TMI Blog2006 (4) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... ut to Ashoka Spintex factory is used in the manufacture of finished product in that factory. 1.2 The waste heat emerging from the gas turbine is used 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 27-4-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 27-4-2004 about the credit being taken back and have not utilized the said credit till date. 2.3 Vide order in this 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 material, or as fuel, or for generation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions 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. Electricity is not goods exempt from whole of the said duty or chargeable to nil rate of duty. As electricity is not covered by the expression of exempted goods as laid down in Rule 2(d) then, the restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods 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 electricity or steam. The term within the factory of production is not attached to any of the previous items No. (i) to (iv) mentioned, hereinabove in the inclusive part of the definition of input. Therefore, the term within the factory of production will not be applicable to the input used as fuel. So long as the naphtha received in the appellant s factory and it is used as fuel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 manufacture of final products or for any other purpose, within the factory of production. The issue before the Larger Bench of the CEGAT in the case of Ballarpur Industries referred to above was whether prior to 16-3-95 Modvat credit could be denied for furnace oil used as fuel in generation of electricity for captive consumption. That held that electricity generation also forms part of manufacturing activity and there was no ground to hold that prior to the amendment use of fuel for generation of electricity for captive consumption was not covered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. Member (Technical) had dealt with the various provisions of the CENVAT Credit Rules to arrive at a finding that an assessee would be entitled to the credit of duty paid on the entire fuel irrespective of the fact that a part of such fuel was used for electricity, which was not ultimately consumed in the factory of generation of electricity. 5. I find Rule 57AB allows the manufacturer or producer of final products (emphasis provided) to take credit of duty paid on the inputs received in the factory. Thus, essentially, availment of credit on any inputs is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 essential starting of the turbine is entitled to the benefit of Modvat credit, even if the part of the electricity subsequently generated is wheeled out of the factory. However, it is seen that even in the said case M/s. Gujarat Alkalies Chemicals Ltd. were reversing proportionate Modvat credit. 7. As such I am of the view that the excess quantity of fuel used by the appellant for manufacture of excess electricity, which they supply to their sister concern is not entitled to the Modvat credit being against the legislative intent and the provisions of the Modvat cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 user within the factory. Clause (iv) provides for credit on inputs used for generation of electricity or steam used for manufacture of the final products or for any other purposes within the factory of production . 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 of electricity not being qualified by the phrase within the factory of production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, 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 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 material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production. 19. The first part of the definition of input is attached with a condition that goods must be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 apprehension expressed by the Hon ble Member (Judicial) in the impugned order is misplaced. 23. The Hon ble Member (Judicial) as well as the learned SDR Shri Samir Chitkara have placed heavy reliance on Supreme Court decision in the case of Vikram Cement, particularly, para 4 thereof. I am of the view that principle laid down in the aforesaid decision has no application to the facts of the present case. The observations made in para 4 of the decision should be read keeping the present facts in mind, more especially the input fuel and not input goods used for generation of electricity or steam. The entire observation of the Hon ble Supreme Court as regards the use etc. of steam or electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule (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 the parties to the proceeding situate within the State of Gujarat, the aforesaid decision is more apt. 25. Further, it is to be mentioned that the Larger Bench of the Tribunal in the very same case of Gujarat Narmada Valley Fertilizers Co. Ltd. reported in 2007 (208) E.L.T. 342 (LB). Following the Gujarat High Court decision, has also held that the assessees are eligible to Cenvat credit and duty paid on that quantity of LSHS which was used for producing steam and electricity in turn to cover the goods, namely, fertilizers. The ratio of this decision squarely applies to the present case. We find that the issue under reference is no longer res integra as it stands settled in favour of the assessees b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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