Modvat credit on fuel for captive power generation was admissible where electricity supported manufacture of final products.

Light Diesel Oil and Low Sulphur Heavy Stock used to generate electricity for manufacture of cement and refractory bricks were treated as inputs used in or in relation to manufacture, so Modvat credit was admissible for the period before 16-3-1995. Electricity was regarded only as an intermediate, non-excisable stage and did not break the nexus with the final products. The specification restriction in Notification No. 177/86-C.E. was held inapplicable on these facts, and Rule 57D did not defeat the credit claim.

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Issues: Whether Light Diesel Oil and Low Sulphur Heavy Stock used for generating electricity, which was in turn used in the manufacture of cement and refractory bricks, were entitled to Modvat credit for the period prior to 16-3-1995.

Analysis: The fuels were used in or in relation to the manufacture of the final products. Electricity generated from those fuels was only an intermediate stage and, being non-excisable, did not affect eligibility to credit. The restriction based on specification under Notification No. 177/86-C.E. was held to be inapplicable, and Rule 57D did not defeat the claim in the facts of the case.

Conclusion: The claim for Modvat credit was held admissible and the appeal succeeded.

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