2013 (9) TMI 453 - AT - Central Excise

Captive consumption - intermediary product - Naphtha - manufacturing of exempted goods - Benefit of Notification No. 67/95 - It is the contention of the appellants that the reversal satisfies the conditions of Notification 67/95 read with Rule 6 of Cenvat Credit Rules, 2002. - Majority Decision - Held that - The benefit of exemption under Notification No. 67/95-C.E., dated 16-3-1995 was allowed on account of (a) Naphtha cleared, availing exemption under Notification No. 4/2006-C.E., dated 1-3-2006 for manufacture of fertilisers under International Competitive Bidding (ICB). - (b) On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for manufacture of exempt goods viz. LPG (Domestic) and Superior Kerosene Oil (PDS) The benefit of exemption under Notification No. 67/95-C.E., dated 16-3-1995 was denied on account of - (c) On that much quantity of Naphtha, attributable to electricity generated in captive power plant/co-generation plant, used for allied activities like lighting in the artillery roads/yard, administrative building, canteen/cafeteria. Decision in RELIANCE INDUSTRIES LTD. Versus COMMISSIONER OF C. EX., RAJKOT 2008 (3) TMI 591 - CESTAT, AHMEDABAD and SAKTHI SUGARS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, SALEM 2007 (6) TMI 471 - CESTAT, CHENNAI and GODAVARI SUGAR MILLS LTD. Versus COMMISSIONER OF C. EX., BELGAUM 2006 (11) TMI 497 - CESTAT, BANGALORE followed.

Issues Involved:
1. Denial of benefit of exemption under Notification No. 67/95-C.E., dated 16-3-1995.
2. Use of Naphtha for manufacture of fertilizers.
3. Use of Naphtha for generation of electricity used in the manufacture of exempt goods.
4. Use of Naphtha for generation of electricity used for allied activities within the refinery.
5. Reversal of CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004.

Issue-Wise Detailed Analysis:

1. Denial of benefit of exemption under Notification No. 67/95-C.E., dated 16-3-1995:
The appellant contested the denial of exemption under Notification No. 67/95-C.E., dated 16-3-1995, which exempts inputs used in or in relation to the manufacture of final products, provided the final products are not exempt from duty or chargeable to nil rate of duty. The Commissioner denied the exemption on the grounds that the final products (fertilizers, LPG, and SKO) were exempt from duty, and the electricity generated was used for non-manufacturing activities.

2. Use of Naphtha for manufacture of fertilizers:
The appellant argued that under Rule 6(3)(a) of the CENVAT Credit Rules, 2004, they had reversed the proportionate CENVAT credit attributable to inputs used in the manufacture of fertilizers, which are exempt from duty. The Tribunal agreed with the appellant, citing consistent judicial precedents that once the manufacturer discharges the obligation under Rule 6 of the CENVAT Credit Rules, they are eligible for exemption under Notification No. 67/95-C.E.

3. Use of Naphtha for generation of electricity used in the manufacture of exempt goods:
The appellant contended that the electricity generated using Naphtha was used in the manufacture of exempt goods (LPG and SKO). The Tribunal held that the appellants are entitled to the exemption under Notification No. 67/95-C.E., as they had reversed the proportionate CENVAT credit as required under Rule 6 of the CENVAT Credit Rules.

4. Use of Naphtha for generation of electricity used for allied activities within the refinery:
There was a difference of opinion between the judicial and technical members regarding the eligibility for exemption on Naphtha used for generating electricity for allied activities (lighting in the artillery roads/yard, administrative building, canteen/cafeteria). The judicial member held that these activities are integral to the refinery process and should be covered under the exemption. However, the technical member, relying on the decision in Indorama Synthetics (India) Ltd. and the Supreme Court's decision in Solaris Chemtech Ltd., held that the exemption is not available for electricity used in non-manufacturing activities. The third member (Vice-President) agreed with the technical member, concluding that the exemption is not available for Naphtha used for generating electricity for allied activities.

5. Reversal of CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004:
The Tribunal found that the appellant had reversed the proportionate CENVAT credit as required under Rule 6(3)(a) of the CENVAT Credit Rules, 2004, for the inputs used in the manufacture of fertilizers and electricity used in the manufacture of exempt goods. This reversal was acknowledged in the show-cause notice, and thus, the appellant's claim was substantiated.

Conclusion:
The Tribunal allowed the benefit of exemption under Notification No. 67/95-C.E. for Naphtha used in the manufacture of fertilizers and electricity used in the manufacture of exempt goods (LPG and SKO). However, the exemption was denied for Naphtha used for generating electricity used for allied activities within the refinery, such as lighting in the artillery roads/yard, administrative building, canteen/cafeteria. The appeals were allowed in part, setting aside the impugned orders to the extent of the allowed exemptions.

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