TaxTMI 
TaxTMI 
2026 (7) TMI 86
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....C resin, refrigerant gases, caustic soda, chlorine and other products. For the various inputs and capital goods used in the manufacture of the above products, the appellant has been availing MODVAT Credit. Low Sulphur Heavy Stock (hereinafter referred to as 'LSHS') is one such input used for generating electricity. The assessee having four plants, shared the surplus electricity generated in one unit with the other units-particularly Plants II and III, which also are engaged in manufacturing PVC resin and other industrial chemicals. A portion of the excess electricity also used for lighting the staff colony. 4. The excess power generated in one unit was transferred to other units through wheeling using the TNEB power grid. The assessee for the LSHS used for generating electricity availed MODVAT input credit. Later, the department found that the input credit was wrongly availed, hence reversed the credit and also imposed penalty along with duty. The Order-in-Original relating to the period October 1994 - August 2001 is 1/2003, dated 06/06/2003. (Subject matter in C.M.A.No.1747 of 2008). The Order-in-Original for the period October 1994 to August 2001 is 2/2003, dated 06.06.2003 (S....
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....erefore, the assessee is liable to pay duty and equivalent penalty. 8. In short, the contention of the Department is that MODVAT/CENVAT credit on LSHS relatable to electricity and steam generated using the said LSHS and diverted outside the factory (of its production) is not eligible for credit. Rule 57A(1)(d) of Central Excise Rules, 1994, refers to the generation of electricity used within the factory of production for the manufacture of final products or for any other purpose. Since it is admitted that the assessee has used the electricity for Plants II & III located outside the factory where the electricity is generated, the tribunal rightly dismissed the appeal by the assessee. 9. The Appeals (C.M.A.Nos.1747 & 1748 of 2009) by the assessee were admitted by this Court on 10.07.2009, to answer the following substantial questions of law: (i) Whether MODVAT credit can be denied on LSHS and Fuel additives used for generation of electricity for the manufacture of dutiable final products to the extent that the same relates to electricity and steam which does not get consumed within the factory of production and is cleared outside the factory as a surplus and used in an....
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....(iii). Commissioner of Central Goods & S.T., Jaipur vs. Shree Cement Ltd reported in 2018 (16) G.S.T.L 196 (Raj). (iv). Commissioner of Central Excise & S.T.Belgaum vs. Mukund Ltd reported in 2015(324) E.L.T 387 (Kar). (v). Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. Biocon Ltd reported in 2014(309) E.L.T 66 (Kar). (vi). Collector of Central Excise vs. Solaris Chemtech Limited reported in 2007 (214) E.L.T 481 (SC). (vii). Chemplast Sanmar Ltd vs. Commissioner of Central Excise, Coimbatore reported in 2000 (122) E.L.T 861 (Tribunal). 13. The Learned counsel for the appellant/assessee, referring to the above judgments submitted that the Madras High Court, the Karnataka High Court and other High Courts have consistently held that the definition of "factory" includes multiple units of the factory, even if they are not located within the same premises. LSHS used as fuel for the generation of electricity for manufacturing end products is eligible as an input for credit. Further submitted that the appellant is entitled to credit on the eligible inputs utilized for the generation of electricity for its plants located outside the f....
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....nd was confirmed by the Tribunal. Thus, the Learned Counsel appearing for the Department summarized that inputs used as fuel would be entitled to credit only if they are used for, or in relation to, the manufacture of final products. The appellant had availed MODVAT credit on fuel used for electricity generation and diverted outside the factory premises. Unless the inputs are used to produce final products within the factory, which are cleared on payment of duty, credit in respect of said inputs cannot be availed. On that basis, the demand relatable to electricity and steam cleared outside the factory of production has to be sustained. 18. According to the Learned Counsel for the Department, Rule 57A (1) Explanation (d) and Rule 57B (iv) are to the same effect, except that Rule 57B(iv) also covers steam. Therefore, credit for LSHS used for generating electricity and transmitting outside the factory of production falls outside the scope of 57A(1) Explanation (d) and Rule 57 B (iv). In fact it is covered under Rule 57D (2). Insofar as Maruthi Suzuki Ltd case cited and relied by the Assessee Counsel, whether wheeling of electricity to the sister units without element of sale was no....
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.... specified duty may be restricted. Explanation:- For the purpose of this rule, 'inputs' includes - (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, (b) paints and packaging materials [and] (c) inputs used as fuel but does not include - (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under Section 4 of the Act; (iv) Cylinders for packing gases; (v) plywood for teat [chests; or] (vi) bags or sacks made out of fabrics (whether or not coated, covered or laminated with any other ....
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....ed by the Central Government, the conditions required to be satisfied are: (a) The finished goods must be an excisable goods. (final product). (b) The said input goods must have been used in or in relation to the manufacture of the said final products. (c) For the purpose of Rule 57 A, the term 'input' includes 'fuel'. 22. From the change in Rule 57A of the Central Excise Rules, 1944 through the 4th amendment w.e.f. 16.03.1995, we find a liberal approach for claiming input credit has been adopted. The scope of applicability to seek credit of duty paid extended to the inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose. (emphasis added) 23. Thus, the additional condition after amendment is the use of the intermediary i.e., electricity must be within the factory of its production. However the electricity so generated may be used for any other purpose. Therefore to claim input credit, the assessee has to first establish that the fuel i.e., LSHS used for generating electricity is in the course of manufacturing the final product. Next it has to establish that the elec....
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....thin the factory or production". Under the substituted Rules however, inputs have been categorized into four categories: "(i) goods used 'in the factory' by the manufacturer of the final product; (ii) all goods including accessories cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; (iii) all goods used for generation of electricity or steam for captive use; and (iv) all goods used for providing any output service." 31. Clauses (ii) and (iv) are not relevant for the purposes of this order. Importantly, a distinction has been envisaged between the goods used "in the factory" by the "manufacturer of the final product" and the goods used for "generation of power". While the former insists that the goods must be used "in the factory",there is no stipulation of place as regards the goods in clause (iii). Therefore, we find merit in the position that electricity captively generated is an input, wherever used by the assessee concerned. The use of the term "captive" is, in our view a qualification of the location where it is generat....
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....or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been shortlevied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:" 13. The first proviso to the above mentioned sub-section (1), which is the relevant provision relating to the extended period of limitation, reads as under: "Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have ....
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.... which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the products other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence." (iii). Commissioner of Central Goods & S.T., Jaipur vs. Shree Cement Ltd reported in 2018 (16) G.S.T.L 196 (Raj): The High Court of Rajasthan, in this case has observed that if the transfer of electricity to the other units of the same assessee not for price, then even if the units are outside the factory and electricity is transferred through wheeling, the assessee is eligible for MODVAT input credit. In the words of the Learned Judges, "14......On the contrary, the AO observed as under: "That in this connection, as far as the pres....
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....he case of Vikram Cements v. Cee Industries reported in 2006 (194) E.L.T. 3 (S.C.), the Division Bench of this Court has held that the definition of 'input' is to be construed as within the factory of production, if the assessee owns more than one unit and they are situated at one place. In the case on hand, allegation of the appellant-Revenue is that respondent herein and M/s. Kalyani Steels Limited being two different entities are using the gases indented by respondent herein. In paragraph 2 of the show cause notice, the Revenue, has referred to the Strategic Alliance Agreement dated 16-5-1998 as also the ratio in which the two companies would be manufacturing respective products. To appreciate as to what exactly the agreement defines, it is necessary to note the salient points of the agreement which are as follows: (a) respondent manufactures alloy and nonalloy steel billets and blooms; (b) Kalyani Steels Limited manufacture pig iron (solid) and pig iron (hot metal) which is an intermediary product and in turn this intermediary product is also used by respondent for production of final product in terms of the Strategic Alliance Agreement dated 16-5- 19....
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...., CENVAT Credit, an assessee has to use the input in the manufacture of dutiable goods in his factory. If the factory includes more than one unit and if the assessee uses this input in the manufacturing of excisable goods in both the units, he would be entitled to CENVAT Credit. The Apex Court in Vikram Cement -vs- Commissioner (2006 (194) E.L.T. 3 (SC) case has held as under: "It appears to us on a plain reading of the clause that the phrase "within the factory of production" means only such generation of electricity or steam which is used within the factory would qualify as an intermediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase "within the factory of production" could be outside the factory. Therefore, whatever goes into generation of electricity or steam which is used within the factory would be an input for the purposes of obtaining credit on the duty payable thereon." 13. The Apex Court in Maruti Suzuki Ltd -vs- Commissioner (2009(240) E.L.T.641 (SC) case, held as under: "To sum up, we hold that the definition of "input" brings within its fold, inputs used for generation of elect....
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....ted in 2007 (214) E.L.T 481 (SC), the Hon'ble Supreme Court has held that:- 7. The assessee's contend that LSHS falls within the ambit of Explanation clause (c). The Department's contention is that these inputs are utilised for manufacturing electricity which is not excisable and hence cannot be considered as an input used as fuel in terms of Explanation clause (c). It is the case of the Department that LSHS does generate electricity. However, it cannot be said that LSHS has been used in or in relation for manufacture of final product, namely, caustic soda and cement. According to the Department, LSHS has been basically used in the generation of electricity which is not specified as final product and hence no modvat credit of duty paid on LSHS is admissible. According to the Department, generation of electricity by heating LSHS is a process which is independent of the process of manufacturing cement and caustic soda. According to the Department, LSHS generates electricity but that process does not result into manufacture of cement and caustic soda and, therefore, modvat credit was not admissible for the duty paid on LSHS. 8. In our view, there is no merit in t....
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....he expression "in the manufacture of goods" indicates the use of the input in the manufacture of the final product. The said expression normally covers the entire process of converting raw materials into finished goods such as caustic soda, cement, etc. However, the matter does not end with the said expression. The expression also covers inputs "used in relation to the manufacture of final products". It is interesting to note that the said expression, namely, "in relation to" also finds place in the extended definition of the word "manufacture" in Section 2(f) of the Central Excises and Salt Act, 1944 (for short "the said Act"). It is for this reason that this Court has repeatedly held that the expression "in relation to" must be given a wide connotation. 12. The Explanation to Rule 57-A shows an inclusive definition of the word "inputs". Therefore, that is a dichotomy between inputs used in the manufacture of the final product and inputs used in relation to the manufacture of final products. The Department gave a narrow meaning to the word "used" in Rule 57-A. The Department would have been right in saying that the input must be raw material consumed in the manufacture of....
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.... as fuel for generation of electricity captively consumed will not be covered as inputs under Rule 57-A. (vii) Chemplast Sanmar Ltd vs. Commissioner of Central Excise, Coimbatore reported in 2000 (122) E.L.T 861 (Tribunal), the CESTAT in the assessee's own case, had held in favour of the assessee regarding CENVAT input credit for LSHS used for generating electricity and shared with other units located outside the factory of its production. In the words of the tribunal:- "7. We have considered the submissions of both the sides. The issue involved in all these appeals has been finally settled by the larger bench of the Appellate Tribunal in the case of Ballarpur Industries v. CCE, Belgaum, as reported in 2000 (116) E.L.T. 312 wherein it has been held that fuel oils such as low sulphur heavy stock (LSHS), light diesel oil, residual fuel oil, mobile oil and furnace oil used captively for generation of electricity which in turn is used for manufacture of the final products are inputs even prior to 16-3-1995. It was observed by the Tribunal that when electricity generation is a captive arrangement and requirement for carrying out the manufacturing activity, ele....
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....r the extended period of limitation is invokable in the facts and circumstances of the case? * The dispute started on introduction of explanation (d) to 'inputs' in Rule 57 A, which came into effect from 16/03/1995. Several show cause notices were issued to the assessee for the alleged suppression covering the period commencing from October 1994. The first show cause notice is dated 20/10/1999. Prior to the issuance of show cause notice, investigation by the Divisional Preventive Officers, at the appellant's factory was conducted which unravelled the diversion of electricity to other units and for housing colony. We are of the view that since the assessee disclosed the transfer of electricity to the sister units and housing colony only after the inspection of its factory premise, an element of intentional suppression of diversion is apparent and therefore, there is no error in invoking the extended period of limitation. The Commissioner of Central Excise and Customs vs. Reliance Industries Ltd (2023) 8 Centax 96 (SC) relied by the appellants on facts is different and distinguishable. Accordingly, this question is answered in affirmative in favour of the Department. 2....