Cenvat credit on captive power plant input is allowed where wheeled electricity returns for use in manufacture.

Cenvat credit on inputs, input services and capital goods used in a captive power plant was upheld where electricity generated was sent to the grid under a wheeling arrangement and later returned for use in manufacture. The arrangement was treated as a transfer rather than a sale because the same quantum of electricity was received back and consumed in producing excisable goods. On that basis, outward clearance of electricity did not justify denial of credit. The impugned order allowing credit was sustained and the Revenue's challenge was rejected.

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Issues: Whether Cenvat credit on inputs, input services and capital goods used in a captive power plant was admissible when electricity generated was partly sent to the power grid and later returned for use in manufacture.

Analysis: The dispute turned on whether the electricity sent out under the wheeling arrangement amounted to a sale to the grid. The earlier decision in the assessee's own case had already held that electricity injected into the grid under the arrangement could not be treated as sold energy, particularly where the same quantum of electricity was received back and used in the factory for manufacture of excisable goods. On the facts again placed before it, the Court found that there was no sale of electricity to the grid and that the returned electricity was consumed in production.

Conclusion: Cenvat credit was admissible and the Revenue's objection failed.

Final Conclusion: The impugned order allowing credit was sustained, and the Revenue's challenge was rejected.

Ratio Decidendi: Where electricity generated in a captive power plant is transferred under a wheeling arrangement and the same electricity is received back for use in manufacture, the transfer is not treated as a sale and credit cannot be denied on the ground of outward clearance of electricity.

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