1983 (9) TMI 314 - AT - Central Excise

Summary

Issues:
1. Interpretation of exemption notifications under Notification No. 74/63 and Notification 352/77 regarding the use of residual fuel oil in a refinery for the production of steam and electricity.
2. Whether the use of residual fuel oil for the production of steam and electricity qualifies for exemption under the said notifications.

Analysis:
The dispute in this case revolves around the use of residual fuel oil in a refinery for the production of steam and electricity, which are then utilized in the manufacture of petroleum products. The central excise authorities contended that such use does not qualify for exemption under Notification No. 74/63 and Notification 352/77. These notifications provide exemptions for intermediate petroleum products used as fuel within refineries for the production of finished petroleum products. The crux of the issue is whether the use of residual oil for generating steam and electricity, which are subsequently used in the production process, falls within the ambit of the exemption notifications.

The appellant argued that historical practice and government instructions supported granting the exemption. However, the department contended that the strict wording of the notifications precluded granting the exemption. The key argument put forth was whether the fuel oil used for producing steam and electricity could be considered as being used as fuel within the refinery for the production of finished petroleum products.

The Tribunal analyzed the situation and concluded that the use of fuel oil for generating steam and electricity, which are integral parts of the production process, should be deemed as fulfilling the conditions of the exemption notifications. It was acknowledged that modern technology allows for various methods of utilizing fuel oil in refineries, and the direct use of fuel oil may not be practical or efficient. The Tribunal emphasized that the generated steam and electricity are not products themselves but are utilized in the production of finished petroleum products, aligning with the purpose of the exemption notifications.

However, a separate opinion was expressed by one member of the Tribunal, emphasizing the strict interpretation of the exemption notification. The dissenting member highlighted that the language of the notification clearly specified the usage of petroleum products as fuel for the production of "other petroleum products," which did not align with the production of electricity, a product falling under a different excise duty category. The dissenting opinion emphasized adherence to the explicit terms of the exemption notification without delving into legislative intent.

In conclusion, the majority of the Tribunal allowed the appeal, emphasizing that granting the exemption for the use of residual fuel oil in the production of steam and electricity for manufacturing petroleum products was within the scope of the exemption notifications. Conversely, the dissenting opinion advocated for dismissing the appeal based on a strict interpretation of the notification's language and conditions.