Cenvat credit on fuel for electricity used in exempted production is inadmissible, with suppression supporting extended limitation and penalty.

Cenvat credit on furnace oil used to generate electricity was held inadmissible to the extent that the electricity fed into manufacture of exempted final products, because Rule 6(1) applies to all inputs, including fuel, and credit cannot be retained for exempted production. The assessee's taking of credit on the entire fuel quantity without informing the Department amounted to suppression of material facts, justifying invocation of the extended limitation period and penalty. The adjudication confirming demand, interest and penalty was restored, and the assessee's challenge failed.

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Issues: (i) Whether Cenvat credit on furnace oil used for generating electricity was admissible when the electricity was used in the manufacture of both dutiable and exempted final products. (ii) Whether the extended period of limitation and penalty were justified on the facts.

Issue (i): Whether Cenvat credit on furnace oil used for generating electricity was admissible when the electricity was used in the manufacture of both dutiable and exempted final products.

Analysis: The governing principle was taken from the Supreme Court ruling that sub-rule (1) of Rule 6 is plenary and applies to all inputs, including fuel. Credit is not available on the quantity of fuel used for manufacture of exempted goods, even though fuel-inputs are excluded from the separate-account regime under sub-rule (2). The Court applied that principle to hold that credit was wrongly taken on the portion of furnace oil attributable to electricity used for exempted production.

Conclusion: The issue was decided in favour of the Revenue and against the assessee.

Issue (ii): Whether the extended period of limitation and penalty were justified on the facts.

Analysis: The assessee knew that electricity generated from cenvated furnace oil was being used partly for exempted production, yet credit was taken on the entire quantity of fuel without informing the Department. This amounted to suppression of relevant facts, attracting the extended period under the proviso to Section 11A(1), and the same conduct supported penalty under the relevant penalty provisions.

Conclusion: The extended period of limitation and penalty were held to be correctly invoked in favour of the Revenue.

Final Conclusion: The impugned order of the Commissioner (Appeals) was set aside and the adjudication confirming demand, interest, and penalty was restored.

Ratio Decidendi: Credit on fuel used to generate electricity is not admissible to the extent the electricity is used in the manufacture of exempted goods, and deliberate non-disclosure of such use justifies invocation of the extended limitation period and penalty.

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