CENVAT credit for captive electricity wheeled to sister units upheld under the amended input definition

The amended CENVAT credit definition effective from 01.04.2011 was treated as materially broader than the pre-2011 regime considered in Maruti Suzuki. Electricity generated in a captive power plant and wheeled free of cost to sister units within the same group was held to satisfy the requirement of use for captive generation, even though it was not consumed at the exact location of generation. Credit could not be denied merely because the electricity moved through the grid to other group units, and the department's demand based on denial of such credit, including the 6% valuation approach, was unsustainable on the amended rule and facts.

---

---

Issues: Whether electricity generated in a captive power plant and wheeled through the grid to sister units under the substituted definition of input remained eligible for CENVAT credit; and whether the demand based on 6% of the value of such wheeled electricity could be sustained.

Analysis: Under the pre-2011 regime, the definition of input emphasised use within the factory of production, and the Supreme Court in Maruti Suzuki had confined credit to electricity used captively within the factory, denying credit to the extent electricity was sold or cleared outside. The substituted definition with effect from 01.04.2011 materially changed the scheme: while one limb continued to require goods used in the factory, the separate clause for goods used for generation of electricity or steam for captive use did not impose a location-based restriction on use. The electricity in the present case was not sold for consideration but wheeled free of cost to sister units within the same group through a transparent arrangement. The Court treated captive generation as satisfying the statutory requirement where the generated electricity was used as input within the assessee group, even if at different locations, and held that the department's reliance on the earlier regime was misplaced on the amended rule and facts.

Conclusion: The assessee was entitled to CENVAT credit on the electricity generated in the captive power plant and wheeled to sister units, and the demand founded on denial of such credit could not be sustained.

Final Conclusion: The appeals succeeded because the amended CENVAT credit framework was held to cover captive electricity used within the assessee group notwithstanding wheeling to sister units, resulting in relief to the assessee.

Ratio Decidendi: Where the governing CENVAT definition separately covers goods used for generation of electricity for captive use, credit cannot be denied merely because the electricity is wheeled to sister units and not consumed at the exact location of generation, so long as the use remains within the assessee group and is not a sale to outsiders.

---