TaxTMI 
TaxTMI 
2006 (4) TMI 451
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.... for the generation of steam in Heat Recovery Steam Generator - HRSG (Boiler). The steam so generated is used in steam turbo generator set within the appellants' factory for generation of electricity or such steam is directly used in the factory for processing of goods in the course of manufacture of dutiable goods. 1.3 The electricity so generated in the steam turbo generator set is used within the factory or wheeled out to Ashoka Spintex which is appellants own unit, where also the electricity is used in the manufacture of dutiable final products. 1.4 The spent steam emerging in the steam turbo generator set is used for processing goods within the factory. Thus the entire steam generated is used within the appellants factory at Naroda. 1.5 The appellants had taken credit on the entire quantity of naphtha used as fuel in gas turbine and had been reversing the credit taken on that quantity of naphtha used as fuel for generation of electricity wheeled out of the factory for the period prior to and after 1-4-2000. 1.6 On 27-4-2004 the appellants took back the credit of Rs. 2,48,59,319/- which was earlier reversed by them, on the inputs used as fuel for generat....
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....s case the Commissioner rejected the credit so taken and imposed a penalty of Rs. 10.00 lakhs on the appellants. Hence these appeals. 3.1 After hearing both sides, and considering the matter, these two appeals are being disposed of by this common order, after finding and holding : (a) The period is after the year 2000. The definition of input under Rule 2(f) of Cenvat Credit Rules, 2000 and under Rule 57AA(D) is the same. The analysis of the definition reveals that : (b) The definition of 'input' is in two distinct parts as under - (i) input means all goods except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products, whether directly or indirectly and whether contained in the final product or not; and (ii) input includes (a) lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product; and (b) goods used as paint, or as packing mate....
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....vat credit shall not be allowed on such quantity of inputs which is used in the manufacture of exempted goods, except in the circumstances mentioned in sub-rule (2)". Similar provisions are incorporated in Cenvat Credit Rules in Rule 6(1) thereof. In terms of this Rule 6(1), when input is used in the manufacture of exempted goods, credit on such quantity of input used in the manufacture of exempted goods is not allowed. These provisions of Rule 57AD(1) of Central Excise Rules, 1944 or Rule 6(1) of the Cenvat Credit Rules are attracted when inputs are used in the manufacture of exempted goods and attracted to the present case where Naphtha is used as 'fuel' in generation of electricity since electricity is not excisable. (f) Rule 2(d) defines "exempted goods" as goods which are exempt from the whole of the duty leviable thereon or are chargeable to "Nil" rate of duty. Electricity is indeed goods. There is however no entry in the Central Excise Tariff Act, 1985 which covers electricity. HSN has Heading 27.16 as an optional heading. This option has not been made use of in the Central Excise Tariff Act, 1985. Thus, electricity is not an excisable goods. ....
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....ation of electricity as in the present case. Hence, this decision of the CESTAT in the case of Raymond Ltd. will not be applicable to the issues herein. (i) The inclusive part of the definition of 'input' under Rule 57AA(d) covers (i) accessories of the final product cleared along with the final product, (ii) goods used as paint, (iii) goods used as packing material, (iv) goods used as fuel, and (v) goods used for generation of electricity or steam. The input used as fuel for generation of electricity, can be covered by the expression "input used as fuel" or the expression "input used for generation of electricity" as appearing in the inclusive portion of the definition of input. When the assessee is covered by two alternative provisions of the statute he can opt and contend that he is covered by any one. Therefore, in the present case, the appellant are entitled to credit on that naphtha used as fuel for generation of electricity covered within the expression "goods used as fuel." The expression "within the factory of production" as appearing in inclusive part of the definition of input is attached to the goods used for generation of electricit....
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....e of two such companies. But if life is not logic, income-tax is much less so, and it is clear that we cannot impose tax upon a subject by implication or because we think that the object of the Legislature was a particular object" We respectfully agree with the learned Chief Justice that though the interpretation we have placed upon the proviso might lead to some anomalies, it is for the Legislature to avoid the anomalies which, according to us, spring not from our interpretation but from the language employed". (k) The question whether the use of furnace oil should be treated as goods used as fuel of not came up before the Larger Bench of CEGAT in the case of Ballarpur Industries v. CCE, Belgaum reported at 2000 (116) E.L.T. 312 (Tri.), the question in that case was whether prior to 16-3-95 when Modvat credit was available for inputs used as fuel such use of furnace oil for production of electricity could be considered to have been used as fuel. The doubt arose because subsequently a specific provision was made in Rule 57A, for inclusion of inputs used for generation of electricity or steam, used for ....
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....cable in naphtha used in the generation of electricity even otherwise. Thus, the appellants are entitled to avail full credit on naphtha as restrictions under Rule 6(1) of the Cenvat Credit Rules are not applicable. Therefore, wheeling out a part of electricity generated in the factory of the appellants to their own another factory cannot deprive them of the credit of duty paid on naphtha used as fuel in their factory. 3.2 In this view of the matter, we do not find any reason to deny the credit as availed. There is no case or cause for penalties. The orders of the lower authorities in both cases cannot be upheld and they are to be set aside and appeals allowed. 3.3 Ordered accordingly. (Pronounced in Court on.................06.) Sd/- (S.S. Sekhon) Member (T) 4. [Per : Archana Wadhwa, Member (J)]. - After going through the order proposed by my ld. Brother Shri S.S. Sekhon. I find that the short dispute involved in the present appeal is availability of Modvat credit in respect of fuel used in the manufacture of electricity in the appellant's factory and transfer of a part of such electricity to the outside factories. The order proposed by ld. Mem....
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....d in the manufacture of electricity transferred to the sister concern is liable to pay back the credit of duty paid on the same and availed by the appellant. 6. Reference is made to the Tribunal decision in the case of Gujarat Alkalies & Chemicals Ltd. v. CCE, Vadodara Order Nos. A/156-157/WZB/2006/CIII, dated 20-1-2006 [2006 (196) E.L.T. 25 (Tribunal)], placed on record by ld. Advocate appearing for the appellant. However, it is seen that the Tribunal has observed, as a matter of fact in para 3 of its order that proportionate Modvat credit corresponding to Naphtha used in generation of electrical power, supplied to another unit of the appellant, was being reversed. The dispute before the Tribunal was essentially revolving around the use of naphtha required for running or starting turbine at Full Speed No Load. There could be no doubt that the initial running of the turbine requires a particular quantum of Naphtha and whether the turbine is required to be used for the assessee's own production of electricity or for excess electricity, the quantum of Naphtha used would remain the same. It was in these circumstances the Tribunal had that quantum of such Naphtha used for essenti....
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....T. 691 (Tribunal) = 2004 (116) ECR 45 (Tri.-Mumbai)] laying down that an assessee is required to reverse the credit availed on fuel used in the manufacture of steam, a part of which is cleared outside the factory. 10. My above views are further supported by a recent decision of the Hon'ble Supreme Court in the case of Vikram Cement v. CCE, Indore [2006 (194) E.L.T. 3 (S.C.) = 2006 (72) RLT 609 (S.C.)] wherein paragraph 4 of their Judgment Hon'ble Court observe as under :- "We observe that Rule 57B commences with a non obstante clause. It allows credit to be taken by a manufacturer on inputs used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final products or not. There is no qualification as to where the inputs must be used in the main body of sub-rule (1). Qualifications have been introduced to the extent stated in clauses (i) to (vi) read with the Explanation. Thus, clause (i) provides for inputs which are manufactured and used within the factory of production. Paints, fuel, packing materials and accessories are also treated as inputs under clauses (ii), (iii), (v) and (iv) without any requirement for....
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....it is wheeled out to the appellant's sister concern. 15. The Hon'ble Member (Judicial) has upheld the order of the adjudicating authority in confirming the demand on account of denial of the Cenvat credit whereas the Hon'ble Member (Technical) has set aside the demand and allowed the appeals filed by the assessee. 16. An elaborate arguments have been advanced by both sides while taking me through the facts of the case, relevant provisions of Cenvat Credit Rules and the case law relied upon. 17. The facts of the case, the gamut of Central Excise Rules, 1944 relating to Modvat credit as well as Cenvat Credit Rules of the year 2000-02 and the case law relied upon by both sides, is found in two separate orders written by the Hon'ble Member (Judicial) and Hon'ble Member (Technical). Therefore, I deem it not necessary to mention them again at the cost of repetition. 18. The learned Counsel for the appellant submits that the definition of 'input' is in two distinct parts as under : (i) input means all goods except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufact....
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....mission is that Naphtha is covered in more than one category, as such, they are entitled to select any applicable clause. There appears to be any amount of force in the submission made by the learned Counsel for the appellant. In this context, I find that the observations made in para 2 of the order of Hon'ble Member (Judicial) stating that 'definition includes fuel used for generation of electricity or steam used by manufacturer of final product' though correct is not complete in its meaning, hence fuel is permissible as goods for generation of electricity or steam. Fuel is also independently and separately included in the definition. Therefore, in the aforesaid scenario the question of use of electricity or steam so generated becomes irrelevant. The definition of input in its plain reading, does not contemplate any link or nexus with the final product, as regards the fuel. The use of fuel in the factory is sufficient to be covered under the exclusive portion of definition. The plain reading of the rules are found to be sufficient enough to gather the meaning as emphasized by the appellants. I find no ambiguity in rules framed so as to warrant any interpretation. Therefore, an app....
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....amined the question of use of fuel (LSHS) for generation of steam and the steam was used for generation of electricity which was supplied outside. "The respondent-assessee is engaged in manufacture of fertilizers and chemicals. It purchased Low Sulphur Heavy Stock (LSHS) which is already duty paid and used the same as feed/fuel in the manufacture of fertilizers and generation of steam. The steam so generated is utilised for the manufacture of fertilizers, chemicals as well as generation of electricity in captive power plant. According to Revenue, the assessee is not entitled to credit of duty paid on that part of input which had been used in the production of electricity supplied outside. Under sub-rule (2) of Rule 57AD , an exception is carved out in case of inputs intended to be used as fuel. In other words, the necessity of maintenance of separate account or denial of credit cannot be insisted upon in a case where inputs are used as fuel by the manufacturer". Therefore, the ratio laid down by the Hon'ble High Court can be made applicable to the present set of facts as they are similar with the facts covered by the aforesaid decision. Even the period covered is the same and as th....