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Issues: (i) whether LSHS used for generating electricity within the refinery premises was entitled to exemption under Serial No. 34 of Notification No. 75/84-C.E. for the period up to 1-3-1994; (ii) whether the same fuel was entitled to exemption under Notification No. 217/86-C.E., as amended, and thereafter under Notification No. 67/95-C.E., for the subsequent periods.
Issue (i): whether LSHS used for generating electricity within the refinery premises was entitled to exemption under Serial No. 34 of Notification No. 75/84-C.E. for the period up to 1-3-1994.
Analysis: The relevant notification granted exemption to LSHS intended for use as fuel in a refinery, and the proviso permitted use elsewhere than in the factory of production if the prescribed procedure was followed. The decisive factual position was that the thermal power station was situated within the refinery premises and the electricity generated therefrom was used in the manufacture of refinery products. The generation of electricity was only an intermediate and incidental step in the manufacture of petroleum products, and the fuel used for such generation retained the character of fuel used in the refinery for the intended manufacturing purpose. The exclusion applied only to electricity generated for purposes unconnected with manufacture of refinery products.
Conclusion: The appellant was entitled to exemption under Serial No. 34 of Notification No. 75/84-C.E. for LSHS used to generate electricity consumed in manufacturing refinery products up to 1-3-1994, but not for electricity used for other purposes.
Issue (ii): whether the same fuel was entitled to exemption under Notification No. 217/86-C.E., as amended, and thereafter under Notification No. 67/95-C.E., for the subsequent periods.
Analysis: After omission of Serial No. 34 from Notification No. 75/84-C.E., the later notifications continued the exemption structure for inputs used within the factory in or in relation to the manufacture of final products. Since the fuel was used within the refinery for generating electricity, and that electricity was in turn used in the manufacture of final refinery products, the input satisfied the statutory scheme of in-factory use in relation to manufacture. The later exemption under the 1995 notification similarly covered inputs used within the factory for manufacturing the final products, and the same reasoning applied to the electricity consumed for refinery manufacture.
Conclusion: The appellant was entitled to exemption under Notification No. 217/86-C.E., as amended, for the period from 1-3-1994 to 16-3-1995, and under Notification No. 67/95-C.E. thereafter, again limited to the quantity used for generating electricity consumed in manufacturing refinery products.
Final Conclusion: The duty demand was sustainable only to the extent of LSHS attributable to generation of electricity used for purposes other than manufacturing refinery products, and the demand required recomputation on that basis.
Ratio Decidendi: Where fuel is used within a refinery to generate electricity that is consumed as an intermediate step in the manufacture of final petroleum products, exemption meant for inputs used in or in relation to manufacture within the factory applies, but only to the extent of such manufacturing use and not to electricity diverted to other purposes.
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