2012 (10) TMI 906 - AT - Central Excise

Demand along with interest and penalties - denial of benefit of exemption under Notification No.67/95-CE - Naphtha was cleared for home consumption on payment of Central Excise duty as well as at NIL rate of duty under the Notification No.67/95 for generation of electricity in their co-generation plant or Captive Power Plant (CPP) - Held that - There was difference of opinion on the issue regarding the exemption on the quantity of Naphtha attributable to electricity generated in captive power plant/co-generation plant, used for allied activities like lighting in the artillery (sic) roads/yard, administrative building, canteen/cafeteria - Members having a difference of opinion; therefore the same is placed before the Hon ble Vice President/HOD for appointing a 3 rd Member to decide the issue.

Issues Involved:
1. Denial of benefit of exemption under Notification No. 67/95-CE dated 16.03.1995.
2. Use of Naphtha for electricity generation and its subsequent use in the manufacture of exempt goods and allied activities.
3. Verification and authentication of CENVAT credit reversal.
4. Exemption eligibility for electricity used in allied activities like lighting, administrative buildings, canteen, etc.
5. Separate judgments delivered by the judges on the issue of exemption for electricity used in allied activities.

Detailed Analysis:

1. Denial of Benefit of Exemption under Notification No. 67/95-CE:
The appellants were denied the benefit of exemption under Notification No. 67/95-CE dated 16.03.1995. The denial was based on the grounds that the final products (fertilizers, LPG, SKO) were exempt from duty or chargeable to nil rate of duty. The learned Commissioner confirmed the demand, stating that the exemption does not apply to inputs used in the manufacture of final products exempt from duty or chargeable to nil rate of duty.

2. Use of Naphtha for Electricity Generation and Subsequent Use:
The appellants contended that w.e.f. 1.7.2001, the exemption under Notification No. 67/95 was available for intermediate inputs used in the manufacture of final products, even if exempt from duty, provided the manufacturer discharged obligations under Rule 6 of CCR. The appellants argued that they reversed the proportionate CENVAT credit attributable to inputs used for generating electricity, which was then used in the manufacture of fertilizers, LPG, and SKO. They submitted a Chartered Accountant's certificate to substantiate the reversal of credit.

3. Verification and Authentication of CENVAT Credit Reversal:
The Revenue argued that the appellants' claim of reversing CENVAT credit was not verified or authenticated by Central Excise authorities. The adjudicating authority did not address this issue in the impugned order. However, the Tribunal found that the show-cause notice itself admitted the reversal of proportionate CENVAT credit under Rule 6(3)(a) of CCR, 2004, making the Revenue's contention baseless.

4. Exemption Eligibility for Electricity Used in Allied Activities:
The appellants argued that electricity used in allied facilities like yard lighting, administrative buildings, and canteens is integral to the refining process and should be covered by the exemption under Notification No. 67/95. They cited several judgments supporting their claim, including Reliance Industries Ltd. v. CCE Rajkot, which held that electricity used within the factory premises for any purpose related to the final product is entitled to the benefit of MODVAT credit.

5. Separate Judgments Delivered by the Judges:
The Member (Judicial) allowed the exemption for Naphtha used for generating electricity, which was then used in allied activities, relying on the decision in Reliance Industries Ltd. The Member (Technical), however, disagreed, citing the decision in Indo Rama Synthetics (India) Ltd. v. CCE, which held that electricity used for non-manufacturing activities like residential complexes is not eligible for credit. The Member (Technical) concluded that the appellants are not entitled to exemption for Naphtha used for electricity in allied activities.

Conclusion:
The Tribunal allowed the appeals by setting aside the impugned orders, except for the issue of exemption for electricity used in allied activities, which was referred to a third member due to the difference of opinion between the judges. The Member (Judicial) held that the exemption is available for electricity used in allied activities, while the Member (Technical) held that it is not, based on the interpretation of Rule 2(k) of CENVAT Credit Rules, 2004.

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