CENVAT credit reversal is not triggered when electricity is generated incidentally from a by-product in manufacturing.

Rule 6 of the CENVAT Credit Rules, 2004 was applied to a by-product situation where lean gas arose incidentally during manufacture of carbon black and was used to generate electricity. The reasoning was that such incidental by-product generation does not make the common input relatable to exempt or nil-rated output, so the restriction on credit reversal or payment under Rule 6 is not attracted. Relying on the principle underlying Rule 57D(1) and an earlier coordinate bench view in the same matter, the demand on the value of electricity was held unsustainable, the impugned order was set aside, and consequential relief followed.

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Issues: Whether Rule 6 of the CENVAT Credit Rules, 2004 requires reversal or payment on clearance of electricity generated incidentally from a by-product arising in the manufacture of the final dutiable product.

Analysis: The input carbon black feed stock was used in the manufacture of carbon black, while lean gas emerged only as a by-product in the process and was burnt to generate heat for producing electricity. The reasoning applied was that a by-product arising incidentally during manufacture does not make the common input relatable to the exempt or nil-rated output so as to attract the restriction under Rule 6. The earlier coordinate bench decision in the appellant's own case had already held, following the principle underlying Rule 57D(1), that credit cannot be denied merely because a by-product is used for generation of electricity.

Conclusion: Rule 6 was held not applicable, and the demand raised on the value of electricity was not sustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Credit cannot be denied or reversed under the rule governing exempted goods where the allegedly exempt output arises only as a by-product in the manufacture of the dutiable final product.

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