2002 (11) TMI 648 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for concessional rate of duty on furnace oil under Notification No. 75/84-C.E.
2. Compliance with conditions stipulated in the notification.
3. Proof of intended use of furnace oil in the manufacture of fertilizers.
4. Extended period of limitation for demanding duty.
5. Availability of Modvat credit.
6. Imposition of penalty under Section 11AC of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Eligibility for Concessional Rate of Duty on Furnace Oil:
The primary issue in this appeal is whether M/s. DCM Shriram Consolidated Ltd. is eligible to obtain furnace oil at a concessional rate of duty under Notification No. 75/84-C.E. and subsequent notifications. The appellants manufacture various excisable goods, including fertilizers, and have installed a captive power plant to meet their power requirements. The contention revolves around the use of furnace oil as a supportive fuel for the 35 MW power plant dedicated to the fertilizer plant.

2. Compliance with Conditions Stipulated in the Notification:
The notification provides a concessional rate of Central Excise duty for furnace oil used otherwise than as feedstock in the manufacture of fertilizers, subject to following the Chapter X Procedure. The appellants have obtained an L6 Licence for the Fertilizer Division and used the furnace oil in the 35 MW Power Plant. The Commissioner disallowed the benefit of the exemption notification on the grounds that the power generated was transferred to a common grid, losing its identity, and thus could not be proved to be intended solely for the manufacture of fertilizers.

3. Proof of Intended Use of Furnace Oil:
The learned Advocate for the appellants argued that the furnace oil is used only in the 35 MW Power Plant, which caters to the fertilizer plant's power requirements. Despite the power being pooled in a common grid for operational necessity, the power consumption by the fertilizer plant exceeds the power generated by the 35 MW Power Plant. The appellants relied on the Supreme Court's decision in Steel Authority of India Ltd. v. CCE, which interpreted the expression "intended for use" to mean that it was used for the purpose and with the intention of manufacturing fertilizer, not necessarily used directly in the process.

4. Extended Period of Limitation for Demanding Duty:
The Revenue argued that the appellants had suppressed the existence of the common grid, which was not mentioned in their L6 Licence application or the ground plan submitted. Therefore, the extended period of limitation for demanding duty was applicable. The appellants countered that the existence of the power plant and the common grid was known to the Department, and there was no mis-utilization of the furnace oil.

5. Availability of Modvat Credit:
The appellants alternatively submitted that if duty on furnace oil is payable, it should be available as Modvat credit. They cited the Larger Bench decision in Jay Yushin Ltd. v. CCE, which held that the benefit of revenue neutralization is available if the assessee can demonstrate the availability of Modvat credit.

6. Imposition of Penalty under Section 11AC of the Central Excise Act:
The appellants contended that the imposition of penalty under Section 11AC was incorrect as the period involved was prior to the provision's enforcement. Moreover, no penalty was imposable since there was no diversion of the furnace oil for use other than as supportive fuel for the 35 MW Power Plant dedicated to the Fertilizer Plant.

Judgment:
The Tribunal considered the submissions and held that the appellants complied with the notification's conditions. The furnace oil was used as supportive fuel for the 35 MW Power Plant dedicated to the Fertilizer Plant, and the power requirement of the Fertilizer Plant exceeded the power generated by this plant. The pooling of power in a common grid was for operational necessity and did not detract from the intended use of the furnace oil. The Tribunal relied on the Supreme Court's interpretation in Steel Authority of India Ltd. v. CCE, which emphasized the intention of use rather than direct use. Consequently, the appellants were eligible for the concessional rate of duty, and the appeal was allowed, setting aside the impugned Order.