Modvat/Cenvat credit on fuel for common power generation is admissible when electricity is supplied within the same manufacturing establishment.

Modvat/Cenvat credit was admissible on furnace oil and other eligible inputs used in a common generator to produce electricity supplied to another unit of the same manufacturer. Rule 57AA treats as inputs goods used as fuel or for generating electricity used for manufacture of final products or for any other purpose within the factory of production, and the provision was read as not restricting credit merely because the electricity was consumed by a separate unit within the same manufacturing establishment. The interpretation also aligned with the statutory notion of a factory as the premises where manufacturing is carried on. No statutory prohibition barred credit on this basis, so the departmental challenge failed.

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Issues: Whether Modvat/Cenvat credit was admissible on furnace oil and other eligible inputs used for generating electricity that was supplied to another unit of the same manufacturer.

Analysis: Rule 57AA defines "inputs" to include goods used as fuel or for generation of electricity used for manufacture of final products or for any other purpose within the factory of production. The provision does not restrict the credit by reference to separate units where the factory premises are part of the same manufacturing establishment. Section 2(e) of the Central Excise Act treats as a factory any premises where manufacturing is carried on, and the interpretation adopted by the Tribunal was consistent with the practical and economical use of a common generating facility for neighbouring units. The record disclosed no statutory prohibition against credit merely because the electricity generated in one unit was supplied to the other unit of the same manufacturer.

Conclusion: Modvat/Cenvat credit on furnace oil used in the common generator was admissible, and the departmental challenge failed.

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