Input-output norms alone cannot sustain duty demand absent evidence of diversion or misuse of duty-free furnace oil.

Condition No. 7 of Notification No. 22/2003-CE permits accounting for consumables used in generation of surplus power, but a duty demand cannot rest only on input-output norms or a shortfall in presumed electricity generation. Input-output norms are only an accounting indicator and do not by themselves prove that furnace oil was not used for the permitted purpose. In the absence of any allegation or evidence of diversion or misuse of the duty-free input, the demand based solely on lesser generation than the audited estimate was unsustainable.

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Issues: Whether duty could be demanded on furnace oil allegedly not consumed for generation of electricity, solely on the basis of a shortfall determined by applying input-output norms, in the absence of any evidence of diversion or misuse of the duty-free input under Condition No. 7 of Notification No. 22/2003-CE dated 31.03.2003.

Analysis: The appeal turned on the scope of Condition No. 7, which permits accounting for consumables and raw materials used in generation of surplus power transferred or sold, and on whether a mere mismatch between the presumed and actual electricity generation could by itself justify duty demand. The Tribunal followed the principle that input-output norms are only an indicator for accounting purposes and cannot, without more, establish non-use of the imported or duty-free input for the permitted purpose. Since there was no allegation or evidence that the furnace oil was diverted or not used for generation of electricity, the demand founded only on lesser generation of electricity than the audited estimate could not be sustained. The limitation and penalty contentions did not require separate adjudication in view of the main finding on merits.

Conclusion: The demand of duty was unsustainable and the appeal succeeded in favour of the assessee.

Ratio Decidendi: Mere excess or shortfall against input-output norms, without evidence of diversion or misuse of duty-free inputs, is insufficient to sustain a duty demand under the exemption notification.

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