2026-VIL-502-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Treatment of electricity generated in co-generation plant and wheeled out to electricity grid as exempted goods under CENVAT Credit Rules - The appellant, a manufacturer of sugar, denatured ethyl alcohol and bio-compost, operated a co-generation plant within the factory premises to generate electricity using bagasse, a waste product of the sugar manufacturing process. While a portion of the generated electricity was consumed captively, the surplus was wheeled out to the electricity grid - Department considered this surplus electricity as "exempted goods" under the CENVAT Credit Rules and demanded 6% of its value under Rule 6(3)(i) on the ground that the appellant had not maintained separate accounts for common inputs and input services used for manufacturing activities and electricity generation – HELD - The electricity generated in the co-generation plant and wheeled out to the grid cannot be treated as an independent manufacturing activity attracting the provisions of Rule 6. The electricity generation was incidental to the sugar manufacturing process, and the appellant had already reversed the proportionate CENVAT credit attributable to the common input services used for electricity generation under Rule 6(3A). Once the proportionate credit was reversed, the appellant could not be compelled to pay 6% of the value of electricity under Rule 6(3)(i), as the object of the rule had been achieved – Further, the failure to intimate the Department about the exercise of the option under Rule 6(3A) was a mere procedural lapse and could not result in denial of the substantive benefit. Additionally, the demand is found to be time-barred under the normal limitation period prescribed under the CEA, 1944 - The impugned orders are set aside and the appeal is allowed
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