1999 (12) TMI 88 - AT - Central Excise

Issues Involved:
1. Jurisdiction of the Bench to hear the matter.
2. Admissibility of Modvat credit on fuel oils used for generation of electricity under Rule 57A of the Central Excise Rules, prior to 16-3-1995.

Summary:

Jurisdiction of the Bench:
Objections Raised: The learned Advocate argued that the matter was referred to a Larger Bench without the referring Bench expressing its opinion on the correctness of conflicting judgments, citing the Supreme Court decisions in Union of India v. Paras Laminates P. Ltd. and Brite Automotives and Plastics Ltd. Furthermore, it was contended that there were no conflicting judgments when the President of the Tribunal constituted the Larger Bench, and that there is no provision in the Central Excise Act or CEGAT (Procedure) Rules empowering the President to constitute a Larger Bench in the event of a conflict of judgment.

Decision: The objections were overruled. The Tribunal held that one of the objects of constituting Larger Benches is conflict resolution, and the existence of conflicting judgments is a valid ground for the President to act in exercise of his administrative powers to constitute a Larger Bench. This practice is supported by the Supreme Court's decisions in ITAT v. Dy. CIT (Asstt.) III, Hyderabad and other cases. The Tribunal also noted that the practice of referring matters to a Larger Bench when conflicting judgments are noted is followed by the Supreme Court, as seen in Ujagar Prints and Collector v. Cotspun Ltd.

Admissibility of Modvat Credit:
Contention: The main issue was whether Modvat credit is admissible on fuel oils used for the generation of electricity, which is then used in the manufacture of final products, under Rule 57A of the Central Excise Rules, prior to the introduction of clause (d) on 16-3-1995.

Majority Decision: The Tribunal held that fuel oils used for the captive generation of electricity, which in turn is used in the manufacture of final products, are eligible for Modvat credit under Rule 57A. The Tribunal reasoned that the expression "used in or in relation to the manufacture" in Rule 57A is wide enough to include fuel oils used in the generation of electricity. They relied on previous decisions, such as Jay Pee Rewa Cement and Indian Oil Corporation Ltd., which supported the view that inputs used as fuel for generating electricity are eligible for credit. The Tribunal also noted that the introduction of clause (d) on 16-3-1995, which explicitly included inputs used for the generation of electricity, did not imply that such inputs were not eligible for credit prior to that date.

Dissenting Opinion: One member disagreed, stating that prior to 16-3-1995, inputs used for the generation of electricity were not eligible for Modvat credit under Rule 57A. The dissenting opinion emphasized that the generation of electricity is a separate activity and not integrally related to the manufacturing process of the final products. The inclusion of inputs used as fuel in the explanation to Rule 57A should be interpreted narrowly, and the generation of electricity should not be considered as part of the manufacturing process of the final products.

Final Order: By majority, the appeals of the assessees were allowed, and the appeals of the Revenue were rejected. The Tribunal concluded that fuel oils used for the generation of electricity, which is used in the manufacture of final products, are eligible for Modvat credit under Rule 57A.

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