CESTAT Allows Cenvat Credit On Capital Goods Used In Captive Power Plant

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed Cenvat credit on capital goods and inputs used for setting up a captive power plant by a sugar mill, holding that such credit cannot be denied merely because part of the electricity generated was supplied to the State electricity utility. The bench of Justice S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member), set aside the Order-in-Original passed by the Commissioner, Central Excise, Panchkula, which had confirmed recovery of inadmissible Cenvat credit amounting to ₹4.97 crore along with interest and equal penalty. The dispute arose after an audit conducted by the Accountant General (Haryana) alleged that M/s Shahabad Co-Op Sugar Mills Ltd. had wrongly availed Cenvat credit on capital goods and inputs used for erection of a power plant. According to the Department, the power plant was a non-excisable and exempted structure and therefore credit was barred under Rule 6(1) and Rule 6(4) of the Cenvat Credit Rules, 2004. The Department contended that the appellant had expanded its electricity generation capacity from 8 MW to 24 MW and availed credit of ₹4.97 crore on components and accessories of the plant between January 2009 and March 2010. Out of the total electricity generated, 8 MW was intended for captive consumption in the sugar mill while the remaining 16 MW was proposed to be supplied to the Haryana Electricity Department. Relying upon the Supreme Court ruling in Triveni Engineering & Industries Ltd. v. CCE and CBEC Circular No. 58/1/2002-CX dated 15.02.2002, the Department argued that turnkey projects such as power plants erected at site were non-excisable goods and therefore no Cenvat credit could be availed on inputs and capital goods used in their erection. The assessee, however, argued that the goods on which credit had been availed satisfied the definition of “capital goods” under Rule 2(a) of the Cenvat Credit Rules, 2004 and had been received and used within the factory for manufacture of dutiable final products such as sugar and molasses. The assessee further contended that there was no legal requirement that capital goods must remain movable after installation. The Tribunal accepted the assessee’s contentions and observed that the relevant requirement under the Cenvat Credit Rules was that the goods must qualify as capital goods and be used in the factory of the manufacturer. It held that there was no condition requiring the capital goods to remain movable after installation. While relying upon its earlier decision in Indian Oil Corporation Ltd. v. CCE & ST, Panchkula, the Tribunal held that merely because machinery and equipment become part of an immovable plant after installation, the benefit of Cenvat credit cannot be denied. The Bench observed that if the Department’s argument was accepted, virtually no capital goods credit would ever be available for machinery requiring installation before use. The Tribunal further held that the reliance placed by the Department on the CBEC Circular and the Supreme Court judgments in Triveni Engineering and Quality Steel Tubes Pvt. Ltd. was misplaced because those decisions dealt with excisability of assembled plants and not admissibility of Cenvat credit on duty-paid components and machinery. Importantly, the Bench also noted that electricity generated from the captive power plant was partly used in manufacture of dutiable goods. Therefore, the capital goods could not be said to have been used exclusively for exempted goods so as to attract Rule 6(4) of the Cenvat Credit Rules. The Tribunal additionally relied upon the decisions of the Chhattisgarh High Court in HEG Ltd. and the Bangalore Bench of the Tribunal in Nizam Deccan Sugars Ltd., both of which had held that Cenvat credit on power plant capital goods remains admissible where part of the electricity generated is captively consumed in manufacture of dutiable final products. On limitation, the Tribunal held that the extended period of limitation could not be invoked because the assessee had regularly filed ER-1 returns and disclosed the details of the Cenvat credit availed. The Bench observed that the entire case was built upon an audit objection and it is settled law that extended limitation cannot be invoked solely on the basis of audit findings. The Tribunal also set aside the penalty, holding that the issue involved interpretation of complex legal provisions and the assessee had acted under a bona fide belief supported by various judicial precedents. The CESTAT allowed the appeal and quashed the demand, interest, and penalty imposed upon the sugar mill. Case Details Case Title: M/s Shahabad Co Op Sugar Mills Ltd Versus Commissioner of CE & ST, Panchkula Citation: JURISHOUR-1209-CES-2026(CHAN) Case No.: Excise Appeal No. 54730 of 2014 Date: 11.05.2026 Counsel For Appellant: Sagar Verma, Advocate Counsel For Respondent: Siddharth Jaiswal and Shri Narinder Singh Click Here To Read Order Read More: No Service Tax on Performance Commission Paid to Whole-Time Directors Treated as Salary: CESTAT

CESTAT Allows Cenvat Credit On Capital Goods Used In Captive Power Plant

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