2006 (11) TMI 515 - AT - Central Excise

Summary

Issues:
1. Modvat credit denial on furnace oil used in electricity generation.
2. Justification for dividing input utilization division wise.
3. Treatment of divisions as separate entities.
4. Factory-wise Modvat credit application.
5. Penalty imposition validity.

Analysis:

The judgment by the Appellate Tribunal CESTAT, New Delhi, involved the issue of Modvat credit denial on furnace oil used in electricity generation. The appellant, engaged in producing polymer chips and polyester yarn, claimed Modvat credit on furnace oil used for generating electricity consumed in both divisions. The Revenue argued for treating both divisions as separate entities, contending that separate facilities should be created for each unit. However, the Tribunal noted that the Modvat credit is factory-wise, as established in previous cases like Mahabir Jute Mills Ltd. v. CCE, Allahabad and SRF Ltd. v. CCE, Chennai. Consequently, the appeal succeeded in obtaining Modvat credit on furnace oil and other eligible inputs used in electricity generation, leading to the setting aside of the imposed penalty.

Furthermore, the judgment addressed the justification for dividing input utilization division-wise. The appellant's counsel argued against such division, emphasizing that when the manufacturing factory is the same and owned by the same manufacturer, there is no need to segregate input utilization division-wise, especially for utilities like electricity and water. The Tribunal agreed with this contention, highlighting that dividing input utilization in such cases is neither efficient nor mandated by Modvat Rules.

The issue of treating divisions as separate entities was also discussed in the judgment. The Revenue's stance was that both divisions should be considered separate entities, requiring distinct facilities for each unit. However, the Tribunal rejected this argument, emphasizing the factory-wise application of Modvat credit and the lack of justification for treating divisions as separate entities in this context.

Moreover, the judgment addressed the validity of penalty imposition. Following the success of the appeal in obtaining Modvat credit on furnace oil and eligible inputs for electricity generation, the penalty imposed was set aside, further solidifying the appellant's position in the case.

In conclusion, the judgment by the Appellate Tribunal CESTAT, New Delhi, clarified the application of Modvat credit in cases involving electricity generation, emphasized the factory-wise approach for credit allocation, and highlighted the inefficiency of treating divisions as separate entities in certain manufacturing scenarios.