use of the iron and steel items rather than their description alone. The factual finding that the items were used for repair and maintenance of existing manufacturing plant and machinery, and not for civil construction or fabrication of immovable supporting structures, was neither perverse nor unsupported by evidence. Such factual findings could not be reappreciated in an appeal confined to substantial questions of law.

Conclusion: CENVAT credit on the iron and steel items was admissible; this issue is decided in favour of the assessee.

Issue (iv): Whether duty on clearance of waste and scrap arising from capital goods was sustainable under Rule 3(5).

Analysis: The Revenue did not identify any statutory infirmity or evidentiary basis showing that the Tribunal's factual finding setting aside the demand was perverse or contrary to the CENVAT Credit Rules. A challenge seeking reassessment of factual conclusions did not raise a substantial question of law under Section 35G.

Conclusion: The demand of duty on waste and scrap was unsustainable; this issue is decided in favour of the assessee.

Final Conclusion: The Tribunal's determinations on CENVAT eligibility and the waste-and-scrap demand were sustained, and all substantial questions of law were answered against the Revenue.

Ratio Decidendi: Where capital goods or specified input services are not used exclusively for exempted output because they form part of an integrated process producing dutiable final goods, Rules 6(4) and 6(5) do not bar CENVAT credit merely because surplus electricity is supplied outside the factory.

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