Modvat credit on captive power inputs is allowed only for electricity consumed within the factory, not for units supplied outside.

Modvat credit on Char/Dolochar used in a captive power plant is allowable only to the extent the electricity generated is consumed within the factory in or in relation to manufacture. Where part of the electricity is transmitted outside the factory to a sister concern, the inputs relatable to that exported electricity are not treated as having been used within the factory of production and are not eligible for credit. The article therefore states that credit is confined to the portion of electricity used in the assessee's own factory, and denial of credit for the balance is consistent with Rule 57B(1)(iv).

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Issues: Whether Modvat credit was admissible on Char/Dolochar used in a captive power plant for generating electricity, where part of the electricity was consumed within the factory and the balance was supplied outside the factory to a sister concern.

Analysis: Rule 57B(1)(iv) permits credit on specified inputs used in or in relation to the manufacture of final products, directly or indirectly, whether contained in the final products or not, within the factory of production. The electricity generated with the aid of the disputed inputs was not wholly used within the factory. A substantial portion was transmitted through the MPEB grid to a unit outside the factory premises. To that extent, the inputs could not be said to have been used in relation to manufacture within the factory. Credit was therefore admissible only to the extent the generated electricity was used in the assessee's own factory.

Conclusion: Modvat credit was not available on the inputs relatable to electricity supplied outside the factory, and the denial of credit to that extent was in law against the assessee.

Ratio Decidendi: Modvat credit on inputs used for generating electricity is allowable only to the extent the electricity is consumed within the factory in or in relation to manufacture; the portion attributable to electricity supplied outside the factory is not eligible.

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