Capital goods credit for captive power plants remains available when electricity is mainly used in-factory and surplus power is sold outside.

Capital goods used in a captive power plant were treated as eligible for credit under Rule 57Q where the electricity generated was principally consumed within the factory for manufacture of the final product and only the surplus was sold outside. Prior Tribunal decisions were relied on for the principle that incidental sale of excess power does not by itself defeat capital goods credit when captive use is the dominant purpose. The restrictive condition in the proviso to Rule 57R(2) was not accepted as a basis to deny credit in these circumstances, so denial of credit was unsustainable.

---

---

Issues: Whether capital goods used in a captive power plant were eligible for credit under Rule 57Q of the Central Excise Rules, 1944 when the electricity generated was partly consumed within the factory and the surplus was sold outside.

Analysis: The disputed capital goods were used for generating electricity within the factory for manufacture of the final product, and only the surplus electricity was sold to the electricity board. Prior Tribunal decisions had held that where electricity is principally used captively for manufacture, the mere sale of surplus power outside the factory does not disentitle the assessee to capital goods credit. The restrictive condition in the proviso to Rule 57R(2) was not accepted as a basis to deny credit in such circumstances.

Conclusion: The capital goods remained eligible for credit, and the denial of credit was unsustainable.

---