Modvat credit on captive power is confined to in-factory use; external electricity clearances reduce eligibility pro tanto.

Modvat credit on inputs used to generate electricity is available only to the extent the electricity is consumed within the factory for manufacture or other eligible purposes; electricity cleared outside the factory is not creditable pro tanto, and the electricity-credit issue was therefore decided against the assessee with remand for fresh consideration. Separate manufacture and clearance of DM Water and DAS Water without a Rule 173B declaration was treated as a procedural lapse on the facts found, with no revenue loss, so that finding was left undisturbed in favour of the assessee.

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Issues: (i) Whether Modvat credit on inputs used for generation of electricity supplied outside the factory was admissible; (ii) Whether manufacture and clearance of DM Water and DAS Water without filing declaration under Rule 173B amounted only to a procedural lapse without revenue loss.

Issue (i): Whether Modvat credit on inputs used for generation of electricity supplied outside the factory was admissible.

Analysis: The governing principle was that credit on inputs used for generation of electricity or steam is available only to the extent such electricity or steam is used within the factory for manufacture of final products or for any other purpose. Electricity cleared outside the factory is not eligible for credit to that extent. The Tribunal had merely followed its earlier view without independent consideration, and that view could not survive in light of the binding rule stated by the Supreme Court.

Conclusion: The issue was answered against the assessee and in favour of Revenue; the Tribunal's order on this issue was set aside and the matter was remanded for fresh consideration.

Issue (ii): Whether manufacture and clearance of DM Water and DAS Water without filing declaration under Rule 173B amounted only to a procedural lapse without revenue loss.

Analysis: The authorities found on facts that the omission was only procedural and did not result in loss of revenue. That finding was factual in nature and did not raise any substantial question of law warranting interference.

Conclusion: The issue was decided in favour of the assessee and against Revenue.

Final Conclusion: The appeal succeeded only in part, the order of the Tribunal was interfered with on the electricity-credit issue, and the remaining finding was left undisturbed.

Ratio Decidendi: Credit on inputs used in generation of electricity or steam is available only to the extent the generated utility is consumed within the factory of production; clearance of the generated utility outside the factory disentitles credit pro tanto.

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