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2015 (7) TMI 665 - HC - Central ExciseMODVAT Credit - Capital goods - Captive consumption - Held that - Quite apart from the decision of the Chennai Bench in case of Kothari Sugars & Chemicals Ltd. (2005 (11) TMI 124 - CESTAT, CHENNAI), we are informed, is carried in appeal before the Madras High Court and is pending, we notice that the Supreme Court in case of Collector of Central Excise v. Solaris Chemtech Limited reported in 2007 (7) TMI 2 - SUPREME COURT OF INDIA has occasion to deal with a substantially similar issue. It was held that when inputs are used to generate electricity which are captively consumed for manufacture of final product, the assessee would be entitled to Modvat Credit in view of the expression used in relation to the manufacture used in the statute. - The situation might have been different had the Revenue succeeded in establishing that the electricity generated by the assessee was not used captively but sold outside - Decided against Revenue.
Issues:
1. Availability of Modvat Credit on capital goods used in the generation of electricity for captive consumption. Analysis: Issue 1: Availability of Modvat Credit on capital goods used in the generation of electricity for captive consumption The main issue in this case revolved around the eligibility of the assessee for Modvat Credit on capital goods used in the generation of electricity, primarily consumed captively. The Revenue contended that Rule 57Q of the Central Excise Rules, 1944, precluded the assessee from claiming such credit. However, the Customs, Excise & Service Tax Appellate Tribunal relied on the decision of the Chennai Bench in the case of Kothari Sugars & Chemicals Ltd. v. Commissioner of Central Excise, Trichy, which allowed the credit. The Tribunal noted that the capital goods were used for captive consumption, with only a small surplus sold externally. The Tribunal's decision was supported by the Supreme Court's ruling in the case of Collector of Central Excise v. Solaris Chemtech Limited, which held that when inputs are used for captive consumption in manufacturing, Modvat Credit is permissible under the statute. The Tribunal's decision in the case of Kothari Sugars & Chemicals Ltd. was crucial, as it established a precedent for allowing Modvat Credit on capital goods used for captive consumption. The Tribunal's reliance on this decision was further justified by the Supreme Court's ruling, which affirmed the eligibility of Modvat Credit in similar circumstances. The outcome of the case hinged on the captive consumption of electricity generated by the assessee, with the court indicating that had the electricity been sold externally, the situation might have been different. Consequently, the tax appeal was dismissed, affirming the assessee's entitlement to Modvat Credit for capital goods used in the generation of electricity primarily consumed captively. In conclusion, the judgment delved into the interpretation of relevant provisions of the Central Excise Rules concerning Modvat Credit eligibility on capital goods used for captive consumption in electricity generation. By analyzing precedents and statutory provisions, the court upheld the assessee's right to claim Modvat Credit based on the captive consumption of electricity generated using the said capital goods. The decision underscored the importance of the specific end-use of the manufactured goods in determining Modvat Credit eligibility, emphasizing captive consumption as a key factor in such determinations.
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