Captive power plant spares retain exemption despite sale of surplus power; wide meaning of capital goods also covers spares.

A captive power plant's exemption was said to remain available for its spares even though surplus electricity was sold outside, because the earlier exemption for the plant itself had already been upheld and affirmed, and a departmental circular could not reduce that binding effect. The note also states that spares of a power plant fell within the expression "capital goods" under Notification No. 13/81-CUS where the notification was of wide import. On both points, the exemption claims for the assessee were maintained and proportionate duty recovery was treated as unsustainable.

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Issues: (i) Whether spares used in a captive power plant lost eligibility for exemption merely because surplus power generated by the plant was sold outside. (ii) Whether spares of a power plant were eligible for exemption as capital goods under Notification No. 13/81-CUS dated 09-02-1981.

Issue (i): Whether spares used in a captive power plant lost eligibility for exemption merely because surplus power generated by the plant was sold outside.

Analysis: The exemption claimed for the captive power plant had already been upheld in the assessee's own case, and that view had been affirmed by the Supreme Court. The sale of surplus power did not create a condition for proportionate denial of exemption on the spares used for the plant. A departmental circular could not override the binding effect of the earlier decision affirmed by the Supreme Court.

Conclusion: The spares used in the captive power plant remained eligible for exemption notwithstanding sale of surplus power, and the proposed proportionate duty recovery was not sustainable.

Issue (ii): Whether spares of a power plant were eligible for exemption as capital goods under Notification No. 13/81-CUS dated 09-02-1981.

Analysis: A prior decision of the same Bench had held that the expression "capital goods" in the notification was wide enough to include spares of capital goods. Applying that reasoning, the spares for the power plant fell within the notified exemption for the relevant period, and no interference with the lower appellate order was warranted.

Conclusion: The spares of the power plant were eligible for exemption as capital goods under the notification.

Final Conclusion: The departmental appeals failed on both issues, and the orders granting exemption to the assessee were maintained.

Ratio Decidendi: Where a prior binding decision has upheld exemption for a captive power plant, sale of surplus power does not justify proportionate denial of exemption on its spares; moreover, spares of capital goods can themselves fall within the expression "capital goods" when the notification is of wide import.

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