Modvat credit on co-generation plant components cannot be denied merely because generated electricity is partly captively used and partly removed.

Rule 57R(2) of the Central Excise Rules, 1944 was treated as pari materia with Rule 57D(2), so the same principle applied: failure to satisfy the stated condition did not by itself defeat Modvat credit otherwise available under the scheme. On that basis, credit on parts and components used in a co-generation plant could not be denied merely because the electricity generated was partly captively consumed and partly removed from the factory, and the objection based on electricity being an exempted intermediate or final product had already been rejected.

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Issues: Whether Modvat credit on parts and components of a co-generation plant could be denied under Rule 57R(2) of the Central Excise Rules, 1944 because the electricity generated was partly used captively and partly removed from the factory.

Analysis: The dispute was governed by the same principle earlier applied to Rule 57D(2), which had been interpreted by the Larger Bench to mean that non-fulfilment of the condition in that sub-rule did not by itself disentitle an assessee from credit otherwise available under the Modvat scheme. Rule 57R(2) was treated as pari materia. The Tribunal also noted that the objection founded on the characterization of electricity as an exempted intermediate or final product had already been negatived by the Larger Bench, leaving no surviving basis to deny the credit on the ground urged by the Revenue.

Conclusion: Modvat credit could not be denied under Rule 57R(2) on the stated ground, and the assessee was entitled to the credit.

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