TMI Blog1999 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... e plant. In the case of Jaypee Rewa Cement, furnace oil is used in Diesel Generating Sets for generation of electricity for manufacture of cement. In the case of Modipon Ltd., Residual Fuel Oil (RFO) is used for generation of electricity used as fuel for manufacture of synthetic filament yarn. In the case of India Glycols Ltd., Residual Fuel Oil (RFO) is used in the Diesel Generating Sets for generation of electricity for the manufacture of chemicals such as mono-ethylene glycol, Di-ethylene Glycol, Tri-ethylene Glycol, etc. In the case of Risshabh Steel Ltd., light diesel oil, furnace oil and mobile oil in the Diesel Generating Sets for generation of electricity to run the furnace in which iron and steel products such as MS ingots, etc., are produced. 2.At the outset, the objection to jurisdiction of this Bench to hear the matter has been raised by Shri A.K. Jain, learned Advocate on the following grounds : That the matter has been referred to a Larger Bench vide Order1. dated 9-12-1997 without the referring Bench expressing its opinion with regard to the correctness of any of the conflicting judgments on the issue which is not permissible, in the light of the decision of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Larger Bench in terms of Section 129C(5) of the Customs Act cannot be, and is not questioned. The challenge to the power of the President to constitute a Larger Bench was raised before the Delhi High Court in the case of Paras Laminates P. Ltd. v. CEGAT reported in 1990 (45) E.L.T. 521 (Delhi) - the Court allowed the Writ Petition. However, the Delhi High Court judgment was reversed by the Hon'ble Supreme Court and its order reported in 1990 (49) E.L.T. 322 (S.C.). Relevant paragraphs of the Supreme Court judgment are reproduced below : The Tribunal is constituted by the Central Government under Section 129 of the Act. One of the Members of the Tribunal is appointed by the Central Government as its President. Section 129C says that the powers and functions of the Tribunal may be exercised and discharged by Benches constituted by the President from amongst its Members. Subject to certain exceptions, a Bench shall consist of one Judicial Member and one Technical Member [Section 129C(2)]. Sub-section (5) of Section 129C provides for a reference of a case by the President in the event of differences in opinion arising amongst members on any point. This sub-section reads : "(5) If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h acts, or employing such means, as are essentially necessary to its execution." It is true that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the earlier decision is rendered by a larger Bench. The rationale of this rule is the need for continuity, certainty and predictability in the administration of justice. Persons affected by decisions of Tribunals or Courts have a right to expect that those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identical matters. Classification of particular goods adopted in earlier decisions must not be lightly disregarded in subsequent decisions, lest such judicial inconsistency should shake public confidence in the administration of justice. It is, however, equally true that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings bring to light what is perceived by them as an erroneous decision in the earlier case. In such circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court in the case of Ujagar Prints reported in 1987 (27) E.L.T. 567 (S.C.) and Collector v. Cotspun Ltd. reported in 1998 (99) E.L.T. 24 (S.C.). The objection to constitution of Larger Bench on the ground that the conflict no longer existed on such date, is also not tenable because conflict did exist on the date when the Referring Bench passed its order. Once the matter has been referred to Larger Bench, it is the Larger Bench which is required to consider the issue referred to it and decide the same. In the case of Ashwin Vanaspati P. Ltd. v. Collector reported in 1994 (70) E.L.T. 754 (Tribunal), the Larger Bench of the Tribunal noted that when the matter was being heard by it, no conflict of decisions existed as the Southern Zonal Bench judgment which took a view contrary to the earlier one was set aside by the Madras High Court, but however went on to examine the issue on merits and render its independent opinion, in the case of Bajaj Auto Ltd. reported in 1996 (88) E.L.T. 355, the Larger Bench of the Tribunal answered the issue referred to it and did not merely follow the only High Court decision on the issue. 4.The Tribunal's order in the case of Brite Automotives and Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Corporation case cited supra, the Tribunal considered interpretation of Notification 352/77 which exempted petroleum products falling under TI-11AA of the Schedule to the erstwhile Central Excise Tariff, produced in specified types of Refineries and used as fuel within the same premises for the production or manufacture of finished petroleum products. In that case Refinery used residual oil for the production of steam and electricity. According to the Central Excise Department, residual oil did not qualify for exemption since steam and electricity were themselves liable to duty and could not be said to be petroleum products. The majority of the Members held that residual oil used as fuel for production of steam and electricity which was in turn used for production of petroleum products, can be said to have been used as fuel within the same premises for production and manufacture of finished petroleum products and that the exemption Notification does not contain anything to support an interpretation that when steam and electricity are produced and used in that way, the fuel that was used to generate them cannot be said to have been used as fuel in the manufacture of finished petr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has been negatived, holding that in the Modvat scheme once a commodity is described as input, the distinction thereof regarding essentiality or non-essentiality of input is immaterial. The question is not whether a commodity can be made without the use of another commodity. If a manufacturer chooses to use one article to manufacture another, the first article is an input as long as the item in question is used, and has to be considered as an input. In the present case, there is no dispute that fuel oils have been used for captive generation of electricity which in turn is used for manufacture of the final products of the different assessees and, therefore, they are to be held eligible to the benefit of Modvat credit under Rule 57A. We also note that the Facor decision has been recalled vide Final Order No. 540/99, dated 9-3-1999 and the Tribunal has allowed the appeal of the assessees following the decision of the Northern Regional Bench in the case of Rathi Alloys reported in 1997 (93) E.L.T. 594 in which the Tribunal has held that residual fuel oil (RFO) and low density oil (LDO) used in diesel generating sets for making electric arc furnace operational were inputs used as fuel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the final product, and if the electricity generated by use of fuel has not been used in or in relation to the manufacture of the final product, it will not be eligible for credit. Therefore, that it is not correct to contend that prior to 16-3-1995 inputs used as fuel for generation of electricity are not covered as inputs under Rule 57A. Para 67(3) of the Explanatory Notes to the Finance Bill 1995-96 states that the Notification 11/95 seeks to amend the Central Excise Rules so as to inter alia expand the scope of inputs under the Modvat Scheme. Therefore, no inference can be drawn from the Budget Explanatory Notes that the fuel used for generation of electricity was not an input prior to 16-3-1995. 8.It is the case of the Revenue that electricity is not excisable goods in the sense that it is not specified in any entry of the Schedule to the CETA 1985. However, the bar created by Rule 57C of the Central Excise Rules is not attracted since electricity is not the final product which is either wholly exempt from duty or is chargeable to nil rate of duty. The Revenue relies heavily on Rule 57D(2) of the Central Excise Rules to oust fuel oils from the benefit of Modvat credit. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be fulfilled only by a person who wants to claim benefit under that Rule and if an assessee can otherwise establish that Modvat credit is available according to the other provisions of the Rules, he cannot be denied credit on the ground of non-fulfilment of the condition of Rule 57D(2). 9.There are many circumstances which are pointers to hold that the fulfilment of Rule 57D(2) is not a condition precedent for availing Modvat credit. Firstly, Rule 57D(2) refers to intermediate products which are exempt from duty or chargeable to nil rate of duty. Therefore, if a dutiable product comes into existence as an intermediate product, this condition is not satisfied. However, it is not the case of the Revenue that since Rule 57D refers only to exempted product or products chargeable to nil rate of duty, credit will be denied if the intermediate product is one on which duty is leviable. Secondly, the first proviso to Rule 57D(2) refers to intermediate product being used within the factory of production in the manufacture of final products on which duty is leviable whether in whole or in part. Therefore, if a product is not used in the factory but is cleared, certainly it cannot be an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end itself to different interpretation, still it should be interpreted in favour of the Revenue. 12. In the light of the above discussions, we hold that the fuel oils used for generation of electricity which is used for the manufacture of final products by the assessees is eligible to Modvat credit in terms of Rule 57A. 13. In the result, appeal Nos. E/1234-1236/96-NB (M/s. Ballarpur Industries Ltd.), E/676/96-NB (M/s. Modi Cement Ltd.), E/1748/96-NB (M/s. Modipon Ltd.), E/1241/96-NB (M/s. Rishabh Steels Ltd.), E/1836-37/95-NB (M/s. Jaypee Rewa Cement) are allowed, while appeals of the Revenue No. E/1611/96-NB (CCE v. Jaypee Rewa Cement), and No. E/629/96 E/1051/96-NB (CCE v. M/s. India Glycols Ltd.) are rejected. Sd/- (Lajja Ram) Member (T) Sd/- (Jyoti Balasundaram) Member (J) 14.[Order per : Lajja Ram, Member (T)]. - With due respects, I do not agree with the view that the fuel oils used for generation of electricity when such electricity was used for the manufacture of final products by the manufacturer of the final products, were prior to 16-3-1995, eligible to the Modvat credit in terms of Rule 57A of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules'). 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used as fuel in the explanation under Rule 57A was made under the Central Excise (First Amendment) Rules, 1994 vide Notification No. 4/94 C.E. (N.T.), dated 1-3-1994 when after Clause (b) in the explanation, Clause (C) for 'inputs used as fuel was inserted. By this amendment inputs used as fuel became eligible for the benefit of Modvat credit. The expression 'inputs used as fuel' has to be interpreted in terms of the express language used. No violance could be done with the language used therein. No extended meaning could be given to the language used in Clause (C). While certain named items have been specifically included in the expression 'inputs' by virtue of the explanation under Rule 57A, each and every item so included has to be read as such. They are not illustrative. In the case of Satya Vijay Commercial Co. v. Commissioner of Sales Tax, Maharashtra State - 1984 STC (55) 186 (Bombay), the Bombay High Court had observed that in an inclusive definition the things so included by extending the definition are not by way of illustrations and that the extended meaning cannot be further extended by saying that the extended part of the definition is merely illustrative. 17.Fuel is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e type of oxidation occurring with petroleum products, natural gas, coal, and wood; more rapid oxidation takes place in rocket fuels (hydrogen, hydrozen peroxide, hydrazine) which approaches the rate of an explosion, the nuclear fuels used for power generation release their energy by fission of the atomic nucleus (uranium, plutonium, thorium). See also combustion, fission. Fuel Oil. Any liquid petroleum product that is burned in a furnace for the generation of heat or used in an engine for the generation of power, except oils having a flash point of approximately 100 F (37.7C) and oils burned in cotton or wool-wick burners. The oil may be a distillated fraction of petroleum, a residuum from refinery operations, a crude petroleum, or a blend of two or more of these. Because fuel oils are used with burners of various types and capacities, different grades are required. ASTM has developed specifications for six grades of fuel oil. No. 1 is a straight-run-distillate, a little heavier than kerosene, used almost exclusively for domestic heating. No. 2 (diesel oil) is a straight-run or cracked distillate used as a general purpose domestic or commercial fuel in atomizing-type burners. No.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been observed by the Tribunal in the case of Indian Oil Corporation, Barauni v. Collector of Central Excise, Patna - 1985 (19) E.L.T. 145 (Tribunal) that the electricity was not a fuel but electricity could be produced by the fuel oils, and the fuel oils are also usable directly as fuel. In the case of Kerala Electric Lamps Works Ltd. v. Collector of Central Excise, Cochin - 1994 (74) E.L.T. 807 (Kerala), the Kerala High Court had held that the fuel were not treatable as raw material. The Revenue has referred to the Supreme Court's decision in the case of Sales Tax Board of Revenue v. Thomas Stephen Co. Ltd. - J.T. 1988 (1) SC 631 wherein it has been held "the cashew shells in the instant case has been used as fuel in the Kiln. The cashew shells did not get transformed into the end product. These have not been used as raw materials in the manufacture of the goods." In the case of Commissioner of Central Excise, Surat v. Batliboi Co. - 1997 (89) E.L.T. 696 (Tribunal), the furnace oil was used in the factory as fuel for its burner; the heat from it was used to melt aluminium and to dry sand moulds. Fuel is anything that can be burned to make useful heat or power. It was to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. It was added "where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods". By way of illustration the Supreme Court had referred to the raw cotton as the raw material and the cloth as the final product. In para-8 of the judgment it has been referred that in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed calendered and pressed. The Supreme Court held that all these processes would be regarded as integrated processes and included "in the manufacture" of cloth. In para 9, the Supreme Court observed that if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the generation of electricity could not be eligible for the benefit of Modvat credit when the electricity is used as energy in the production of final products, under clause (c) of the explanation. 20.In the use of the inputs as fuel, at no stage, electricity is emerged as an intermediate product in relation to the manufacture of the final products. The generation of electricity is an independent separate activity. The observations of the Tribunal in the case of Rathi Alloys and Steel Ltd. v. Commissioner of Central Excise, New Delhi - 1997 (93) E.L.T. 594 (Tribunal) that "since electricity is self-generated; which comes into existence as an intermediatory product" were in passing and not in the nature of any findings. Further, in that decision of a Single Member the residual fuel oil and low density oil were also used directly in the furnace during various stages of production. The final product in that case were the product of iron and steel and the above mentioned oils were used in the furnaces. 21.The addition of Clause (d) in the Explanation under Rule 57A by Notification No. 11/95-C.E. (N.T.), dated 16-3-1995 could also not be given retrospective effect. According to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at plants for generation of electricity cannot be taken to be part of the set up for processes for the manufacture of ferro alloys, the question of extending the benefit in respect of fuel oil for generation of electricity does not arise. We in the circumstances, dismiss the appeal." This order was recorded by the Tribunal on 5-2-1997. Under miscellaneous order No. 251/99 Final Order No. 540/99, dated 9-3-1999 while disposing of the miscellaneous application for rectification of mistake, the Tribunal referred to the amendment by Notification No. 11/95-C.E. (N.T.), dated 16-3-1995 and on the basis of a subsequent judgement in the case of Jay Pee Rewa Cement v. Commissioner of Central Excise, Raipur - 1997 (95) E.L.T. 429 (Tribunal) recalled its order dated 5-2-1997. This recall has been made among others on the ground that in Jay Pee Rewa Cement v. Commissioner of Central Excise, Raipur - 1997 (95) E.L.T. 429 (Tribunal), the Tribunal had held that furnace oil was admissible for Modvat credit in generation of electricity. This judgment in the case of Jay Pee Rewa Cement is dated 12-8-1997 and the Tribunal had not noticed the earlier decision dated 5-2-1997 in the case of Ferro Alloys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration Ltd. v. Collector of Central Excise - 1985 (19) E.L.T. 145 (Tribunal) was also not correct. Further, as already indicated above, there was already an existing decision in the case of Ferro Alloys Corporation Ltd., which was of prior date and which had not been noticed by the Tribunal in the case of Jay Pee Rewa Cement. In the case of Ferro Alloys Corporation Ltd., the Tribunal had held that LSHS oil and furnace oil used as fuel oil for captive generation of electricity which is used for production of final products i.e. ferro alloys was eligible input under Rule 57A prior to or after amendment of the Rule in 1995 as they were not used in or in relation to the manufacture of final products. This decision was not noticed by the Tribunal in the case of Jay Pee Rewa Cement and thus decision in Jay Pee Rewa Cement had no precedent value. 23.In the case of Ponds (I) Ltd. v. Collector of Central Excise - 1993 (63) E.L.T. 3 (Madras), the Hon'ble High Court had referred to the Supreme Court's decision in the case of J.K. Cotton Spinning and Weaving Mills Ltd. v. Sales Tax Officer - 1997 (91) E.L.T. 34 (S.C.) = 1965 (16) STC 563 (S.C.) wherein emphasis had been laid on the integral p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind the actual meaning of the words "packing materials" and went wrong in saying that polythene granules "are not packaging materials as such". Bags which were manufactured using those polythene granules were instead held by the Tribunal in the above case as packaging materials. We are of the view, as indicated above that those bags are only packages or containers and cannot be strictly called "packaging materials". Further, the Tribunal erred in saying that those bags do not constitute intermediate products for the detergent powder. As already indicated in view of Section 2(f) of the Act and the abovesaid Chapter Note 4 to Chapter 33, those bags would be "intermediate products" (for the abovesaid detergent powder) spoken to in Rule 57-D(2)." In terms of these observations, the electricity which had not come into existence during the course of manufacture of the final products could not be termed as "intermediate product". Containers were taken as intermediate product by the High Court. By this analogy also the electricity could not be considered as an intermediate product in the manufacture of cement, caustic soda, synthetic filament yarn, etc. Reliance on this decision is thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 30. Para 11 of the decision in Rathi Alloys Steel Ltd. deals with the scope of explanation (c). It is reproduced below for a proper understanding of the reason for holding that fuel used for generation of electricity is eligible for the benefit of Modvat credit under Rule 57A. "11. This Explanation Clause (c) was added by Notification No. 4/94, dated 1-3-1994. This Clause (c) of the Explanation is the bone of contention. The assessees are contending that the inputs are RFO and LDO being fall within the ambit of this Explanation Clause. The Department's contention is that these inputs are utilised in generating set for manufacturing electricity, which is not excisable and hence cannot be considered as an input used as fuel. This plea cannot be accepted because the final product Iron and Steel is manufactured in an Electric Arc Furnace. For the purpose of operating the Electric Arc Furnace fuel is required, which is obtained by generating heat by electricity. Therefore, electricity is an essential ingredients, to make the Electric Arc Furnace operational. Although electricity is not an excisable item and it is supplied by the Rajasthan Electricity Board, but that 'electricity' is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture. The test laid down by the Supreme Court in the Rajasthan State Chemical Works is whether the process and use are integrally connected. When the electricity generation is central to the manufacture there could be no arguing that the generation of electricity is not integrally connected to the manufacture of the goods. What all arrangements a manufacturer puts together for the easy carrying out of the manufacturing activity depends upon circumstances. In a situation where the electricity is available to be drawn from a grid, the fuel used by another person for generating electricity would not be use of the fuel as 'input' in the manufacture of the goods. But when the electricity generation is a captive arrangement and requirement for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the 'input' used in that electricity generation is also an 'input' used in the' manufacture. It is common knowledge that in several parts of the country, availability and voltage of electricity are quite unsatisfactory. Even price is lower, if captively generated by a manufacturer. Thus, electricity authorities of the countr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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