Cenvat credit on furnace oil is confined to captive electricity use; wheeled-out power breaks the manufacture nexus.

Cenvat credit on furnace oil used to generate electricity is admissible only to the extent the electricity is consumed within the factory for manufacture or other in-factory purposes. Where surplus electricity is wheeled out to other units, the nexus between the input and manufacture is broken and credit is not available for that portion. Applying the controlling Supreme Court principle, the matter required reconsideration because the Tribunal had not addressed the distinction between captive use and external supply. The issue was answered against the assessee and in favour of the Revenue, with remand for fresh consideration.

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Issues: Whether Cenvat credit was admissible on furnace oil used for generation of electricity to the extent the electricity was wheeled out to other units under Rule 2(g) of the Cenvat Credit Rules, 2002.

Analysis: The electricity generated from furnace oil was used partly for manufacture within the factory and partly supplied to other units. The governing principle, as explained in the controlling Supreme Court decision, is that inputs used for generation of electricity qualify as input only to the extent the electricity is used within the factory for manufacture or other in-factory purposes. To the extent excess electricity is cleared outside the factory, the nexus between the input and manufacture is broken and the credit is not admissible. The Tribunal's approach, based on its earlier view, did not address this controlling principle and the factual distinction now sought to be raised required reconsideration.

Conclusion: The question was answered against the assessee and in favour of the Revenue; Cenvat credit was not admissible to the extent the electricity was wheeled out, and the matter was remanded to the Tribunal for fresh consideration.

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