ORDER
P. Karthikeyan, Member (T)
1. The present appeal is against the order of Commissioner (Appeals), Salem upholding the Order-in-Original of the Assistant Commissioner, Salem-II Division demanding a sum of Rs. 2,22,828/- being ineligible credit taken by M/s The Madras Aluminium Company Ltd., Salem (MALCO) on inputs used by them during July 2002 to May 2003, appropriate interest on the same and also imposing penalty of Rs. 20,000/- under Rule 13 of the CENVAT Credit Rules, 2002. The facts of the case are that MALCO, engaged in the manufacture of aluminium ingots, uses power as one of the raw materials, which they also generate in their captive power plant. The requirement of power is met by using the supply from Tamil Nadu Electricity Board (TNEB) and the power generated by their captive power plant (CPP), which has a capacity of 75 Mega Watts. For generation of power, they use fuels such as ‘Petroleum Coke’ and ‘Superior Kerosene Oil’. The power generated is usually in excess of the requirement for use in the smelter and the same is supplied to another unit, M/s Sterlite Industries Ltd, Tuticorin through TNEB grid. The impugned demand is in respect of fuels that are relatable to power supplied to Sterlite Industries Ltd outside the factory of production of electricity. There is also an appeal filed by the department against the order of the Commissioner (Appeals). The department’s appeal is as regards the observation in the impugned order that the showcause notice issued by the department did not propose to recover credit relatable to the entire SKO used in the factory which defect could not be rectified by her at the appellate stage. The Commissioner (Appeals) had felt that SKO was obtained by degrading ATF which was nothing but Motor Spirit, was not eligible for credit. Therefore, credit relating to the entire SKO received in the factory should have been demanded. The Revenue’s appeal is to set aside the observation in the impugned order that SKO is not an eligible input as per Rule 2(g) of Cenvat Credit Rules 2002.
2. Ld. Adv. representing the appellant MALCO, Smt. Jayshree Venkataraman argued that both the fuels are used for manufacture of steam within the factory of production, which is in turn used within the factory for manufacture of aluminium and electricity. As per Rule 6(2) of CENVAT Credit Rules a manufacturer using fuels as inputs was not required to maintain separate accounts of receipt, consumption and inventory of fuels used in the manufacture of final products chargeable to duty as well as exempted goods and was not required to reverse credit relatable to inputs used to generate exempted goods. She placed reliance on the following decision of the Tribunal:
Gujrat Narmada Fertilizers Co. Ltd. v. Commissioner of Central Excise, Vadodara 2004 (176) E.L.T. 200 (Tri. – Mumbai), where the Tribunal had decided that as per the Rule 57AD, credit on fuels (LSHS in that case) was permissible as long as the fuel was used in the manufacture of steam, which was utilised in the factory. There was no dispute that steam was so used. Steam was used in the manufacture of fertilizers, chemicals as well as for generation of electricity. All the three uses were in the factory and what happened to the electricity manufactured from steam was immaterial.
3. Department had filed a reference application against the above order of the Tribunal in the Gujarat High Court. In their order reported as Commissioner of Central Excise and Customs v. Gujarat Narmada Fertilizers Co. Ltd. , their Lordships upheld the above finding of the Tribunal as correct. This judgment was followed by the Division Bench of the Tribunal at Bangalore in Sudalangunta Sugars Ltd. v. Commissioner of Central Excise, Tirupathi. In the same order, they had also relied on the ratio of Commissioner of Central Excise, Raipur v. HEG Ltd. The ld. Adv. invited my attention to para 5 of the decision in the case of CCE, Raipur v. HEG Ltd. in which Tribunal upheld with approval the observation of the Commissioner that the expression ‘any other purpose’ used in proviso to Rule 57R(2) had wide scope and the use of electricity contemplated was not confined within the factory and restricting the use of surplus electricity within the factory was neither logical nor possible. Rejecting the appeal of the department, it was decided that credit cannot be denied on capital goods on the ground that certain quantity of electricity was not used captively for manufacture of final product.
4. The ld. SDR supported the reasoning of the Commissioner in upholding the order of the original authority on the basis of the definition of ‘inputs’ quoted in the Order-in-Appeal by the Commissioner. She submitted that the definition of ‘inputs’ quoted in the order of the Commissioner reads as under:
“inputs” means all goods, except [light speed oil] high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final products or, and includes lubricating oils, greases, cutting oils and coolants and accessories of the final products cleared along with the final product, goods used as paint, or as packing material or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production.
According to her, inputs used as fuel or for generation of electricity or steam used for manufacture of final products or for ‘any other purpose within the factory of production’ meant that electricity had to be used within the factory of production for the purpose of availing credit on fuels used in the manufacture of electricity. She also cited the Division Bench decision of the Tribunal in the case of Essar Steel Ltd. v. Commissioner of Central Excise, Surat-I 2001 (129) E.L.T. 213 (Tri.-Mum.), where it was decided by a Division Bench that electricity was an intermediate product and in terms of Rule 57D credit was available to the fuels used in the manufacture of electricity, only if the electricity was used in the manufacture of final products within the factory. She also cited clarification in the Board’s Circular No. 637/28/2002-CX, dated 08.05.2002 as per which CENVAT credit was admissible only when the inputs or capital goods were used by the manufacturer within the factory or premises.
5. I have carefully considered the submissions of both sides. The judgment of the honourable Gujarat High Court cited is to the effect that credit has to be allowed on the entire fuel if the steam generated using it is used within the factory for any purpose including manufacture of electricity irrespective of its (electricity) use. The appeal of MALCO has therefore to be allowed. It is ordered accordingly.
6. As regards the department’s appeal is concerned, the Commissioner’s (Appeals) argument that credit availed on entire SKO had to be demanded for the reason that, the SKO was degraded ATF, which was nothing but MS is a totally misconceived argument. ATF, MS and SKO are distinctly different goods recognised so in the Central Excise tariff and they cannot be treated as same goods for the purpose of availing CENVAT credit. The observation of the Commissioner in the impugned order that SKO is not eligible input to avail Cenvat credit is not correct. Accordingly, the department’s appeal also is allowed.
(Dictated and pronounced in open Court)