Captive electricity generation fuel qualifies as Modvat input when the power is used in manufacturing final products.

Fuel oil used for captive generation of electricity qualifies as an input for Modvat credit where the electricity is consumed in or in relation to the manufacture of dutiable final products. The larger bench principle applied was that a captive electricity-generation arrangement forms part of the manufacturing process, so the fuel used for that purpose retains its character as an eligible input. This eligibility was recognised even for the period prior to 16-3-1995, and Modvat credit on LSHS was therefore admissible to the assessee.

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Issues: Whether Modvat credit was admissible on LSHS used first for generating electricity, where the electricity was captively consumed in or in relation to the manufacture of dutiable final products.

Analysis: The issue had been settled by the larger bench decision holding that fuel oils used captively for generation of electricity, when such electricity is in turn used for manufacture of the final products, qualify as inputs even for the period prior to 16-3-1995. Where electricity generation is a captive arrangement and forms part of the manufacturing activity, the fuel used for that purpose remains an input used in the manufacture.

Conclusion: Modvat credit on LSHS was admissible. The issue was decided in favour of the assessee.

Ratio Decidendi: Fuel used for captive generation of electricity that is itself used in the manufacture of final products is an eligible input for Modvat credit, including for the period prior to 16-3-1995.

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