Rule 6 Cenvat credit demand on electricity supply fails where electricity is not excisable or exempted goods.

Electricity supplied outside the factory was treated as outside the scope of exempted excisable goods, because electricity is not excisable under the Central Excise Act and no tariff duty was prescribed for it. On that basis, Rule 6 of the Cenvat Credit Rules, which applies only to exempted goods or goods chargeable to nil rate of duty, could not be invoked to recover 8% of the value of the electricity. As the input credit used for generating electricity supplied to the colony had already been proportionately reversed, the remaining demand failed. With the substantive demand unsustainable, the connected penalty and interest were also set aside.

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Issues: Whether electricity supplied outside the factory was liable to be treated as exempted goods so as to attract recovery of 8% under Rule 6 of the Cenvat Credit Rules, 2002, and whether penalty and interest could be sustained.

Analysis: Electricity was held not to be excisable goods within the scheme of the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985 because no duty was specified for it in the tariff. Since Rule 6 applies only to exempted excisable goods or goods chargeable to nil rate of duty, it could not be extended to electricity. The credit taken on inputs used in generating electricity supplied to the colony had already been proportionately reversed, and the balance demand could not be recovered. Once the substantive demand failed, the consequential penalty and interest could not survive.

Conclusion: The demand under Rule 6 was not sustainable, and the penalty and interest were also liable to be set aside in favour of the assessee.

Ratio Decidendi: Electricity, not being excisable or exempted goods under the Central Excise regime, does not attract Rule 6 of the Cenvat Credit Rules for recovery based on its outside supply.

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