ORDER
V.K. Ashtana, Member (T)
1. In this Revenue appeal (E/436/97) against Order-in-Appeal No. 292/97 (M) dated 28.10.97, Revenue is aggrieved on three issues which can be summarised as follows:-
(i) Inputs (chemicals) used in generation of steam is not eligible for Modvat credit for the reason that the said steam is used in the production of power (electricity).
(ii) Inputs (chemicals) used in the effluent and water treatment plant is not eligible to Modvat credit on the ground that, (a) the said plant has no nexus in the manufacture of the final product, and (b) that the said plant was situated outside the factory premises registered under the Act.
(iii) Inputs used for the manufacture of final products, which in turn, are cleared under bond or at nil rate of duty would not be eligible for Modvat credit in view of Rule 57C.
While this issue was covered in the decisions of Reliance Industries as in and Orissa Synthetics Ltd. v. CCE as in , Revenue submits that they have agitated the matter against these decisions in higher forums and therefore, these decisions have not attained finality, reliance thereto by Ld. Commissioner (Appeals) is not correct.
2. Ld. DR has submitted a report dated 17.11.99 received from the Office of the Commissioner of Central Excise, Chennai-I on the facts pertaining to this issue. He reiterates the same. He therefore submits that as far as the first issue noted above is concerned, the original authority had found that the steam so generated was solely used to produce electricity. Since electricity is non-excisable, therefore, the credit would not be available. With respect to the second issue, Ld. DR submits that even though now the Commissionerate has reported that the effluent plant, etc. was located within the registered factory premises of the respondents, yet Modvat credit can only be allowed if the nexus of the activities of this plant is established in the manufacturing process of the final products. With respect to the third issue, Ld. DR reiterates the grounds of appeal and in reply to a query by the bench, he submits that he is not aware whether any stay has been obtained by Revenue on these decisions.
3. Ld. Advocate for respondents submits that as far as the first issue is concerned, the Order-in-Original attendant to the order impugned in para 19 recorded that the running of the refinery is solely dependent of the production of steam and that without this steam, refinery cannot function. It, however, also records a contrary fact found that this steam is used to manufacture electricity in the power plant. In this connection he submits that no refinery can work without the use of steam as such and that even if steam was used to some extent for production of electricity, firstly that was not the sole use the steam was put to and secondly the electricity so generated was also used mainly in the manufacturing process. He explains that when steam is produced, it is obtained at high pressure from the boiler. This high pressure steam is used to move the turbines of the electric generator. Thereafter, the steam is recovered from the turbine albeit with lower pressure, but it is the same steam. This steam is then further channelised into the manufacturing process and is used for its heat energy in the refinery. Therefore, at best, the usage of steam for electricity generation is only an incidental benefit but the steam is thereafter directly used in the refinery for the manufacture of final products. Therefore, it cannot be said that whatever steam is used for the production of electricity is thereafter lost. On the contrary, it is recovered from the output of the turbine and further used as steam in the manufacture of the final product for heating purposes in the refinery. He further submits that this fact is further supported by situations in other refineries where electricity was not produced by the steam for manufacture and yet the refineries produces the final products by using the steam. He, therefore, submits that since the steam is used in the manufacture of final product, the inputs used in the manufacture of steam should be eligible to Mod vat credit. He further submits that since electricity during the relevant period was not figuring as an excisable item under the Central Excise Tariff Act and Schedule thereto, therefore Rule 57C would not be applicable in this case also.
4. With respect to the second issue, the Ld. Advocate for respondents submits that now the department has conceded that the Water treatment and Effluent treatment plant are located within the registered premises of the respondents’ factory, therefore that ground of appeal fails further, with respect to the nexus of the treated water obtained by this plant with the manufacturing process resulting in the final products, he submits that this fact on the nature and quantum of usage of other said treated wanter for this manufacturing process can be verified by the lower authorities on the basis of an affidavit which may be filed by the respondents before them.
5. On the third issue, Ld. Advocate heavily relies on the two decisions of Reliance Industries and Orissa Synthetics Ltd. (supra) and submits that to the best of his knowledge, these are good laws as no stay has been granted by any higher court against these decisions nor have these decisions have been upset by any other higher forum. He further submits that these decisions have also been later followed by the Tribunal in the case of Enesa v. CCE as in as also in the case of J.K. Synthetics Ltd. v. CCE as in . Therefore, there is no merit in the Revenue’s appeal on this ground at all. He, therefore, prays that this ground needs to be rejected.
6. We have carefully considered the rival submissions and records of the case and we find that as far as the third issue is concerned, i.e. eligibility of Mod vat credit on input which are used to produce final goods which in turn are cleared under bond (under warehousing provisions of Chapter 7 of the Central Excise Rules, 1944), the matter is no longer res-integra in view of the decisions cited supra which have been further followed by the Tribunal as noted above. We do not find any merit on the sole ground of Revenue that since they have agitated this matter in higher forums, therefore this law has not acquired finality. In the absence of any stay or contrary
decisions on record before us, judicial discipline requires that these case laws should be followed as worthy precedential law. Therefore, we do not find any merit on this ground of appeal and the said ground is rejected.
7. With respect to the first issue regarding the eligibility of Modvat credit of inputs “chemicals” used to produce steam, etc., we find that the facts before us on record are not fully and clearly established inasmuch as that while the Assistant Commissioner in the Order-in-Original has held that steam is basically used for generation electricity, Ld. Advocate on the other hand, has submitted that even where steam is used for the generation of electricity, thereafter the steam emerging from the turbines generating electricity is recaptured and further used, albeit at low pressure in the manufacturing process leading to the emergence of the final products. This fact requires physical verification by the original authority. Therefore, the matter on this count needs to be remanded to the original authority who is directed to get the facts physically verified and then reconsider the issue as per law. It is our considered view that in case the use of steam for production of electricity is only incidental and by utilising the high pressure available and that thereafter the same steam emerging from the outlet of the turbine is used, because it is still at high temperature, for the purposes of refining leading to the emergence of the final product, then it cannot be said that the steam has not been used in relation to the manufacture of the final products.
8. As far as the second issue is concerned about the Effluent treatment plant, the department is now on record in terms of the report noted above submitted by the Commissiorierate that the said plants are within the registered factory premises of the respondents. Therefore, now that the facts are established on this account, this ground of Revenue appeal fails. As far as the consideration of the nexus between the treated water emerging out of this effluent treatment plant to the manufacturing process for the final products is concerned, we find great merit in Ld. Advocate’s submission that this is also being a matter of fact could be verified by the original authorities in consideration of an affidavit to be filed by the respondents before him. The facts not being clear on this issue also, we have no other option but to remand the matter on this issue to the original authority for de novo reconsideration accordingly.
9. In view of the aforesaid analyses and findings, the Order-in-Appeal impugned is set aside on the first and second grounds of appeal above and these matters are remanded to original authority for de novo consideration as per directions above. It is made clear that as far as the 3rd ground is concerned, we have already concluded that there is no merit in this ground of appeal and the same stands dismissed. The appeal is allowed by way of remand accordingly.
10. As regards appeal No. E/528/98 arising from Order-in-Appeal No. 301/97 (M) dated 20.11.97, filed by Revenue, the appeal is on the same two grounds as has already been discussed and considered in the above appeal E/436/98 as far as the inputs used for production of steam and the inputs used in the effluent treatment plant is concerned. In our order recorded in paras above, we have already remanded the matter for reasons recorded therein to the original authority. Since these two issues in this appeal is also identical, therefore for the same reasons we set aside the relevant portion of the Order-in-Appeal impugned and remand the matter to the original authority for do novo consideration of the same according to the same directions as noted above.
11. In addition to these two grounds, Revenue also appeals herein on the following additional grounds:-
(i) That credit has been allowed on original and extra copies of the gate passes and also despite their being deficiencies under Rule 157H of declaration.
We have heard both sides on this issue. We find that since the Order-in-Appeal impugned has remanded the matter back to the original authority for a factual verification of the issue, therefore in view of the matter having already been remanded on other issues, there is no need to interfere by us on this remand order by the Ld. Commissioner (Appeals).
12. The net effect of these findings is that the matter is remanded by us on the first two issues as noted above to the original authority and the remand order of the Commissioner (Appeals) on the 3rd and 4th issue survives. The appeal is disposed of by way of remand in the above terms.
