Cenvat credit on fuel for electricity generation remains admissible despite wheeling surplus power to other units.

Cenvat credit on fuel used to generate electricity was treated as admissible where the fuel was used in the factory in which the electricity was generated and the credit was taken there. The Tribunal held that subsequent wheeling of surplus electricity to other units of the same manufacturer or to a subsidiary did not, by itself, justify denial of credit. Applying the special dispensation for fuel in electricity generation, it accepted that downstream use of the electricity did not affect eligibility once the input-use requirement was satisfied. The demand and penalty were therefore set aside.

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Issues: Whether Cenvat credit on fuel used for generating electricity is deniable when part of the electricity is consumed in other units of the same manufacturer or its subsidiary through wheeling.

Analysis: The Tribunal noted that the credit scheme makes a special dispensation for fuel used in generation of electricity. The controlling consideration was whether the input fuel was used in the factory where electricity was generated and where the credit was taken. Once that requirement was met, subsequent use of surplus electricity in other units of the same company or in a subsidiary unit did not justify denial of credit. The Tribunal followed the view emerging from the cited authorities that wheeling surplus electricity to other units does not alter the eligibility of credit taken on the fuel used in generation.

Conclusion: The credit was held admissible and the demand and penalty were set aside in favour of the assessee.

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