Modvat credit on fuel for captive power generation remains admissible when electricity is used in manufacturing dutiable final products.

Modvat credit was held admissible on Low Sulphur Heavy Stock used as fuel for captive generation of electricity, where that electricity was in turn used in the manufacture of dutiable final products. The Tribunal applied the Larger Bench ruling that such fuel qualifies as an input for Modvat purposes and that a coordinate Bench must follow that binding ratio. Although the matter was stated to be pending before the Supreme Court, the existing precedent remained operative, so denial of credit was unsustainable. The impugned order was set aside and the assessee received consequential relief as admissible in law.

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Issues: Whether Modvat credit could be denied on Low Sulphur Heavy Stock used for captive generation of electricity, where the electricity was used in the manufacture of dutiable final products.

Analysis: The dispute was governed by the Larger Bench decision holding that Modvat credit is admissible on inputs such as LSHS, including fuel used for captive generation of electricity, when such electricity is in turn used in the manufacture of final products. As a coordinate Bench, the Tribunal followed that ratio and declined to take a different view, noting that the matter was still pending before the Supreme Court but that the binding precedent remained operative.

Conclusion: Modvat credit on LSHS was admissible, and the denial of credit was unsustainable.

Final Conclusion: The impugned order was set aside and the assessee's appeal succeeded with consequential relief as admissible in law.

Ratio Decidendi: Modvat credit cannot be denied on fuel used for captive generation of electricity when that electricity is employed in the manufacture of dutiable final products, and coordinate Benches must follow the ratio of a Larger Bench decision.

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