2007 (7) TMI 315 - HC - Central Excise

Cenvat/Modvat credit - inputs used in the manufacture of electricity supplied to the residential complexes within the licensed premises - Held that - The fact that the residential complexes are situated within the licensed premises would not entitle the assessee to avail credit of duty paid on furnace oil used in the manufacture of electricity supplied to the residential complexes. It is necessary to establish that the electricity is used for any purpose connected with or related to the production of final products. In our opinion, supply of electricity to the residential complexes situated within the factory premises are neither connected with or related to the production of the final products - appeal dismissed.

Summary

Issues:
1. Interpretation of the term "factory" under the Central Excise Act, 1944.
2. Eligibility of Modvat credit on inputs used for generation of electricity supplied to residential complexes within licensed premises.

Issue 1: Interpretation of the term "factory" under the Central Excise Act, 1944:
The appellant-assessee filed an appeal under Section 35G of the Central Excise Act, 1944, challenging the order of CESTAT regarding the availment of Modvat credit on inputs used for electricity generation. The dispute centered around the definition of "factory" under Section 2(e) of the Act, which includes any premises where excisable goods are manufactured or any manufacturing process connected with their production is carried out. The appellant contended that the residential complexes within the licensed premises should be considered part of the factory, thus justifying the credit.

Issue 2: Eligibility of Modvat credit on inputs used for generation of electricity supplied to residential complexes within licensed premises:
The appellant, engaged in manufacturing excisable goods, used electricity generated in a captive power plant for both manufacturing and non-manufacturing activities, including supplying it to residential complexes within the licensed premises. The dispute arose when Excise Officers alleged the wrongful availment of duty credit on inputs used for electricity generation supplied to residential complexes. The Commissioner confirmed the demand for recovery and imposed a penalty, which was partially upheld by CESTAT.

The appellant argued that Rule 57B(iv) of the Central Excise Rules allows credit for inputs used for electricity generation for any purpose within the factory premises, including supply to residential complexes. They cited precedents and interpretations to support their claim. However, the respondent contended that to avail credit, electricity must be used for manufacturing intermediate or final products, and supplying it to residential complexes unrelated to production does not qualify.

The Court held that the credit of duty on inputs used for electricity generation is permissible only when the electricity is used for purposes connected with or related to the manufacturing of final products. Supplying electricity to residential complexes within the factory premises, though approved by Central Excise Authorities, did not establish a nexus with manufacturing activities. Precedents cited by the appellant were deemed irrelevant as they did not address the specific issue at hand. Consequently, the Court upheld the Tribunal's decision, dismissing the appeal in favor of the revenue.

In conclusion, the Court answered the re-framed question in the affirmative, ruling against the appellant and upholding the decision that the assessee was not entitled to the credit of duty paid on inputs used for electricity generation supplied to residential complexes within the licensed premises.