CENVAT credit on captive power plant electricity wheeled to sister units upheld, with reversal demand rejected on the facts.

CENVAT credit on common inputs and input services used in a captive power plant was held admissible to the extent the electricity generated was wheeled to sister concerns, because such generation remained part of the manufacturing activity on the facts presented. Proportionate credit relating to electricity supplied to the residential colony and third parties had already been reversed, leaving only supply to sister units in dispute. Applying the substituted definition of input and cited precedents, the tribunal rejected the demand for reversal, including the attempt to levy reversal at 6% of value on wheeled electricity. The assessee was entitled to the credit, and the departmental appeal failed.

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Issues: Whether CENVAT credit on common inputs and input services used in a captive power plant, to the extent electricity was wheeled to sister units, was admissible, and whether the demand for reversal of credit and the consequential departmental appeal could be sustained.

Analysis: The electricity generated in the captive power plant was used partly for captive consumption and partly wheeled to sister units. The record showed that proportionate CENVAT credit relating to electricity supplied to the residential colony and third parties had already been reversed. The dispute was confined to electricity supplied to sister concerns. The substituted definition of input and the cited precedents were applied to distinguish captive generation and internal group consumption from sale of electricity to outside parties. On the facts, the generation of electricity remained part of the manufacturing activity and the proportionate credit attributable to such power supply to sister units was held to be available. The demand based on treating the wheeled electricity as warranting reversal at 6% of value was therefore not upheld.

Conclusion: The assessee was held entitled to CENVAT credit on common inputs used for generation of electricity supplied to sister concerns, and the departmental appeal was rejected while the assessee's appeal was allowed.

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