2012 (12) TMI 854 - AT - Central Excise

Appellant denied exemption for non-manufacturing electricity use. Input connection to manufacturing process required.

The Tribunal held that the appellant is not entitled to exemption on the portion of Naphtha used for generating electricity in the captive power plant for ... Exemption under Notification No. 67/95-CE - Naphtha attributable to the electricity generated in the captive power plant used for allied activities such as lighting of the road, administrative office and canteen – Held that: - As decided in CCE vs Solaris Chemtech Ltd [2007 (7) TMI 2 - SUPREME COURT OF INDIA] while interpreting the provisions of Rule 57A of the erstwhile Central Excise Rules, 1944 which provides that input means inputs used for generation of intermediate electricity used within the factory of production for manufacture of final product or for any other purposes held that the electricity generated within the factory which is supplied to the residential colony of the factory, school etc to that extent credit is not admissible. The definition of input under the Cenvat Credit Rules, 2004 is also similarly worded. Benefit of exemption notification 67/95 allowed in respect of (a) Naphtha cleared, availing exemption under Notification No.4/2006-CE dated 1.3.2006 for manufacture of fertilizers under International Competitive Bidding (ICB) and (b) On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for manufacture of exempt goods viz. LPG (Domestic) and Superior Kerosene Oil (PDS) Benefit of exemption notification 67/95 denied in respect of On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for allied activities like lighting in the artillery (sic) roads/yard, administrative building, canteen/cafeteria. Issues Involved:Interpretation of Notification No. 67/95-CE regarding exemption on Naphtha used for electricity generation in captive power plant for allied activities like lighting, administrative building, and canteen.Detailed Analysis:Issue 1: Interpretation of Exemption NotificationThe dispute revolves around whether the appellant is entitled to the exemption under Notification No. 67/95-CE for Naphtha used in generating electricity for non-manufacturing purposes within the factory premises. The appellant argued that the Naphtha used for electricity generation, which is subsequently utilized for lighting roads, canteen, and administrative purposes, should be exempted. They relied on the definition of 'input' under Rule 2(k) of the Cenvat Credit Rules, 2004, stating that any goods used for any purpose within the factory of production should be considered an input. The Revenue, however, contended that the exemption applies only to inputs used directly in or in relation to the manufacture of final products. They cited legal precedents to support their argument.Issue 2: Judicial Interpretation of 'Any Other Purpose'The Tribunal analyzed the interpretation of the term 'any other purpose' within the factory of production as stated in Rule 57B(iv) of the Central Excise Rules, 1944. Referring to the Indorama Synthetics case, the Tribunal highlighted that the use of electricity generated must be connected or related to the production of final products to qualify for duty credit. The High Court emphasized that the supply of electricity to residential complexes within the factory premises does not entitle the assessee to avail duty credit unless it is connected to the production of final products. The Tribunal aligned with the Supreme Court's decision in Solaris Chemtech, stating that electricity supplied outside the factory for non-production purposes does not qualify for duty credit.Conclusion:The Tribunal concluded that the appellant is not entitled to exemption on the portion of Naphtha used for generating electricity in the captive power plant for non-manufacturing purposes like lighting roads, canteen, and administrative building within the factory premises. The decision was based on the strict interpretation of the exemption notification and the requirement for inputs to be directly linked to the manufacturing process or related activities. The appeal papers were directed to the regular Bench for further action based on the majority decision.