This demand has been made by the PHD Chamber of Commerce and Industry (PHDCCI) in its pre-budget memorandum. Currently, the tax authorities delink the two and deny the Modvat credit. The chamber has also demanded that high-speed diesel (HSD) a key input for captive power generation, be allowed Modvat credit.

Rule 57Q allows for credit of duty paid on specified capital goods and rule 57B likewise allows credit on specified inputs used in the manufacture of final products, but it must be within the factory of production. Constant and uninterrupted supply of power is a must for an aluminum plant. Considering the constraints of power availability, aluminum producers have increasingly opted for captive power generation in order to meet their power requirement.

Due to factorslike the availability of coal and water resources, aluminum producers have found it convenient to locate their power generation facilities at a short distance from their smelting and allied operations. However, Modvat credit on capital goods as well as specified inputs under rule 57Q and 57B respectively in such cases is being denied on the ground that power generation facilities are not located within the premises of the aluminum manufacturing units as required.

Such a rigid interpretation of the rules is unfair and goes against the spirit of Modvat rationale as an input duty relief mechanism, contends the chamber.

Hence, the finance ministry should consider giving duty reliefs and encourage the setting up of captive power plants in the larger interests of the economy, production and revenue, it has said.

The chamber has regretted CBEC's persistent intention to disallow Modvat credit on HSD oils without considering the merits and ignoring the strong plea of the industry.

HSD constitutes an important,costly and substantial input which is needed for power generation. PHDCCI has noted that the government's refusal is due to its apprehension of abuse and difficulty in identifying and monitoring HSD's use as an input, directly or indirectly, in the manufacture of the final product. It has, therefore, requested CBEC to evolve a suitable mechanism to prevent possible misuse while allowing Modvat credit on HSD.