Modvat credit on furnace oil for captive electricity generation within factory premises was held allowable.

Modvat credit on furnace oil used for captive generation of electricity was allowable where the electricity was consumed within the factory premises. The relevant provisions permitted credit on fuel used to generate electricity or steam for manufacture of final products or for any other purpose within the factory of production. Because the essential quarters for emergency technical staff were shown on the approved ground plan as part of the factory premises, electricity used for their electrification fell within the permitted in-factory use. The denial of credit was therefore not sustainable under the statutory language and the Tribunal's earlier recognition of such eligibility.

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Issues: Whether Modvat credit on furnace oil used for generation of electricity could be denied when the electricity was used within the factory premises, including for electrification of essential quarters occupied by emergency technical staff.

Analysis: The relevant Modvat provisions allowed credit on fuel used for generation of electricity or steam used for manufacture of final products or for any other purpose within the factory of production. The essential quarters were found to be within the factory premises as shown in the approved ground plan, and the quarters were used by technical staff stationed for emergency duties in a continuous process plant. The denial of credit was found unsustainable in view of the statutory language and the Tribunal decisions recognising eligibility of credit on fuel used for captive generation of electricity within the factory premises.

Conclusion: Modvat credit on the furnace oil was allowable and the denial of credit was not justified.

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