2004 (10) TMI 528 - AT - Central Excise

Issues:
1. Denial of exemption under Notification No. 5/98 for duty and penalty.
2. Interpretation of conditions for exemption under the Notification.
3. Determination of captive use of electricity and its impact on exemption eligibility.
4. Consideration of LSHS as a primary or secondary fuel for exemption.

Analysis:
1. The issue involved in this case pertains to the denial of exemption under Notification No. 5/98 for a duty amount exceeding Rs. 6.78 crores and an equal penalty. The lower authority confirmed the demand of duty against the appellants, a Public Sector Undertaking, by excluding them from the benefit of exemption under the said Notification. The Notification provided an exemption for Low Sulphur Heavy Stock (LSHS) used as fuel for electricity generation by Government-owned Electricity Undertakings for sale, excluding captive consumption. The appellants contended that they primarily sold the electricity generated, making them eligible for the exemption. The adjudicating authority found that the appellants sold a portion of electricity generated using LSHS, leading to the denial of the exemption.

2. The Tribunal analyzed the conditions of the Notification and the usage of LSHS as fuel for electricity generation. It was observed that the primary condition for exemption was the exclusive production of electricity for sale by Government-owned Electricity Undertakings. The records indicated that a significant portion of electricity produced was indeed sold by the appellants during the disputed period. The Tribunal noted that the manner in which LSHS was utilized by the appellants indicated its use as fuel for electricity generation. Based on these findings, the Tribunal concluded that the appellants had a prima facie case for exemption. Therefore, waiver of pre-deposit and stay of recovery were granted for the duty and penalty amounts.

3. Another critical aspect of the case involved the determination of captive use of electricity by the appellants and its impact on their eligibility for exemption. The appellants argued that they mainly sold the electricity produced, reserving only a minor portion for captive consumption. They referred to a letter from the Energy Ministry allocating specific quantities of electricity for sale and captive use. The Tribunal considered this allocation, which indicated that a substantial portion of the energy produced was intended for sale to State Electricity Boards. This allocation supported the appellants' claim that they primarily produced electricity for sale, aligning with the conditions for exemption under the Notification.

4. Additionally, the interpretation of whether LSHS was used as a primary or secondary fuel for electricity generation was discussed. The appellants asserted that LSHS was the primary fuel used for electricity generation, qualifying them for the exemption. On the other hand, the authorities raised concerns about the classification of LSHS as a secondary fuel, potentially affecting the exemption eligibility. The Tribunal examined the usage pattern of LSHS by the appellants and found that it was indeed utilized as a fuel for generating electricity, supporting the appellants' claim for exemption under the Notification.

In conclusion, the Tribunal granted the waiver of pre-deposit and stay of recovery to the appellants based on the prima facie case established regarding the eligibility for exemption under Notification No. 5/98 for the duty and penalty amounts.

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