Exemption for secondary fuel in power generation upheld, but captive-consumption quantities and extended limitation were rejected.

Low sulphur heavy stock used as secondary fuel for boiler start-up and flame stabilisation qualified for exemption because "fuel intended for use" covered an integral part of the electricity generation process. The exemption was, however, denied for the quantity relatable to electricity consumed within the undertaking's own plant and lignite mine, as the notification expressly excluded electricity produced for captive use rather than sale. The extended period of limitation was not invocable because the use of the fuel had been disclosed, so suppression or wilful misstatement was not established, and the connected penalty also failed.

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Issues: (i) Whether low sulphur heavy stock used as secondary fuel in start-up of boilers and flame stabilisation in the thermal power station was eligible for exemption under the relevant notifications; (ii) Whether the exemption could extend to the quantity of low sulphur heavy stock relatable to electricity generated by the undertaking but consumed in its own plant and lignite mine and not sold; (iii) Whether the extended period of limitation and penalty were invocable.

Issue (i): Whether low sulphur heavy stock used as secondary fuel in start-up of boilers and flame stabilisation in the thermal power station was eligible for exemption under the relevant notifications.

Analysis: The notifications exempted fuel intended for use in the generation of electrical energy by electricity undertakings controlled by the Central Government. The term "fuel" was held to include secondary fuel as well as primary fuel. The expression "intended for use" was satisfied where the goods were fed into the generation process for that purpose, even if supervening circumstances affected the stage at which the process operated. On that principle, the use of low sulphur heavy stock for lighting up boilers and stabilising flame was treated as integral to generation of electricity.

Conclusion: The exemption was admissible for low sulphur heavy stock used in start-up and flame stabilisation, in favour of the assessee.

Issue (ii): Whether the exemption could extend to the quantity of low sulphur heavy stock relatable to electricity generated by the undertaking but consumed in its own plant and lignite mine and not sold.

Analysis: The notification expressly excluded electricity undertakings that produced electrical energy not for sale but for their own consumption or supply to their own undertakings. The portion of electricity consumed in the plant and mine was not sold and was treated as production for own use. Applying strict construction of exemption notifications, the corresponding quantity of low sulphur heavy stock could not be treated as intended for exempt use.

Conclusion: The exemption was not available for the quantity relatable to captive consumption, against the assessee.

Issue (iii): Whether the extended period of limitation and penalty were invocable.

Analysis: The record showed disclosure at the stage of licence application regarding use of low sulphur heavy stock for lighting up boilers and flame stabilisation, and the use of part of the electricity in the plant and mine was treated as covered by the disclosed industrial use. The requisite suppression or wilful misstatement for invoking the extended period was not established. As the foundation for the extended demand failed, the connected penalty could not survive.

Conclusion: The extended period of limitation and the penalty were not sustainable, in favour of the assessee.

Final Conclusion: The exemption was upheld for secondary fuel used in the generation process, denied for the portion attributable to electricity consumed for own use, and the extended demand and penalty were set aside to the extent not supported by the normal period demand.

Ratio Decidendi: For exemption notifications using the phrase "intended for use," the goods qualify when they are employed as an integral part of the notified process, but the benefit is confined by express exclusions and is not available to quantities relatable to captive or own consumption where the notification restricts exemption to goods used for production meant for sale.

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