2002 (9) TMI 154 - AT - Central Excise

Summary

Issues involved:
Whether Reduced Crude Oil (R.C.O)/ Low Sulphur Heavy Stock (LSHS) captively consumed by the appellant were eligible for exemption from Central Excise duty.

Analysis:
The appeals revolve around the eligibility of Reduced Crude Oil (R.C.O)/ Low Sulphur Heavy Stock (LSHS) for exemption from Central Excise duty when captively consumed. The appellants, engaged in refining crude petroleum, claimed exemption based on various notifications. However, the impugned orders denied the exemption, stating it was only available for RCO/LSHS directly used in the oil refinery, not for those used in generating electricity for refining. The appellants argued that indirect use should not disqualify them from exemption, citing precedents like Hindustan Petroleum Corporation Ltd. v. CCE and Jaypee Rewa Cement v. Commissioner of Central Excise.

The counsel highlighted that even indirect use of specified inputs should be eligible for exemption, as ruled by the Apex Court in Jaypee Rewa Cement case. They also referred to a decision by the Larger Bench of the Tribunal regarding Modvat credit on fuel oils like LSHS used in electricity generation. The counsel emphasized that the Board's Circular supported their position, clarifying that the generation of electricity as an intermediate product is incidental to the manufacturing process of petroleum products, making the exemption applicable.

The Tribunal examined the records and the arguments presented. It noted that the issue raised was addressed in the Hindustan Petroleum Corporation Ltd. case and the Board's Circular, which confirmed the eligibility of the exemption for electricity generated as an intermediate product in the manufacture of petroleum products. The Tribunal concluded that indirect use of RCO/LSHS in generating electricity for refinery use satisfied the exemption criteria, while such use for other purposes would not be exempt. Therefore, the appeals were allowed in favor of the appellants for RCO/LSHS used in the refinery, with duty liability imposed on RCO/LSHS used otherwise.

In conclusion, the Tribunal upheld the appellants' claim for exemption on RCO/LSHS used in the refinery for electricity generation but not for other purposes. The decision was based on established legal principles, precedents, and the Board's Circular, ensuring clarity on the eligibility for Central Excise duty exemption in such cases.