2014 (1) TMI 1570 - HC - Central Excise

Cenvat credit availed in favour of naphtha used for the generation of electricity and supplied to their units - Application of Rule 57C - Held that - assessee used furnace oil in the generation of steam. A part of the steam was transferred to a unit situated outside their factory. Though there is no dispute about the inputs, the fact remains that the steam generated was not used within the factory of production. It is not the case of the assessee that M/s. Futura Industries Limited is a 100% export oriented unit. Rule 57C allows credit of duty in respect of export oriented undertakings. When there is a specific entry in a rule and the said entry pre-supposes that for the purpose of eligibility of credit of duty of inputs, those inputs must be used for manufacture of final products or for any other purpose within the factor of production, the assessee cannot take shelter under a different entry. Admittedly, the assessee has used furnace oil in the generation of steam and the said steam was transferred altogether to a different unit situated outside the factory premises. Therefore, the case of the assessee would come under Rule 57B(1)(iv) - Rule 57C(1)(ii) has to be decided by the CESTAT on merits - The matter is remanded to the CESTAT for consideration regarding the eligibility to claim credit on the basis of Rule 57C(1)(ii) - Decided in favour of Revenue.

Summary

Issues:
Challenge to order disallowing Cenvat credit for naphtha used in generating electricity and supplied to other units.

Analysis:

Issue 1: Interpretation of Rule 57AA(d) of Central Excise Rules, 1944
- The appeal challenged the disallowance of Cenvat credit for naphtha used in electricity generation.
- CESTAT allowed the appeal, considering naphtha as "goods used as fuel" eligible for credit.
- The substantial question of law focused on the correct interpretation of Rule 57AA(d).
- The Tribunal's interpretation of naphtha as "goods used for generation of electricity" was pivotal.

Issue 2: Eligibility for Cenvat Credit
- Revenue argued that only proportionate credit was valid due to electricity sales to sister units.
- CESTAT supported the assessee's claim based on Rule 57A and 57B provisions.
- The dispute revolved around whether naphtha qualified as an input under the Rules.

Issue 3: Application of Legal Precedent
- Reference to Maruti Suzuki case highlighted the importance of using electricity within the factory for credit eligibility.
- The Court emphasized the necessity of captive consumption for credit entitlement.

Issue 4: Compliance with Rule 57B(1)(iv)
- The assessee's reliance on Rule 57B(1)(iv) was questioned due to steam transfer outside the factory.
- The Court clarified that inputs must be used within the factory for credit, as per Rule 57C.
- The CESTAT's oversight of Rule 57C(1)(ii) led to the order's overturning.

Conclusion:
- The Court set aside CESTAT's decision, emphasizing the need for electricity usage within the factory.
- The matter was remanded for CESTAT to reconsider credit eligibility under Rule 57C(1)(ii).
- The judgment favored the Revenue, highlighting the importance of complying with excise rules for credit claims.