2007 (1) TMI 460 - AT - Central Excise

Cenvat/Modvat - furnace oil used as Fuel for generation of electricity - manufacture of final product - Inputs sent outside for job work - provision of Rule 4(5) of the Cenvat Credit Rules, 2002 - HELD THAT - Since tanks are earmarked for exclusive use of M/s. IRTL, they belong to them and accordingly receipt in the tanks of IRTL will amount of receipt by M/s. IRTL. There is no evidence from revenue that no payment was being made for hiring tanks by M/s. IRTL. In that view of the matter it can be considered that the inputs were received by M/s IRTL only. We further find that the CBEC vide its Circular No. 637/28/02 has clarified that the Cenvat credit is admissible only when inputs or capital goods are used by the manufacture within the factory premises (except when inputs or capital goods are used/sent for job work outside factory). Since in this case the inputs have been sent outside for job work, the present case is squarely covered by this clarification and therefore the furnace oil satisfy the definition inputs under Rule 2(g). Further furnace oil used as fuel is covered by the main definition of inputs under Rule 2(g) which says inputs means all goods except high speed diesel oil used in or in relation to the manufacture of final product whether directly or indirectly or whether contained in the final product or not The rule does not say inputs means all goods except goods used as fuel and therefore no exception can be made in respect of fuel as long as it has been used in or in relation to the manufacture of final products. In view of the same, we hold that the appellants have correctly availed of the credit and accordingly the Commissioner s order is set aside. Appeal is allowed.

Summary

Issues:
1. Availing Cenvat credit for input used in the manufacture of final product.
2. Discrepancy in the utilization of furnace oil for electricity generation.
3. Interpretation of Cenvat Credit Rule and Notification 214/86.
4. Applicability of Rule 4(5) of the Cenvat Credit Rules.
5. Receipt of inputs by the principal manufacturer.
6. Clarifications provided by CBEC Circulars.

Analysis:
1. The appellants were engaged in the manufacture of Spun Yarn and availing Cenvat credit for inputs used in the final product. They intended to send furnace oil to another entity for electricity generation on a job work basis. However, investigations revealed discrepancies in the utilization of the furnace oil, raising concerns about the eligibility of Cenvat credit.

2. The show cause notice highlighted that the furnace oil was not used as per the requirements of Rule 2(g) of the Cenvat Credit Rule, as it was not received at the premises of the principal manufacturer but directly by another entity. The issue of whether electricity generated off-site could be considered as used in the factory of production was also raised, along with the applicability of Notification 214/86.

3. During adjudication, the appellants argued that the inputs were sold by the entity generating electricity, and the electricity was used in the manufacture of the final product, making it an intermediate product covered by Rule 4(5) of the Cenvat Credit Rules. They cited precedents and CBEC Circulars to support their claim.

4. The Commissioner rejected the pleas, emphasizing that the inputs were not directly received by the principal manufacturer, leading to a denial of Rule 4(5) applicability. However, the Tribunal found that the conditions of Rule 4(5) were met, as the electricity generated was used in the final product within 180 days, irrespective of whether it was an excisable product.

5. The Tribunal further clarified that the inputs' receipt at the job worker's premises did not automatically disqualify the credit, especially when other conditions were fulfilled. The earmarking of tanks for exclusive use by the principal manufacturer was considered, and the CBEC Circular regarding job work outside the factory premises was deemed relevant.

6. Ultimately, the Tribunal held that the appellants correctly availed of the credit, as the furnace oil, even when used as fuel, satisfied the definition of inputs under Rule 2(g) of the Cenvat Credit Rules. The Commissioner's order was set aside, and the appeal was allowed based on the comprehensive analysis of the legal provisions and precedents cited.