2005 (7) TMI 215 - AT - Central Excise

Cenvat/Modvat - Inputs - furnace oil - excisable goods - generation of electricity - HELD THAT - There is no dispute in the present case that the input in question remains notified and credit is available. There is also no dispute that the input in question has been used by the appellant in the generation of electricity and electricity so generated was used in the manufacture of excisable goods. The only quarrel is about the place of use of the electricity. It is well-settled that tax laws should be interpreted in conformity with normal commercial practice. Therefore, the manner of use should be accepted as to the economical, efficient and convenient manner of use. A contrary interpretation would lead to frustrating the purpose of law in granting the exemption/Modvat credit. Generation of electricity in one unit for use in all the neighbouring units of a manufacturer is more efficient and economical than setting up generating facility at each and every factory. Since the appellant has done so, that manner of use should be accepted as a manner not contrary to the intent and purpose of the law. Thus, the appeal is allowed, with consequential relief to the appellant.

Summary

Issues:
Dispute over Modvat credit on furnace oil used for generating electricity wheeled out to other units and used there.

Analysis:
The appellant, a manufacturing unit availing Modvat credit, faced a dispute regarding the Modvat credit taken on furnace oil used for generating electricity at one unit and wheeled out to other units for use. The Revenue contended that as per Cenvat Rule 2(g), only goods used for generation of electricity within the factory of production are eligible for credit. Relying on precedents, the Revenue argued that inputs used in generating electricity wheeled out to other units become ineligible for credit.

The appellant argued that the authorities' view was erroneous, asserting two reasons. Firstly, they claimed it was a case of use "as fuel," not for manufacturing final products within the factory of production. Secondly, even if considered for electricity generation, using the electricity in other units satisfied the requirement of use within the factory of production. Citing relevant tribunal decisions, the appellant contended that such usage was permissible.

The Revenue insisted that Cenvat Rules mandated electricity generated from modvatted furnace oil to be used in the same factory. However, the appellant referred to a previous tribunal ruling in the Essar Steel case, which allowed the use of electricity in another factory to meet the Rule's requirement. The tribunal's interpretation clarified that the term "factory of production" referred to the factory producing the final product, not the electricity.

Regarding case law cited by the Commissioner, the appellant argued that the issue in question differed from the present appeal. The tribunal's interpretation of "used" as "using up" or "consumption" was overruled by a High Court decision, indicating the inapplicability of the case law.

Ultimately, the tribunal ruled in favor of the appellant, emphasizing that the input was duly notified and used for generating electricity, which was subsequently used in manufacturing excisable goods. The tribunal highlighted that tax laws should align with commercial practices, accepting the efficient and economical use of electricity generated in one unit for multiple units. Therefore, the appeal was allowed, granting relief to the appellant.