2006 (9) TMI 443 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of LSHS used as a secondary fuel in start-up of boilers and flame stabilization for exemption under relevant Notifications.
2. Eligibility of LSHS used for generation of electricity consumed in plant/mine, i.e., not sold by NLC, for the above exemption.
3. Applicability of extended period of limitation for demanding duty.

Summary:

Issue 1: Eligibility of LSHS used as a secondary fuel in start-up of boilers and flame stabilization for exemption under relevant Notifications.

The Tribunal examined whether LSHS used in start-up operation and flame stabilization can be said to be "intended for use as fuel for the generation of electricity." It was noted that the Notification uses the term "fuel" without specifying 'primary' or 'secondary,' thus including secondary fuel within its ambit. The Tribunal referenced the Supreme Court's interpretation in the case of Steel Authority of India Ltd. v Collector of Central Excise, which held that the exemption Notification required proof that the fuel was intended for use in the manufacture, not necessarily that it resulted in the manufacture. Applying this rationale, the Tribunal concluded that LSHS used as secondary fuel in start-up of boilers and flame stabilization was indeed intended for use as fuel for the generation of electricity and thus eligible for exemption. Accordingly, this issue was held in favor of the assessee.

Issue 2: Eligibility of LSHS used for generation of electricity consumed in plant/mine, i.e., not sold by NLC, for the above exemption.

The Tribunal noted that the relevant Notifications clearly stated that the exemption was not available to LSHS "intended for use as fuel for the generation of electrical energy" by an Electricity Undertaking of the Central Government which produced electrical energy not for sale but for their own consumption or for supply to their own Undertakings. Since a portion of the electricity was used in the plant and mine and not sold, the Tribunal held that the benefit of the exemption Notifications was not admissible to that quantity of LSHS. This issue was held against the appellants.

Issue 3: Applicability of extended period of limitation for demanding duty.

The Tribunal found that the appellants had disclosed the use of LSHS as secondary fuel to the department at the initial stage of taking the L-6 licence. The Commissioner's finding of 'non-disclosure of facts with intent to evade duty' was deemed incorrect. The Tribunal also noted that the use of electricity in the plant and mine was covered by "industrial use" mentioned in the application for the licence. Consequently, the extended period of limitation was not applicable. The demand of duty for the period August 1998 to October 2002 was set aside partly on merits and partly on the ground of limitation. The connected penalty was also set aside. For the period March 2003 to January 2004, the demand of duty on the quantity of LSHS used for electricity not sold but used in the plant and lignite mine during the normal period of limitation was upheld, and the rest of the demand was set aside. The adjudicating authority was directed to quantify the amount of duty recoverable after giving the appellants a reasonable opportunity to be heard.

Conclusion:

Appeal No. 503/2004 was allowed, and Appeal No. 171/2005 was partly allowed.

(Pronounced in open Court on 28-9-2006)