CENVAT credit on captive power plant inputs denied where electricity was partly used for township supply and external sale

CENVAT credit on duty-paid chemicals used in a captive power plant boiler was held inadmissible to the extent the resulting electricity was not used in or in relation to manufacture. The chemicals generated steam for electricity production, but part of the electricity was supplied to township residential premises and part was sold outside the factory. Because only the portion linked to manufacture of Sponge Iron qualified for credit, the attributable credit on non-manufacturing use was disallowed. The earlier Rule 57CC common-inputs decision was found inapplicable on these facts.

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Issues: Whether CENVAT credit was admissible on duty-paid chemicals used in the boiler of a captive power plant, where the resulting electricity was partly used in manufacture and partly supplied to residential premises or sold outside the factory.

Analysis: The chemicals were used in the boiler to generate steam for running the turbine and producing electricity. The electricity so generated was not wholly consumed in the manufacturing process, because a part of it was used in the township and a part was sold outside the factory. In such circumstances, the input credit attributable to electricity not used in or in relation to manufacture of the final product was not admissible. The earlier decision relied upon by the appellant on common inputs and waste under Rule 57CC of the erstwhile Central Excise regime did not govern the present facts.

Conclusion: Credit was not admissible to the extent attributable to electricity used otherwise than in or in relation to manufacture of Sponge Iron, and the disallowance was upheld against the assessee.

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