ORDER
R.K. Abichandani, J. (President)
1. These group of appeals has been filed by the appellant Indian Oil Corporation Ltd. against the order of the Commissioner of Central Excise and Customs, Vadodara, made on 21.10.2000 by which he confirmed the demand of excise duty made in nine separate show cause notices.
2. The eight show cause notices were for different periods from June 1991 to May 1994 while the ninth one was for the period from July 1995 to December 1995. The show cause notices for demand came to be issued because the department felt that the appellant had cleared the product RCO (Reduced Crude Oil) and LSHS (Low Sulphur Heavy stock) at ‘nil’ rate of duty on the ground that it was used within the factory for generation of electricity for their captive consumption. The appellant had in the classification list claimed the benefit of the Notification No. 75/84 dated 1.3.84. It was alleged in the show cause notices, that the condition laid down in that notification was not fulfilled and, therefore, clearance at ‘nil’ rate of duty was illegal and inadmissible. The classification list indicated that the said product was intended for use as fuel for generation of electricity by specified undertaking, in a refinery. All the notices were of similar nature except the difference in the last notice dated 30.2.1996, in which instead of Serial No. 4, Serial No. 9 was mentioned after the amendment in the earlier entries.
3. In their defence, the appellant had raised the contention that they were petroleum refinery and having regard to their needs they had their own thermal power station, the electricity generated from which was used for their refinery purposes. The appellant had obtained sanction of the State Government under Section 28 of the Electricity Act, 1910, for producing power to meet the requirement of electrical energy required in running the plants and for various auxiliary services of their own and those of their associated agencies etc. According to the appellant, the fuel RCO (LSHS) used by them for generation of electrical energy in their thermal power station was eligible for exemption from payment of whole of duty of Central Excise in terms of the Notification No. 75/84-CE dated 1.3.1984, as amended, because they had complied with the conditions specified under column No. 4 of the table against Serial No. 54. The electrical energy produced by the appellant was not only for their own consumption, but was also to be supplied/sold to other associate agencies such as GEB for onward supply to consumers, ONGC, SBI, Telephone Exchange, Koyali, Post Office and Mayur Stores Refinery Township. According to them, the thermal power station was situated within the licenced/refinery premises. On that basis reliance was also placed on Serial No. 34 of the table annexed to the said notification as well as on Notification No. 217/86-CE dated 2.4.1986, as amended for claiming the benefit of exemption.
4. The learned Commissioner referring to the Notification No. 75/84-CE, held that since the appellant was not an electricity undertaking, their claim that they were a person engaged in the business of supplying electricity, was not justified. The appellant was essentially generating electricity for captive consumption including supply to their railway siding, staff colony etc. and since the appellant was not a person engaged in the business of supplying electrical energy, the benefit of exemption could not be granted to the appellant under item 54 of the table to the said notification. Referring to the sanction obtained by the appellant from the State Government under Section 28 of the Indian Electricity Act, 1910, the learned Commissioner held that it did not allow them to sell the electricity to other outside agencies on a commercial basis, or even on a “no profit no loss” basis and the sanction issued cannot be construed to mean that they were permitted to engage in the business of supplying electrical energy. The learned Commissioner held that the case of the appellant is covered by the last portion of the condition against Serial No. 54 which specifically excluded the appellant from the benefit of exemption. It was an exception indicating that those falling in it were not eligible for the benefit of exemption. Referring to the decision of the Tribunal in Indian Oil Corporation v. Collector , it was contended that the said decision related to the eligibility of exemption under Notification 352/77 whereas in the instant case benefit was claimed under Notification No. 75/84. In paragraph 10 of the impugned order, the Commissioner considered the plea of the appellant based on Serial No. 34 of the table annexed to the Notification No. 75/84 dated 1.3.84 as well as Notification No. 217/86 dated 2.4.1986, as amended, and the contention that the appellant was entitled to the benefit of exemption under those notifications even when the product was used as fuel within the refinery for production of finished petroleum products directly, or indirectly via generation of electricity. In paragraph 11 of the impugned order, the learned Commissioner held that the appellant was not entitled to the exemption claimed either against Serial No. 34 or against Serial No. 54 of the table to the Notification No. 75/84 as well as under Notification No. 217/86 dated 2.4.1986 and that the clearance/removal of the excisable goods without payment of Central Excise duty amounted to clandestine removal.
5. It was contended by the learned senior advocate appearing for the appellant that the learned Commissioner had not properly considered the claim of the appellant which was made in the context of item 34 of the table under the said Notification No. 75/84 and has mainly decided the issue against the appellant on the basis of his reading of entry at Serial No. 54. It was made clear by the learned senior advocate appearing for the appellant that the appellant did not press its claim for the benefit of the entry of Serial No. 54 of the said Notification No. 75/84. The appellant was now confining its claim only to the benefit under entry at Serial No. 34 of the table to the said Notification No. 75/84 upto 28.2.1994. Thereafter the benefit of Notification No. 217/86, as amended by Notification No. 61/94 was available to the appellant with effect from 1.3.1994, as contended by the learned Counsel. It was also submitted that after Notification No. 217/86, as amended by Notification No. 61/94 was rescinded on 16.3.1995, similar benefit was available to the appellant under Notification No. 67/95 dated 16.3.1995. It was submitted that in the present case there was no dispute at any stage that electricity was generated within the refinery premises and therefore, the observation in paragraph 19 of the decision of the Tribunal in Commissioner of Central Excise, Baroda v. IOC reported in 2001 (136) ELT 357, was inapplicable. Moreover, in that case the claim was based only on Serial No. 54 and it was at the Tribunal’s stage that an alternative plea was taken on the basis of Serial No. 34 of the Notification No. 75/84. He submitted that this was evident from paragraph 18 of the judgment in which an objection was raised to the alternative plea of the respondent on the ground that the plea in terms of Serial No. 34 in the table annexed to the notification was not taken at any time before. It was, therefore, submitted that the observation in paragraph 19 would not come in the way of the appellant because in the present case right from the inception, the plea was taken that the thermal power station for the purpose of generating electricity for the refinery was situated within the refinery premises. The learned Counsel placed strong reliance on the decision of the Tribunal in IOC Ltd. v. Commissioner of Central Excise, Vadodara reported in 2002 (148) ELT 1021 (Tri.-Del.) in which the Tribunal relying on the decision of the Supreme Court in Jaypee Rewa Cement v. Commissioner of Central Excise reported in 2001 (133) ELT 312 (Tri.-LB) and the circular of the Board dated 6.7.1983, held that the manufacture of electricity at the intermediate stage was only incidental and did not affect the eligibility to exemption and, therefore, LSHS used in the manufacture of electricity which in turn was used in the refinery was entitled to exemption. However, exemption was not available in respect of LSHS used in the manufacture of electricity which was disposed of otherwise than its being used in the refinery. The learned Counsel more than once stated that the appellant does not want to press its claim on the basis of Serial No. 54 of the Notification No. 75/84 and now confines its claim only on the basis of Serial No. 34 of that notification and on Notification Nos. 217/86, as amended by Notification No. 61/94 and 67/95, for the period subsequent to the omission of Serial No. 34 from the Notification No. 75/84 by virtue of Notification No. 61/94 dated 1.3.94.
6. The learned authorized representative for the department supporting the reasoning and findings of the Commissioner contended that LSHS was exempted under the Notification No. 75/84, only when it was intended for use in a refinery. He argued that the word “refinery” was required to be construed in the sense in which it was defined in the explanation. He pointed out that as per the explanation given in the said entry No. 34, refinery means a refinery wherein refining of crude petroleum or shale or blending of non-duty paid petroleum products is carried on. He, therefore, submitted that use of LSHS in a thermal power station was not used in a refinery because thermal power station is not a refinery and it was intended to generate electricity and not refined crude petroleum etc. He placed heavy reliance on the observations made in paragraph 19 of the order of the Tribunal in Collector of Central Excise, Baroda v. Indian Corporation reported in 2001 (136) ELT 357 (Tri.Del.), in the context of the said entry Serial No. 34 of the Notification No. 75/84, to the effect that the thermal power station wherein LSHS was consumed for generation of electricity was not covered by the meaning of the word “refinery” as per the explanation and therefore, Serial No. 34 was not attracted to the respondent’s case and they were not entitled to exemption in terms Serial No. 34. It was submitted that since the claim under Serial No. 54 of Notification No. 75/94 was now not pressed and given up, the appellant was not being entitled to the benefit of entry No. 34, cannot claim any relief in these appeals.
7. The controversy centres around the question whether the appellant is entitled to the benefit of the exemption notification in respect of LSHS fuel used for generation of electricity for the purpose of the products of the refinery of the appellant. The claim to exemption of use of this fuel on the basis of Serial No. 54 of Notification No. 75/84 is unequivocally given up. We, therefore, proceed to consider the nature of exemption that may be available to the appellant under the different notifications which were applicable from time to time and on which reliance is placed.
7.1 It appears that initially there was Notification No. 352/77-CE dated 16.12.1977 by which the Central Government exempted petroleum products falling under Item 6 to 11AA of the First Schedule to the Central Excise Act produced in refineries wherein refining of crude petroleum or shale or blending of non-duty paid products was carried on and utilized as fuel within the same premises for the production or manufacture of finished petroleum products from the whole of duty of excise leviable thereon. The exemption was thus available to petroleum products which were utilized as fuel within the same premises for the production or manufacture of finished petroleum products produced in the refineries. This notification was rescinded by Notification No. 86/90 w.e.f. 20.3.1990. In respect of the said exemption which is of the same nature, as is claimed by the appellant on the basis of Serial No. 34 of the Notification No. 75/84, the CBEC had issued instructions on 6.7.1983 mentioning that it was decided that since generation of electrical energy, electricity as intermediate product, is incidental in the process and manufacture of petroleum products falling under Tariff Item 6 to 11AA. The exemption contained in the Notification No. 352/77-CE dated 16.2.1977, as amended by Notification No. 131/80-CE dated 23.8.1980 and 41/82-CE dated 28.2.1982, would be available to the quantity of intermediate product-electricity. The exemption contained in the said notification, however, will not be available to that quantity of petroleum products which was used in the generation of electricity which in turn was not used in the process and manufacture of petroleum products.
7.2 The Notification No. 75/84 which came into force on 1.3.1984, was rescinded by Notification No. 19/96 dated 23.7.1996. Entry No. 34 on which reliance has been placed by the appellant came to be deleted on 1.3.1994 by Notification No. 4/94. Therefore, for the period upto 1.3.1994, benefit has been claimed on the basis of this notification. Under this notification, the Government exempted goods of the description specified in the table falling in Chapter 22 or 27 or 29 of the Schedule to the Tariff Act from so much of the duty of excise leviable thereon at the rate specified in the schedule, as was in excess of the amount calculated at the rate specified in the corresponding entry in column 3 of the table subject to the intended use, or conditions, if any, laid down in the corresponding entry in column 4, provided that, where any such exemption was subject to the intended use, the exemption in such case was made subject to the following conditions, namely:
(i) that it is proved to the satisfaction of an Officer not below the rank of an Assistant Collector of Central Excise that such goods are cleared for the intended use specified in column (4) of the said Table, and
(ii) where such use is elsewhere than in the factory of production the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed. Clause (ii) of the said proviso only required procedure under Chapter X of the Schedule to be followed where such use was elsewhere than in the factory of production. Therefore, even where the fuel was used elsewhere than in the factory of production, by satisfying the requirement of following the procedure of Chapter X of the Central Excise Rules, the benefit of exemption in cases where it is subject to the intended use could be availed of. Under Serial No. 34 of the Table of the exemption notification. Low Sulphur Heavy Stock (LSHS) was to be subject to nil duty, though it was intended for use as a fuel in a refinery. The explanation thereunder defined “refinery” so as to mean a refinery wherein refining of crude petroleum or shale or blending of non-duty paid petroleum product is carried on. Much controversy has centred around the issue whether fuel used in the thermal power station could be said to have been used as a fuel in a refinery. It is, however, clear from the wordings of entry No. 34 read with the opening part of Notification No. 75/84 that, the emphasis for the purpose of exemption is on the fuel being intended for use in a refinery. Use of fuel in a refinery can be done by generating electricity for the purpose of the refinery in the process of manufacturing the finished petroleum products. Even where such use is elsewhere than in the factory of production, the benefit of exemption would be available if the procedure set out in Chapter X of the Central Excise Rules is followed, as is clear from the proviso to the opening part of the notification granting exemption. In the present case, however, from the record it appears that fuel was used in generation of electricity in a thermal power station which was within the refinery premises. This factual aspect emanates from the fact that the appellant had clearly asserted right from the beginning that its thermal power station was situated within the licensed/refinery premises (paragraph 3.6 of the impugned order) and this fact is at no stage controverted, which is evident even from para 10 of the order in which it was recorded : “Moreover, their TPS is situated within the premises and as such the exemption cannot be denied to them”. The learned Commissioner appears to have proceeded on this factual position, but rejected the claim on the basis of entry at Serial No. 34 on the ground that it was intended to provide exemption in respect of LSHS which was used as fuel in a refinery directly, and that where it was used as fuel for generation of electrical energy, it cannot be treated as refinery for the purpose of claiming exemption though it is situated within the premises of refinery. Since in the instant case the thermal power station generating electricity was situated within the premises of the refinery, the observation in paragraph 19 of the earlier decision of the Tribunal in Collector of Central Excise, Baroda v. Indian Oil Corporation reported in 2001 (136) ELT 357 making an inferential factual observation, namely, “obviously the thermal power station of the respondent wherein LSHS was consumed for generation of electricity is not covered by the meaning of the word refinery, was not a ratio on any legal aspect, since in the present case the factual position that the thermal power station was situated within the refinery has been established. The observation made in paragraph 19, therefore looses its significance for the present case, and we are required to proceed on the footing that the thermal power station was situated within the premises of refinery, as held by the Commissioner in the impugned order.
7.3 Since generation of electrical energy as an intermediate product was incidental in the process and manufacture of petroleum products, the fuel that went into generating electricity which was in fact used for manufacturing such petroleum products qualified for exemption under the said Notification No. 75/84 under item 34 which covered such captive consumption of the fuel for the purpose of the petroleum products manufactured in the refinery in contradistinction with entry No. 54 which was attracted in cases where fuel was used for the purpose of generating electrical energy by electricity undertakings and by person obtaining sanction under Section 28 of the Electricity Act for supply of electricity to the public. Electricity which was generated for manufacturing finished petroleum products in the refinery was an intermediate product used in the manufacture of the final petroleum product and, therefore, the fuel used for generating such, electrical energy qualified for exemption under Serial No. 34 of the Table annexed to the Notification No. 75/84, and on this aspect we follow the ratio of the earlier decision of this Tribunal in IOC Limited v. Commissioner of Central Excise reported in 2002 (148) ELT 1021 (Tri.-Del.), which was based on the ratio of the decision of the Supreme Court in Jaypee Rewa Cement’s case. The appellants will accordingly be entitled to the benefit of the Notification No. 75/84 under Serial No. 34 in respect of the said fuel LSHS used in generating electrical energy within the refinery premises, which electricity was used in manufacturing the final refinery products and they will obviously be not entitled to any exemption in respect of use of said fuel attributable to supply of electrical energy for any other purpose, as claimed. This will cover the period upto 1.3.1994, when entry No. 34 came to be omitted by Notification No. 4/94.
8. For the period from 1.3.1994 reliance has been placed on the Notification No. 217/86, which was amended by Notification No. 61/94 with effect from 1.3.1994 by which the Table was amended by adding chapter 27 under both, the description of inputs and of final products. As per the Notification No. 217/86 exemption was available in respect of the goods specified in column 2 (which gave description of inputs) manufactured in a factory and used within the factory of production or in any other factory of the same manufacturer in or in relation to the manufacture of final products specified in column 3 of the table from the whole of the duty of excise leviable thereon. Here again the second proviso laid down that where such use of inputs is in a factory of manufacturer, different from his factory where the goods had been produced, the exemption contained in the notification shall be allowable subject to the observance of the procedure set out in Chapter X of the Central Excise Rules, 1944. Admittedly, the LSHS fuel used as input was classifiable under sub-heading 27.13 of Chapter 27 to the extent that it was used for producing electrical energy which in turn was used for the manufacture of finished petroleum product in the refinery. It merited benefit of exemption because such final products also fell under Chapter 27 of the Schedule to the Tariff Act, which enumerated in the column of description of final products in the Table contained in the said Notification No. 217/86. The electrical energy was generated in a thermal power station within the factory premises of the appellant and therefore, the appellant was entitled to the benefit of this notification even after Serial No. 34 was omitted from Notification No. 75/84 with effect from 1.3.1994 because of simultaneous inclusion of Chapter 27 in this Notification No. 217/86 by the amendment made by Notification No. 61/94 with effect from 1.3.1994.
8.1 The Notification No. 217/86, as amended from 1.3.1994 was rescinded by Notification No. 71/95 dated 16.3.1995. However, Notification No. 67/95 was brought into force from 16.3.1995 and as per that notification, the LSHS fuel used as an input for the petroleum products manufactured by the appellant stood exempted. It was provided in that notification issued under Section 5A(1) of the Act that, the Central Government exempted the goods specified in column 2 of description of inputs manufactured in a factory and used within the factory of production in or in relation to manufacture of final products specified in column 3 of the Table from the whole of duty of excise leviable thereon. Therefore, for the remaining subsequent period under the demand, the appellant was entitled to the benefit of this notification in respect of LSHS used as input for generating electricity to the extent that such electricity was used within the factory of production in relation to the manufacture of final products of the refinery of the appellant.
9. For the foregoing reasons, we hold that the appellant would be entitled to claim the benefit of exemption under entry No. 34 of Notification No. 75/84 in respect of the said fuel LSHS used by the appellant in its premises for the purpose of generating electricity to the extent that such electricity was used in the refinery premises for the purpose of manufacturing the refinery products till 1.3.1994 and thereafter, was entitled to similar benefit for the subsequent period under the Notification No. 217/86, as amended by Notification No. 61/94 upto 16.3.1995 and thereafter for similar benefit under Notification No. 67/94. The appellant is not entitled to benefit of exemption in respect of electricity generated by it and used for any purpose other than for manufacturing the refinery products falling under Chapter 27. The appeals are accordingly partly allowed with a direction to the Commissioner to calculate and quantify the demand on the above basis.
(Dictated and pronounced in the open Court on 28.3.2006)