Cenvat credit on electricity-generation services cannot be denied under Rule 6 where electricity is non-excisable goods.

Rule 6 of the Cenvat Credit Rules, 2004 could not be used to deny input service credit for setting up and operating a co-generation power plant because electricity is non-excisable goods and not exempted excisable goods within Section 2(d) of the Central Excise Act, 1944. On that basis, the demand for reversal of credit failed, and the related demand, interest, and penalty were unsustainable. The Tribunal therefore did not examine the alternative points on use of services for the sugar plant, limitation, or penalty.

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Issues: Whether credit of input services used for setting up and activities connected with the co-generation power plant could be denied by invoking Rule 6 of the Cenvat Credit Rules, 2004 on the footing that electricity is exempted or non-excisable goods.

Analysis: The demand was founded on the premise that electricity generated in the captive power plant was an exempted or excisable product and, therefore, input service credit relatable to its generation was hit by Rule 6. The Tribunal relied on the settled position that electrical energy is not excisable goods within the meaning of Section 2(d) of the Central Excise Act, 1944 and that Rule 6 applies only where the final product is exempted excisable goods. As electricity was held to be non-excisable, the very basis for invoking Rule 6 and demanding reversal of credit failed. In view of this conclusion, the Tribunal did not examine the alternative submissions on use of services for the sugar plant, limitation, or penalty.

Conclusion: Rule 6 could not be invoked to deny the impugned input service credit, and the demand, interest, and penalty were unsustainable.

Final Conclusion: The appeal succeeded and the order confirming recovery was set aside.

Ratio Decidendi: Credit reversal under Rule 6 of the Cenvat Credit Rules, 2004 cannot be demanded on input services relatable to electricity generation where electricity is held to be non-excisable and not exempted excisable goods.

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