A significant legal debate has resurfaced under the erstwhile Cenvat Credit regime after two recent rulings of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) — one from Hyderabad and another from Chandigarh — examined whether electricity can be treated as “goods”, “exempted goods”, or even “non-excisable goods” for the purpose of Rule 6 of the Cenvat Credit Rules, 2004.

Interestingly, while both Benches ultimately ruled in favour of the assessee, the reasoning adopted exposes a deeper contradiction in indirect tax jurisprudence relating to the legal character of electricity.

The controversy essentially revolves around a fundamental question: if electricity is not “goods” or not “excisable goods”, then what exactly is the legal nature of electricity under Central Excise law?

Hyderabad CESTAT: Electricity Is Not “Exempted Goods”

In M/s Madhucon Sugar & Power Industries Ltd. v. Pr. Commissioner of Central Tax [JURISHOUR-1210-CES-2026(HYD)], the Hyderabad Bench dealt with a demand exceeding ₹1.17 crore raised under Rule 6(3) of the Cenvat Credit Rules.

The Department alleged that since the assessee generated electricity in its captive co-generation plant and sold a portion of the surplus electricity outside, the assessee was required to reverse proportionate input service credit. According to the Department, electricity falls under Tariff Heading 2716 0000 and since no duty was payable on electricity, it constituted “exempted goods”.

The Hyderabad Bench rejected this entire foundation.

Relying heavily upon the Allahabad High Court judgment in Gularia Chini Mills v. Union of India, later affirmed by the Supreme Court, the Tribunal held that electricity cannot be treated as “exempted goods” because Rule 6 applies only to “excisable goods”.

The Bench noted that although electricity may appear in the tariff schedule, no rate of duty is actually prescribed against it. Consequently, electricity does not qualify as “excisable goods” under Section 2(d) of the Central Excise Act.

Once electricity itself ceased to qualify as excisable goods, Rule 6 became inapplicable altogether.

The Hyderabad Bench therefore concluded that reversal of Cenvat credit merely because surplus electricity was sold outside the factory was legally unsustainable.

Chandigarh CESTAT: Electricity May Be Non-Excisable, But Credit Still Allowed

In M/s Shahabad Co-Op Sugar Mills Ltd. v. Commissioner of CE & ST, Panchkula [JURISHOUR-1209-CES-2026(CHAN)], the Chandigarh Bench examined a different but closely connected issue.

Here, the Department denied Cenvat credit of nearly ₹4.97 crore on capital goods and inputs used for erection of a captive power plant. The Department argued that the power plant constituted a non-excisable structure and that electricity generated therefrom was exempted/non-excisable, thereby attracting Rule 6(1) and Rule 6(4) of the Cenvat Credit Rules.

Unlike the Hyderabad ruling, the Chandigarh Bench did not directly enter into the larger debate on whether electricity is “goods” or “not goods”.

Instead, it proceeded on a narrower legal basis.

The Tribunal held that the capital goods were used within the factory and that part of the electricity generated was captively consumed in manufacture of dutiable products like sugar and molasses. Therefore, the machinery could not be regarded as being used exclusively for exempted goods.

Thus, even assuming electricity was exempted or non-excisable, Rule 6(4) itself would not bar credit because captive consumption existed.

The Bench therefore allowed the credit and quashed the demand, interest, and penalty.

The Real Contradiction: What Exactly Is Electricity?

The apparent contradiction between the two rulings lies not in the final outcome — both favour the assessee — but in the legal treatment of electricity itself.

The Hyderabad Bench effectively held:

• Electricity is not “exempted goods”
• Rule 6 cannot apply at all
• Electricity is not “excisable goods” because no duty rate exists

The Chandigarh Bench, however, proceeded as though:

• Electricity may still fall within the framework of exempted/non-excisable output
• Rule 6 can potentially apply
• But credit survives because electricity was partly captively consumed

This creates an important jurisprudential tension.

If electricity is not “excisable goods” at all, as held in Gularia Chini Mills, then the entire Rule 6 machinery should collapse at the threshold. There would be no need to examine captive consumption, exclusive use, or proportionate reversal.

However, if Rule 6 continues to apply to electricity generation cases, then electricity is indirectly being treated as a form of exempted output for Cenvat purposes.

Is Electricity “Goods” Under Law?

The answer depends upon the statute being examined.

Under constitutional law and sales tax/VAT jurisprudence, the Supreme Court has repeatedly recognized electricity as “goods” because it is capable of transmission, transfer, delivery, storage, and consumption.

However, Central Excise law operates differently.

Under Section 2(d) of the Central Excise Act, goods become “excisable goods” only when:

1. They are specified in the tariff, and
2. A duty of excise is leviable upon them.

The Hyderabad Bench emphasized the second condition.

Since no effective rate of duty exists on electricity, it ceases to qualify as “excisable goods” for Rule 6 purposes.

Thus, electricity may be “goods” in a constitutional or commercial sense, but not necessarily “excisable goods” under Central Excise law.

That distinction is precisely where the legal confusion emerges.

Why These Rulings Matter

These rulings are extremely important for industries operating captive power plants, especially sugar mills, steel plants, cement manufacturers, and heavy industrial units generating surplus electricity.

The Hyderabad ruling gives taxpayers a far stronger defence because it attacks the very applicability of Rule 6 itself.

The Chandigarh ruling, though favourable, still leaves room for departmental arguments on proportionate reversal wherever electricity is sold outside.

If future Benches follow Hyderabad’s reasoning strictly, many pending Rule 6 disputes involving electricity reversal may fail entirely.

However, if courts continue adopting the Chandigarh approach, litigation may persist over the extent of captive consumption and exclusive usage.

The Bigger Legal Question Remains Unsettled

The deeper unresolved issue is this:

Can something simultaneously be:

• “goods” for constitutional law,
• “non-excisable” for excise law,
• and yet “exempted” for Rule 6 purposes?

The Hyderabad ruling suggests the answer is “No”.

The Chandigarh ruling implicitly suggests the answer may still be “Yes” in certain contexts.

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