2005 (7) TMI 389 - AT - Central Excise

Summary

Issues:
Exemption denial on chemicals manufactured and consumed in water demineralization for steam generation used for electricity and paper making.

Analysis:
The judgment revolves around the denial of exemption on chemicals used in water demineralization for steam generation, subsequently utilized for electricity and paper production. The appellant argued based on the Sudarshan Chemical case and revenue neutrality. The notice covered the period from Sept. 93 to March 94, demanding duty and imposing a penalty. The authority's denial was based on the assumption that steam might be used for purposes other than paper manufacturing, which was deemed unjustified. The Supreme Court's ruling in Indian Farmers & Fertilizers Corp. Ltd. was cited, emphasizing that steam use in various plants is related to paper manufacturing, entitling the benefit of Notification 217/86.

The judgment refuted the authority's claim that since steam is duty-exempt, the benefit of Notification 217/86 is inapplicable, highlighting that steam is not the final product but is consumed internally. The appellant's argument that all steam generated is solely for paper production, with electricity being a byproduct of energy transfer, was disregarded by the lower authority. It was clarified that the energy transformation process does not affect the demineralization chemical consumption, thus justifying the entitlement to the benefit of captive consumption under Notification No. 217/86 even if the intermediate steam is exempt.

Conclusively, the judgment set aside the previous orders, allowing the appeal. The decision was pronounced on 1-7-2005 by the Appellate Tribunal CESTAT, Mumbai, with the representation of both parties and the detailed consideration of the arguments presented.