2006 (12) TMI 9 - AT - Central Excise

Cenvat Credit Allowed on LSHS Fuel for Exempted Goods Production Under Rule 6(1), Following Gujarat HC Precedent.

The Tribunal ruled in favor of the assessees, allowing them to claim Cenvat credit on low sulphur heavy stock (LSHS) used for generating steam and ... Cenvat credit on inputs used as fuel - exclusion of fuel inputs from reversal/maintenance of separate accounts under Rule 6(1) - eligibility of input duty credit for low sulphur heavy stock (LSHS) used to generate steam/electricity - principle that credit is permissible where fuel produces steam utilised within the factory regardless of subsequent use of electricity - parity between Rule 57AD of the Central Excise Rules and Rule 6 of the Cenvat Credit Rules, 2002 - maintenance of separate accounts for manufacture of dutiable and exempted goodsCenvat credit on inputs used as fuel - eligibility of input duty credit for low sulphur heavy stock (LSHS) used to generate steam/electricity - principle that credit is permissible where fuel produces steam utilised within the factory regardless of subsequent use of electricity - Assessees are entitled to Cenvat credit on the quantity of LSHS used as fuel to produce steam and electricity that is used in relation to the manufacture of exempted goods (fertilizers). - HELD THAT: - The Tribunal's earlier conclusion in the assessees' favour, and the Gujarat High Court's decision upholding it, determine that inputs used as fuel are excepted from the obligation to maintain separate accounts or to deny credit when the same inputs are used in manufacture of both dutiable and exempted goods. Where fuel (LSHS) is used to generate steam which is utilised within the factory for manufacture (including manufacture of fertilizers) and for generation of electricity, credit on such fuel is permissible. It is immaterial that a portion of the electricity generated is supplied outside the factory; the determinative fact is that steam was manufactured and used within the plant. Rule 57AD (Central Excise Rules) is held pari materia with Rule 6 of the Cenvat Credit Rules, 2002, and the ratio of the High Court decision applies on all fours to the present facts, requiring allowance of credit on fuel used to produce steam/electricity for use in manufacture of exempted goods. [Paras 3, 4]Credit cannot be denied on inputs used as fuel; assessees are eligible to Cenvat credit on LSHS used to produce steam and electricity in relation to manufacture of fertilizers.Final Conclusion: Reference answered: following the High Court and Tribunal decisions, the assessees are entitled to Cenvat credit on the quantity of LSHS used as fuel to produce steam and electricity utilised in the manufacture of exempted goods (fertilizers). Issues:Eligibility of low sulphur heavy stock (LSHS) for input duty credit under Rule 6(1) of the Cenvat Credit Rules, 2002.Analysis:Issue 1: Eligibility of LSHS for input duty creditThe Revenue contended that Cenvat credit is not admissible on inputs used in the manufacture of exempted goods, as per Rule 6(1) of the Cenvat Credit Rules, 2002. The rule allows credit only for inputs intended for use in the manufacture of dutiable goods, with provisions for maintaining separate accounts for dutiable and exempted goods. The assessees argued that since fuel inputs are excluded from the purview of sub-rule (2) of Rule 6, they should also be excluded from sub-rule (1). Therefore, if fuel is used in the manufacture of both dutiable and exempted goods, there is no requirement to reverse Cenvat credit for inputs used in exempted goods.Issue 2: Precedent and interpretation of rulesThe Tribunal referred to a decision of the Hon'ble Gujarat High Court where it was held that credit on fuels used for generating steam within the factory cannot be denied. The High Court upheld the Tribunal's order, emphasizing that Rule 57AD allows for an exception in cases where inputs are intended to be used as fuel. The Tribunal found that LSHS was used as fuel for producing steam and electricity within the factory, which was then utilized for the manufacture of fertilizers and industrial products, as well as for generating electricity supplied outside the factory.Issue 3: Application of precedent and rulingThe Tribunal applied the precedent from the Gujarat High Court decision to the present case, stating that Rule 57AD of the Central Excise Rules is similar to Rule 6 of the Cenvat Credit Rules, 2002. Consequently, the Tribunal held that the assessees are eligible for Cenvat credit on the quantity of LSHS used for producing steam and electricity, which were in turn used in the manufacture of exempted goods, specifically fertilizers.In conclusion, the Tribunal ruled in favor of the assessees, allowing them to claim Cenvat credit on the LSHS used for generating steam and electricity, which were essential for the production of exempted goods. The decision was based on the interpretation of relevant rules and the application of precedent set by the Hon'ble Gujarat High Court.