2013 (9) TMI 937 - HC - Central Excise

MODVAT Claim on the portion of Furnace Oil/LDO used for generation of electricity supplied to other units - Interpretation of Rules - Held that - It was well-settled that tax law should be interpreted in conformity with the normal commercial practice - Therefore, the manner of use should be accepted as to economical, efficient and convenient manner of use. A contrary interpretation would lead to frustrating the purpose of law in granting exemption/Modvat credit - Relying upon In SRF Ltd. versus Commissioner of Central Excise, Chennai 2005 (7) TMI 215 - CESTAT, CHENNAI and Mahabir Jute Mills Ltd. versus Commissioner of C. Ex., Allahabad 2006 (2) TMI 591 - CESTAT, NEW DELHI . The learned counsel produced various orders passed by the different Tribunals and they all do support the impugned order of the Tribunal - The learned counsel for the appellant could not refer any statutory regulation or rule to take a different view of the matter - It was logical that if two units were being run at one place, producing two different items and the electricity was supplied to both of them by a common generator, the Modvat facility shall be available to both the manufacturing units, unless statutorily provided otherwise - It was neither expedient nor desirable unless provided otherwise statutorily to have separate electricity generating sets for different manufacturing units - The approach of the Tribunal was pragmatic and in the interest of efficiency and economy there was no error in allowing Modvat Credit on Furnace Oil and other eligible inputs used in the generation of electricity Decided against the revenue.

Summary

Issues:
- Interpretation of Rule 57AA of Central Excise Rules regarding Modvat Credit on Furnace Oil used for electricity generation in different manufacturing units.

Analysis:
The case involved an appeal under section 35-G of the Central Excise Act 1944 against the order of CESTAT, New Delhi regarding the entitlement of Modvat Credit on Furnace Oil used in the generation of electricity for different manufacturing units. The appellant contended that Modvat Credit is not admissible to the second unit as per Rule 57-AA of the Central Excise Rules. The respondents argued that both units constitute one factory under Section 2(e) of the Central Excise Act and are entitled to claim Modvat Credit.

The appellant relied on Rule 57-AA, particularly Clause (d), which defines 'inputs' without mentioning units or factories. The definition of 'factory' under Section 2(e) was also considered, emphasizing the premises where excisable goods are manufactured or any manufacturing process connected with their production is carried out. The respondents cited Tribunal cases supporting the efficiency and economy of generating electricity in one unit for use in neighboring units, rather than setting up separate facilities at each factory.

The Tribunal's decision was supported by various Tribunal orders, emphasizing the pragmatic approach of allowing Modvat Credit for electricity generation shared by different manufacturing units at one location. It was noted that unless statutorily provided otherwise, separate electricity generating sets for different units are neither expedient nor desirable. The judgment concluded that the Tribunal's decision was logical, efficient, and in the interest of the economy, dismissing the appeal for lack of merit and without costs.