Indirect use in manufacture supports excise exemption for refinery fuel consumed through captive electricity generation

R.C.O./LSHS captively consumed to generate electricity used in a refinery qualifies for excise exemption where the electricity forms an intermediate stage in manufacture. Indirect use through an intermediate product satisfies the statutory requirement of use in manufacture when that intermediate product is itself used in producing the final product. A binding departmental circular was applied on this basis, so exemption was available only to the extent the resulting electricity was consumed in the refinery and not where it was diverted for other use.

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Issues: Whether R.C.O./LSHS captively consumed for generation of electricity, which was in turn used in the refinery, was entitled to exemption from central excise duty; and whether exemption was unavailable for R.C.O./LSHS used to generate electricity that was not used in the refinery.

Analysis: The dispute turned on whether indirect use of the exempted material through an intermediate product could satisfy the requirement of use for manufacture. The Tribunal followed its earlier view and the principle affirmed by the Supreme Court that use of inputs in the manufacture of an intermediate product, where that intermediate product is used in the manufacture of the final product, is sufficient compliance with the condition of use in manufacture. The Board's circular also clarified that generation of electricity as an intermediate stage in petroleum refining was incidental and that the exemption would be available for the quantity so used, while denying it only to the extent the resulting electricity was not used in the refinery. The circular was binding on revenue authorities.

Conclusion: The exemption was available for R.C.O./LSHS used to generate electricity consumed in the refinery, but not for R.C.O./LSHS used to generate electricity disposed of otherwise than for refinery use.

Ratio Decidendi: Indirect use of an exempted input through an intermediate product used in the manufacture of the final product satisfies the statutory requirement of use in manufacture, and a binding departmental circular must be given effect accordingly.

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