Captive power plant input credit allows naphtha-based electricity used within factory, while full disclosure defeats extended limitation.

Naphtha used in a captive power plant to generate electricity consumed within the factory, including electricity used for running the plant itself, qualifies for Cenvat credit because Rule 2(k) treats goods used for generation of electricity used in or in relation to manufacture, or for other factory purposes, as inputs. The entitlement extends to the eligible captive consumption portion even if some electricity is supplied for other uses. On limitation, regular disclosure of bifurcated credit reversal and electricity-use details to the department negatived suppression, so the extended period could not be invoked. The demand was therefore time-barred, and the related interest and penalty could not survive.

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Issues: (i) Whether naphtha used for generation of electricity within the factory, including electricity consumed for running the power plant itself, was an eligible input for Cenvat credit; (ii) Whether the demand was time-barred and the extended period of limitation could be invoked.

Issue (i): Whether naphtha used for generation of electricity within the factory, including electricity consumed for running the power plant itself, was an eligible input for Cenvat credit.

Analysis: Rule 2(k) of the Cenvat Credit Rules, 2004 treated goods used for generation of electricity or steam used in or in relation to manufacture, or for any other purpose within the factory of production, as inputs. Rule 4(5)(a) also permitted inputs sent for further processing or for manufacture of intermediate goods necessary for manufacture of final products or any other purpose. The electricity generated in the captive power plant was part of the manufacturing chain, and the fact that the naphtha was converted into electricity did not take it outside the definition of input. The earlier decision in the appellant's own case and the Supreme Court's ruling on captive electricity generation supported credit for inputs used in producing electricity consumed within the factory. The objection that some electricity was supplied for other uses did not displace the entitlement for the eligible captive consumption portion.

Conclusion: The assessee was entitled to Cenvat credit on naphtha used for generation of electricity consumed within the factory, including consumption in the power plant for production operations.

Issue (ii): Whether the demand was time-barred and the extended period of limitation could be invoked.

Analysis: The assessee had been regularly furnishing bifurcated working and reversal details to the departmental authorities. The record showed that the department was aware of the manner in which credit was being reversed, including the breakup relating to electricity used for production operations. In these circumstances, the finding of suppression was not sustainable and the extended period could not be invoked. Since the demand itself was unsustainable, interest and penalty also could not survive.

Conclusion: The demand was barred by limitation and the extended period of limitation was not invocable.

Final Conclusion: The impugned demand, together with the consequential interest and penalty, was set aside and the appeal was allowed.

Ratio Decidendi: Inputs used in the captive generation of electricity within the factory remain eligible for Cenvat credit when the electricity is used in or in relation to manufacture, and the extended period cannot be invoked in the absence of suppression where the relevant details were disclosed to the department.

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