Excise exemption for captive power fuel fails where electricity is not supplied to the public and refinery-use conditions are unmet.

Low Sulphur Heavy Stock used as fuel in a thermal power station did not qualify for exemption under Notification No. 75/84-C.E., Sl. No. 54, because the electricity was generated mainly for captive refinery use and limited supply within the refinery township was not public supply or sale as contemplated by the exemption. The State sanction for generation was confined to the assessee's own and associated requirements and did not satisfy the statutory condition for supplying electrical energy to the public. The fuel also did not qualify under Sl. No. 34, because that entry covered Low Sulphur Heavy Stock intended for use in a refinery, not in a thermal power station. As exemption failed under both entries, the duty demands remained enforceable.

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Issues: (i) Whether Low Sulphur Heavy Stock used as fuel in the assessee's thermal power station for generation of electricity partly consumed in its refinery and partly supplied to other agencies was exempt under Notification No. 75/84-C.E. under Sl. No. 54. (ii) Whether the assessee could claim exemption under Sl. No. 34 for Low Sulphur Heavy Stock used in its thermal power station. (iii) Whether the demands confirmed by the department were sustainable.

Issue (i): Whether Low Sulphur Heavy Stock used as fuel in the assessee's thermal power station for generation of electricity partly consumed in its refinery and partly supplied to other agencies was exempt under Notification No. 75/84-C.E. under Sl. No. 54.

Analysis: Sl. No. 54 granted nil duty only when the fuel was intended for generation of electrical energy by specified electricity undertakings or persons sanctioned to engage in supplying electrical energy to the public, and the condition expressly excluded persons who generated electricity not for sale but for their own consumption or for supply to their own undertakings. The assessee generated electricity mainly for its own refinery and auxiliary purposes, and the supply to other agencies within the refinery township on a no-profit-no-loss basis did not amount to the kind of public supply contemplated by Section 28(1) of the Indian Electricity Act, 1910. The sanction order obtained from the State Government was limited to meeting the assessee's own and associated requirements and could not be treated as authority to supply electricity to the public for the purpose of the exemption.

Conclusion: The assessee was not entitled to exemption under Sl. No. 54, and the finding was against the assessee.

Issue (ii): Whether the assessee could claim exemption under Sl. No. 34 for Low Sulphur Heavy Stock used in its thermal power station.

Analysis: Sl. No. 34 applied to Low Sulphur Heavy Stock intended for use as fuel in a refinery. The explanatory definition of refinery covered a refinery where crude petroleum is refined or non-duty-paid petroleum products are blended, and not a thermal power station. Since the fuel was consumed in the thermal power station for electricity generation, the condition of Sl. No. 34 was not satisfied.

Conclusion: The assessee was not entitled to exemption under Sl. No. 34, and the finding was against the assessee.

Issue (iii): Whether the demands confirmed by the department were sustainable.

Analysis: Once the assessee was found ineligible for exemption under both relied-upon entries, the duty demands recovered under the show-cause notices remained legally enforceable and the orders of the lower appellate authority could not stand.

Conclusion: The duty demands were sustainable and the Revenue's appeals succeeded.

Final Conclusion: The exemption claim failed under both notification entries, and the duty demands confirmed by the adjudicating authority were restored.

Ratio Decidendi: A conditional excise exemption tied to electricity generation is available only where the statutory precondition of supply to the public or sale is strictly met, and a sanction limited to captive or associated consumption cannot satisfy that requirement.

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