Modvat credit on furnace oil used for captive power generation extends to wheeled electricity consumed in sister manufacturing units.

Furnace oil used as fuel to generate electricity remained eligible as an input for Modvat credit where the electricity was wheeled from one unit to other units of the same manufacturer and used in the manufacture of excisable goods. The definition of "input" was applied broadly to cover fuel used for generating electricity connected with manufacture, and the relevant phrase "factory of production" was read in line with the factory producing the final product, not confined to the unit where electricity was generated. The contrary Revenue authorities were distinguished as involving different language, and cross-unit commercial use of electricity within the same manufacturing set-up was treated as consistent with the credit scheme.

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Issues: Whether furnace oil used for generation of electricity in one unit, where part of the electricity was wheeled out and used in the assessee's other units for manufacture of excisable goods, qualified as "input" for Modvat credit under Rule 2(g) of the Cenvat Credit Rules, 2002.

Analysis: The definition of "input" covered goods used as fuel for generation of electricity used for manufacture of final products or for any other purpose within the factory of production. The controlling question was whether the phrase "factory of production" referred to the factory where electricity was generated or the factory where the final product was manufactured. The prior decision in Essar Steel supported the view that the expression referred to the factory of production of the final product, and that electricity need not be consumed in the very unit where it was generated. The contrary line of authority relied upon by the Revenue dealt with a different expression and did not govern the present controversy. The Tribunal also held that commercial and practical use of electricity across neighbouring units of the same manufacturer was consistent with the purpose of the credit scheme.

Conclusion: The furnace oil remained eligible for Modvat credit, and the dispute was decided in favour of the assessee.

Ratio Decidendi: Where fuel is used to generate electricity that is employed in the manufacture of final products in any unit of the same manufacturer, the input credit cannot be denied merely because the electricity was wheeled out from the unit where it was generated.

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