2008 (12) TMI 481 - AT - Central Excise

Summary

Issues:
1. Admissibility of CENVAT credit on duty paid for Furnace Oil (FO) used in the production of steam diverted outside the factory.
2. Interpretation of Rule 57B(1) of the Central Excise Rules (CER) regarding goods used as fuel and generation of electricity or steam within the factory of production.
3. Application of the Supreme Court judgment in CCE v. Solaris Chemtech Limited (2007) on the admissibility of credit for inputs used as fuel.

Analysis:

Issue 1: Admissibility of CENVAT credit on duty paid for Furnace Oil (FO) used in the production of steam diverted outside the factory.
The case involved M/s. Futura Fibres claiming CENVAT credit for FO used in the production of steam, which was then supplied to a sister unit outside the factory. The department contended that the credit related to FO used for steam diverted outside should be reversed. The original authority confirmed the demand for inadmissible credit under the CENVAT Credit Rules, 2002. However, the Commissioner (Appeals) allowed the appeal based on a Tribunal decision. The Tribunal held that inputs used as fuel were covered under specific clauses of the Central Excise Rules and the entire credit was deemed admissible. The revenue appealed, arguing that the Supreme Court's interpretation in a similar case supported the original authority's decision.

Issue 2: Interpretation of Rule 57B(1) of the Central Excise Rules (CER) regarding goods used as fuel and generation of electricity or steam within the factory of production.
The Tribunal referred to various decisions interpreting Rule 57B(1) of CER, specifically focusing on goods used as fuel and the generation of electricity or steam within the factory. The revenue relied on past Tribunal decisions to support their argument that credit for inputs used as fuel should be limited to the extent that the generated electricity or steam is used within the factory of production. However, the respondents cited Tribunal decisions where goods used as fuel were deemed eligible for full credit regardless of the further use and output nature.

Issue 3: Application of the Supreme Court judgment in CCE v. Solaris Chemtech Limited (2007) on the admissibility of credit for inputs used as fuel.
The revenue argued that the Supreme Court's interpretation in the Solaris Chemtech case supported their position that credit for inputs used as fuel should be restricted based on the usage within the factory of production. The Tribunal analyzed the clauses under Rule 57A and Rule 57B(1) of CER, highlighting the similarity in language and interpretation. The Tribunal concluded that the FO used to generate power or steam for captive use in the production of final products within the factory qualified for credit. However, the FO used to generate steam diverted outside the factory did not meet the requirement of being used in or in relation to the manufacture of final products, making the credit inadmissible.

In conclusion, the Tribunal upheld the original authority's decision to demand inadmissible credit for FO used in steam diverted outside the factory. The judgment clarified the application of Rule 57B(1) of CER and emphasized the importance of usage within the factory of production for claiming CENVAT credit on inputs used as fuel. The respondents were not penalized for the differing interpretations by different Tribunal Benches, and the revenue's appeal was partially allowed.