2000 (1) TMI 99 - AT - Central Excise

Summary

Issues Involved:
1. Availability of Central Excise duty exemption on naphtha captively consumed for generation of electricity used in the manufacture of final products.
2. Eligibility of naphtha captively consumed for flushing pipelines for similar exemptions.

Summary:

Issue 1: Exemption on Naphtha for Electricity Generation
The appellants claimed Central Excise duty exemption u/s Notification No. 217/86, as amended by Notification No. 61/94, for naphtha used to generate electricity, which was then used in the manufacture of final products under Chapter 27 of the Central Excise Tariff Act, 1985. The Tribunal noted that the naphtha was used to produce hot gases, which drove turbines to generate electricity. This electricity, along with steam generated from the residual hot gases, was essential for the manufacturing process. The Tribunal held that the phrase "in or in relation to the manufacture of the final products" should be interpreted liberally to include intermediate products like electricity and steam. Citing the Supreme Court's decisions in IFFCO and GSFC cases, the Tribunal concluded that the indirect use of naphtha in generating electricity and steam, which are essential for manufacturing final products, qualifies for duty exemption.

Issue 2: Exemption on Naphtha for Flushing Pipelines
The appellants also claimed exemption for naphtha used for flushing pipelines, arguing that this process was integral to the manufacturing operation. The Tribunal agreed, referencing the Supreme Court's decision in Rajasthan State Chemical Works, which held that preliminary steps integral to the manufacturing process qualify for exemption. The Tribunal found that flushing pipelines was necessary to transport raw materials into the distillation unit, making it an essential part of the manufacturing process.

Conclusion:
The Tribunal allowed the appeals, modifying Order-in-Appeal No. 47/95 to grant duty exemption for naphtha used in generating electricity and steam, and for flushing pipelines. Consequently, Orders-in-Appeal Nos. 6/98, 7/98, and 8/98 were set aside, and the appellants were granted consequential relief as per law.