Captive coal consumption exemption upheld where mining activity could not be characterised differently for duty and exemption purposes.

Coal captively consumed within mines for generating steam and power for lifting coal was treated as eligible for exemption under Notification No. 67/1995-CE. The department's denial, based on the view that coal mining was only a production activity and not manufacture, was not sustained because the same mining activity had already been accepted as manufacture for levy and CENVAT credit purposes. The Tribunal held that the revenue could not adopt one characterisation for duty demand and a different one for exemption. The captive consumption therefore satisfied the notification conditions, and the demand, along with interest and penalty, failed.

---

---

Issues: Whether coal captively consumed within the mines for generating steam and power for lifting coal was eligible for exemption under Notification No. 67/1995-CE, and whether denial of that exemption on the premise that coal mining was only a production activity and not manufacture was sustainable.

Analysis: The appellant paid central excise duty at the normal tariff rate with CENVAT credit facility, and the dispute concerned exemption for coal used captively in further production within the mines. The denial rested on the view that coal was produced and not manufactured, but the same mining activity had already been treated as manufacture for the purpose of levy and availment of CENVAT credit. The Tribunal held that the department could not adopt one characterisation of the activity for duty demand and a different characterisation for exemption. On that basis, the captively consumed coal used for generating steam and power within the mines satisfied the exemption conditions under the notification.

Conclusion: The exemption under Notification No. 67/1995-CE was available to the captive coal consumption, the demand was unsustainable, and the denial of interest and penalty followed.

---