2000 (12) TMI 382 - AT - Central Excise

Summary

Issues involved: Interpretation of Rule 57A and Rule 57D regarding Modvat credit for inputs used for generation of electricity in a steel mill factory.

Summary:
The case involved Essar Steel Limited appealing against the denial of Modvat credit by the department for using Natural Gasoline Liquid (NGL) to generate electricity in its steel mill factory. The department contended that the NGL did not qualify as an input under Rule 57A due to specific conditions not being met. The Assistant Commissioner and Commissioner (Appeals) upheld this view, emphasizing the necessity for electricity to be produced within the factory of production to qualify as an input.

However, Commissioner (Appeals) in Surat took a different stance, stating that any input used in or in relation to the manufacture of the final product could be considered an input. The ambiguity in the definition of "factory of production" under Rule 57A was highlighted, with the Tribunal's previous ruling in Ballarpur Industries Ltd v. CCE supporting the interpretation that the factory of production referred to where the final product is produced, not where electricity is generated.

The argument that electricity is not an intermediate product was refuted based on precedents from the Tribunal and the Madras High Court, establishing that electricity can be considered an intermediate product under Rule 57D. The proviso under sub-rule (2) of Rule 57D clarified that duty credit is allowed for inputs used for generating electricity within the factory of production.

Ultimately, the Tribunal allowed the appeals, determining that the NGL used to generate electricity consumed within the factory qualified as inputs eligible for Modvat credit, while the portion of fuel oil fed into the grid did not qualify. Consequential relief was granted as per the law.