Cenvat credit on furnace oil for steam generation denied where steam was partly supplied outside the factory, demand sustained.

Cenvat credit on furnace oil used to generate steam was held inadmissible where the steam was not wholly consumed within the factory, following the binding jurisdictional High Court ruling that credit cannot be taken on the entire fuel quantity in such circumstances. The Tribunal rejected the alternative claim based on supply to a 100% export-oriented unit on the facts, and treated the earlier contrary Tribunal view as displaced by the High Court decision. The demand was therefore sustained, while the penalty relief granted by the Commissioner (Appeals) was left undisturbed.

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Issues: Whether Cenvat credit on furnace oil used for generation of steam, a part of which was supplied outside the factory, was admissible.

Analysis: The credit claim was examined in the light of the jurisdictional High Court ruling that where fuel is used to generate steam and the steam is not wholly consumed within the factory of production, the credit is not available on the entire quantity. The Tribunal also noted that the alternative contention based on supply to a 100% export oriented unit had not been accepted on the facts and that the earlier Tribunal view stood displaced by the High Court decision. Following that binding precedent, the demand was held to be sustainable.

Conclusion: The credit was not admissible to the extent claimed and the demand was upheld. The penalty set aside by the Commissioner (Appeals) was not disturbed.

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