Modvat credit for co-generation plant components is not lost merely because part of the electricity is supplied outside the factory.

Modvat credit on components used to fabricate and assemble a co-generation plant was considered available under Rule 57Q where the plant's electricity was partly captively consumed and partly supplied to the State Electricity Board. Partial supply of generated electricity outside the factory, by itself, was not treated as a valid ground to deny credit when the components were otherwise used in the plant and the governing rules supported eligibility. On that basis, the appellants were found entitled to waiver of pre-deposit and stay of recovery of the duty demand and related penalty.

---

---

Issues: Entitlement to Modvat credit on components used in fabrication and assembly of a co-generation plant, where the electricity generated was partly captively consumed and partly supplied outside the factory.

Analysis: The components were used for fabrication and assembly of a plant covered by Rule 57Q as applicable during the relevant period. The denial of credit rested only on the fact that a part of the electricity generated was supplied to the State Electricity Board instead of being entirely captively consumed. That circumstance did not dislodge the prima facie entitlement to credit, and the cited rules and supporting case law indicated that such partial external supply was not by itself a valid basis to refuse Modvat credit on the components.

Conclusion: The appellants were entitled to waiver of pre-deposit and stay of recovery on the duty demand and the connected penalty.

Ratio Decidendi: Modvat credit on components used in a plant is not denied merely because electricity generated by the plant is partly supplied outside the factory, where the components are otherwise used in the fabrication or assembly of the plant and the relevant rules support credit.

---