February 04, 2026 : The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that CENVAT credit is not admissible on fuel used to generate electricity when the entire power produced is wheeled out to the state electricity grid, even if an equivalent quantity of electricity is later drawn back for use in the factory.
The ruling came in an appeal filed by Jindal Stainless Ltd., which manufactures slabs, blooms and ingots at its Hisar unit. The Bench comprising Justice S. S. Garg, Judicial Member, and P. Anjani Kumar, Technical Member, delivered the decision while partly allowing the appeal.
To address frequent power shortages, the company had set up a captive power plant using diesel generator sets. However, the electricity generated was found to be unstable and unsuitable for direct use in furnaces and mills. As a result, Jindal Stainless entered into synchronization and wheeling agreements with the Haryana State Electricity Board, under which all electricity generated at the captive plant was injected into the grid. In return, the company received stable electricity from the grid, after deduction of 10 percent wheeling charges.
During the relevant period from January 1999 to December 2004, the company availed CENVAT credit on furnace oil and other inputs used in generating electricity, claiming that the power was ultimately consumed in the manufacture of excisable goods. The Department disputed this, arguing that since the electricity generated was not used within the factory but entirely supplied to the grid, the credit was not admissible. Show cause notices were issued seeking denial of credit amounting to about ₹6.58 crore, along with interest and penalties.
While examining the matter after remand from the Punjab and Haryana High Court, the Tribunal focused on whether the wheeling arrangement amounted to a “sale” under the Central Excise Act, 1944. It noted that the Act defines sale broadly to include any transfer of goods for cash, deferred payment or other valuable consideration. The Tribunal observed that electricity is “goods” for excise purposes and that, in this case, the entire electricity generated by the appellant was transferred to the grid because it could not be used in the factory.
In return for supplying unusable electricity, the appellant received stable electricity from the grid and paid wheeling charges. The Tribunal held that this arrangement amounted to a barter or exchange involving valuable consideration. It categorically noted that the electricity generated by the captive plant “could never be utilized within the factory of production,” and therefore the inputs used for generating such electricity were not used in or in relation to the manufacture of final products within the factory.
On this basis, the Tribunal concluded that Jindal Stainless was not entitled to CENVAT credit on the fuel used for generating electricity that was entirely wheeled out to the grid, notwithstanding the fact that equivalent or even greater electricity was later drawn from the grid.
However, on the issue of limitation, the Tribunal accepted the company’s plea. It found that the Department was fully aware of the captive power generation and synchronization arrangement, as declarations had been filed and multiple audits conducted. The dispute involved interpretation of law amid conflicting judicial decisions, and there was no evidence of suppression or intent to evade duty. Accordingly, the extended period of limitation was held to be not invocable.
As a result, the demand raised under the show cause notice dated 30 December 2003 was set aside as time-barred, all penalties were quashed, and the rest of the order denying credit on merits was upheld. The appeal was thus partly allowed.
Cause Title: M/s Jindal Stainless Ltd. vs Commissioner of Central Excise, Goods & Service Tax, Rohtak
Case No.: Excise Appeal No. 587 of 2006
Coram: Justice S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member)
