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Issues: Whether exemption under Notification No. 67/95-CE was available on the quantity of Naphtha attributable to electricity generated in the captive power plant and used for allied activities such as road lighting, administrative building and canteen within the factory.
Analysis: The exemption notification was held to be a strict exemption provision, available only to inputs used in or in relation to the manufacture of the final product. The broader language of Rule 2(k) of the Cenvat Credit Rules, 2004 did not enlarge the scope of the notification. Applying the reasoning that the use of electricity must have nexus with manufacture, and relying on the principle that electricity supplied for unconnected purposes within the premises does not satisfy that nexus, the quantity of Naphtha relatable to electricity used for allied activities was treated as outside the exempted use. However, the exemption continued for the balance quantity used for manufacturing purposes.
Conclusion: The exemption was not admissible on the portion of Naphtha attributable to electricity used for road lighting, administrative building and canteen, but was admissible for the balance quantity used in manufacture.
Final Conclusion: The appeal succeeded only to the extent of Naphtha used for manufacturing-related purposes and failed as to the portion attributable to electricity used for allied non-manufacturing activities within the factory.
Ratio Decidendi: Exemption under a notification confined to inputs used in or in relation to manufacture cannot be extended to electricity generated from such inputs when the electricity is used for activities within the factory that lack a nexus with the manufacture of the final product.
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