Capital goods credit for co-generation plant upheld despite partial supply of generated electricity outside the factory.

Capital goods credit under Rule 57Q remained admissible for parts and components used to manufacture and maintain a co-generation plant, even though part of the electricity generated was supplied to the electricity board. The Tribunal relied on earlier rulings on the same assessee and similar facts, and held that partial wheeling of surplus electricity outside the factory did not by itself defeat eligibility or make the captive-consumption objection under Rule 57R(2) sustainable. As the credit denial failed, the connected penalty also could not survive.

---

---

Issues: Whether capital goods credit was admissible on parts and components used in the manufacture and maintenance of a co-generation plant when part of the electricity generated by the plant was supplied to the electricity board and whether the penalty based on denial of such credit could survive.

Analysis: The credit was denied on the premise that, because a portion of the electricity generated by the co-generation plant was wheeled out of the factory, the condition of captive consumption was not fully satisfied. The Tribunal followed its earlier decisions on the same assessee and on similar facts, and also relied on earlier Tribunal rulings holding that capital goods credit under Rule 57Q could not be denied merely because surplus electricity generated by a captive power plant was partly supplied outside the factory. The Tribunal held that the components used for the co-generation plant or its maintenance remained eligible for capital goods credit and that the objection founded on Rule 57R(2) was not sustainable.

Conclusion: Capital goods credit was admissible to the assessee, and the penalty, being consequential to the denial of credit, was also not sustainable.

Ratio Decidendi: Capital goods credit under Rule 57Q cannot be denied on the ground that a captive power plant generates electricity partly supplied outside the factory, so long as the capital goods are used in the manufacture or maintenance of the eligible plant.

---