By-product based electricity generation does not attract Rule 6 where lean gas arises incidentally in carbon black manufacture.

Lean gas generated incidentally as a by-product in the manufacture of carbon black was treated as a by-product, and Rule 6 of the Cenvat Credit Rules was held inapplicable to electricity generated from that lean gas. The Tribunal followed the reasoning that credit cannot be denied or varied merely because part of the input is contained in a by-product, and that using the by-product to generate steam or electricity does not mean the modvatable inputs were used in the manufacture of exempted goods. On that basis, the Revenue's demand was not sustainable and the matter was decided in favour of the assessee.

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Issues: Whether the demand under Rule 6 of the Cenvat Credit Rules could be sustained on electricity generated from lean gas arising as a by-product in the manufacture of carbon black.

Analysis: Lean gas was generated incidentally during the manufacture of the final product and was treated as a by-product. The reasoning adopted earlier in similar matters was that credit cannot be denied or varied merely because a part of the input is contained in a by-product, and the mere use of the by-product to generate steam or electricity does not mean that the modvatable inputs were used in the manufacture of exempted goods. The Tribunal followed that line of reasoning and held that the provisions invoked by the Revenue were not attracted to such by-product based generation.

Conclusion: The demand under Rule 6 was not sustainable and the issue was decided in favour of the assessee.

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