Captive input exemption for electricity generation applies subject to credit conditions and verification of non-manufacturing use.

Captively consumed naphtha and Bombay High gas oil used to generate electricity for manufacture of dutiable and exempted goods were treated as eligible for exemption under Notification No. 67/95-CE, subject to the condition that no input credit had been availed for inputs used in exempted final products. Where the electricity so generated was used for purposes other than manufacture of excisable goods, duty liability arose on the relevant inputs, and credit reversal and interest required verification. The matter was remanded for fresh determination of duty, CENVAT credit reversal and related interest on the basis of actual utilisation and reversals.

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Issues: (i) Whether captively consumed naphtha and Bombay High gas oil were eligible for exemption under Notification No. 67/95-CE when used in generation of electricity for manufacture of dutiable as well as exempted final products; (ii) whether duty was payable on such inputs to the extent electricity generated therefrom was used for purposes other than manufacture of excisable goods and whether CENVAT credit reversal and interest required verification.

Issue (i): Whether captively consumed naphtha and Bombay High gas oil were eligible for exemption under Notification No. 67/95-CE when used in generation of electricity for manufacture of dutiable as well as exempted final products.

Analysis: The dispute was treated as already settled by the Tribunal's earlier decision in the appellant's own case. The exemption under Notification No. 67/95-CE was held to apply to BHGO and naphtha captively consumed in electricity generation used in the manufacture of both dutiable and exempted products, subject to the condition that no input credit had been availed in respect of the inputs used for exempted final products. The earlier determination was followed as binding precedent.

Conclusion: The exemption was available, subject to the prescribed credit condition and verification.

Issue (ii): Whether duty was payable on such inputs to the extent electricity generated therefrom was used for purposes other than manufacture of excisable goods and whether CENVAT credit reversal and interest required verification.

Analysis: The earlier decision also held that where electricity generated from BHGO or naphtha was used for purposes other than manufacture of excisable goods, duty liability would arise. It further required verification of credit reversal and contemplated interest liability for delayed reversal, with recomputation of duty and interest by the adjudicating authority on the basis of actual utilisation and reversals.

Conclusion: Duty and interest were required to be recomputed after verification of credit reversal and actual use of the electricity.

Final Conclusion: The impugned order was set aside and the matter was remanded for fresh determination of duty, credit reversal and related interest liability in accordance with the settled principles.

Ratio Decidendi: Captively consumed inputs used in electricity generation may qualify for the refinery exemption under Notification No. 67/95-CE when the electricity is used for manufacture of dutiable and exempted goods, provided the stipulated CENVAT credit conditions are satisfied and the liability is recomputed for any non-manufacturing use.

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