Refinery fuel exemption covers captive power use when electricity is consumed in manufacturing petroleum products.

Low Sulphur Heavy Stock used as fuel in a refinery-linked thermal power plant qualified for exemption under Notification No. 75/84-C.E. entry 34 where the generated electricity was captively consumed in the manufacture of petroleum products. The notification was construed with its explanation to cover a refinery where refining or blending operations are carried on, and the clarificatory circular supported treatment of electricity as an intermediate product when incidental to manufacture. The exemption was limited to fuel used for electricity actually consumed in the manufacturing process; no exemption applied to fuel used for generation of electricity not so utilised.

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Issues: Whether Low Sulphur Heavy Stock used as fuel in a thermal power plant located within the refinery area for generating electricity captively consumed in the manufacture of petroleum products was eligible for exemption under Notification No. 75/84-C.E. entry 34.

Analysis: Entry 34 granted nil duty to Low Sulphur Heavy Stock intended for use as fuel in a refinery. The explanation to the entry defined "refinery" broadly as a refinery where refining of crude petroleum or blending of non-duty paid petroleum products is carried on. The electricity generated from the fuel was used within the refinery in the process of manufacture of petroleum products, and the clarificatory circular recognised that electricity as an intermediate product would qualify where it was incidental to the process of manufacture. On this construction, the captive use of LSHS in the refinery-linked thermal power plant fell within the exemption, but only to the extent the resulting electricity was itself used in the manufacture of petroleum products.

Conclusion: The assessee was entitled to exemption under Notification No. 75/84-C.E. entry 34 for LSHS used in captive generation of electricity within the refinery area, subject to the limitation that no exemption would apply to fuel used for generation of electricity not so consumed in the manufacture process.

Ratio Decidendi: Fuel used as captive input in a refinery-linked power plant qualifies for exemption under a refinery-specific notification when the generated electricity is used as an intermediate input in the manufacture of petroleum products.

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