Customs, Excise and Gold Tribunal - Mumbai
Essar Steel Ltd. vs Commissioner Of C. Ex. on 11 December, 2000
Equivalent citations: 2001(129)ELT213(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. These five appeals are by Essar Steel Limited. Appeal 3885/99 is against the order of the Commissioner (Appeals), Surat, and the other four appeals are against the common order of the Commissioner (Appeals), Vadodara disposing of two appeals before him.
2. The appellant is a manufacturer of hot briquetted iron and hot rolled steel coils in its mill at Hazira in Gujarat. In order to obtain the electricity required for running the steel mill, the appellant set up a subsidiary company M/s. Essar Power Limited (EPL for short), adjacent to the steel mill. The entire electricity generated by EPL is transmitted through the steel plant; some of it is utilised in the steel plant, the remaining being transmitted to the grid of the Gujarat State Electricity Board. EPL generated the electricity by means of turbines, which were fuelled by Natural Gasoline Liquid (NGL for short) and naphtha, purchased and supplied by the appellant. The appellant had declared the NGL as input under Rule 57G. It had also declared, under Sub-rule (3) of Rule 57F, its intention to remove the NGL to EPL and to take credit of the duty paid on NGL supplied to the latter. It thereafter proceeded to utilise the duty paid on NGL for payment of duty on the iron and steel manufactured by it.
3. The department issued notices to the appellant, proposing to deny the benefit of the Modvat credit. The Assistant Commissioner on 8-7-1996 adjudicated the notice dated 31-1-1995. He held that the NGL was not an input because the condition contained in Clause (d) of the Explanation below Rule 57A, that inputs used for generation of electricity to be inputs must be used within the factory of production for manufacture of final products or for any other purpose, was not satisfied. He further said that Rule 57F(3) (b) would not apply because the electricity, which was claimed by the assessee to be an intermediate product, did not come into existence within the factory of production. He concluded that, on a consideration of Rules 57F and 57D, it is only that electricity that is produced in the same factory, where the final product is manufactured which would only qualify as input. The Assistant Commissioner relied upon this order in disposing of the remaining notices.
4. The assessee appealed these orders. Two of these appeals were dismissed by two orders of the Commissioner (Appeals), Vadodara, confirming the Asstt. Commissioner's view. The Commissioner (Appeals) also relied upon what he said were the Tribunal's views, that an intermediate product must necessarily emerge out of the raw material in the course of the processes to which it is subjected in the factory of production. The other two appeals were decided by Commissioner (Appeals), Surat. That Commissioner (Appeals) took a different view. He found that Clause (d) of the Explanation to Rule 57A did not provide that, for an input used to generate electricity to be considered to be an input, it was necessary that electricity should be used within the factory of production. He said that any input used in or in relation to the manufacture of final product could be an input. He found the essence of the scheme to allow the credit of fuel used to generate electricity used in the manufacture of the product. He however concluded that the credit was available on merits. In the final order he said that the credit should not be utilised since an appeal was already pending with the Tribunal as to the issue which was before him, it was proper that matter should be decided.
5. The Explanation below Rule 57 A defines inputs, and in Clause (d), specifies "Inputs used for generation of electricity used within the factory of production for manufacture of final product or for any other purposes". It is the contention of the representative of the appellant that the term "factory of production" in this clause refers, not to the factory where the electricity is produced, but to the factory where the final product is produced. Clause (d) is far from clear. It speaks of inputs used for generation of electricity, used in the factory of production. It could be argued that if the intention were to restrict the use of electricity to the factory where it is generated, the reference would be to the factory of generation, and not the factory of production. Clause (a) of the Explanation under Rule 57A, as it stood at the relevant time, used the same explanation, "the factory of production". It speaks of inputs, which are manufactured and used within the factory of production, in or in relation to the manufacture of final products. Therefore, it should legitimately be concluded that the same words, used in Clause (d), would have the same meaning, in the absence of anything to suggest the contrary. In other words "the factory of production" referred to in Clause (d) is the factory of production, not of the electricity, but of the final product. This is the view that has also been taken by the Tribunal in Ballarpur Industries Ltd v. CCE - 2000 (116) E.L.T. 312. In the second paragraph numbered 7 of the order (there are two paragraphs with the same number), the larger bench said, "Therefore, while the non-fuel input could not be covered by Clause (d) to Explanation to Rule 57A, inputs used for generation of electricity covered by Clause (d) introduced on 16-3-1995. This, according to us, is the true scope of the first Explanation of Clause (d). The second line of Explanation to Clause (d) refers to electricity used in the factory for manufacture of final product or for any other purpose". Hence, the inputs used for generation of electricity, which is used in the factory of production of final product or for any other purpose, are inputs, and the duty paid on them can be taken as credit to discharge the duty payable on the final product.
(emphasis ours)
6. The next objection is that electricity is not an intermediate product, because it does not arise in the course of manufacture of the final product. It is no longer possible to hold this view, in the light of the decisions of the Tribunal and of the Madras High Court. In its judgment in Ponds (India) Ltd. v. Union of India 1993 (63) E.L.T. 3 the Madras High Court had the question before it the plastic jars, which were manufactured by a job worker, supplied them to Ponds (India) Ltd., packed in these jars the cosmetic product manufactured by it were an intermediate product. The Court affirmed the view of the Tribunal, questioned before it, that these jars were an intermediate product arising in the course of the manufacture of the final product. It is therefore not necessary that, for the product to be considered an intermediate product, it must arise in the factory, where the raw material or components are subjected to the processes that result in the emergence of the final product. The provisions of Rule 57D, as it stood at the relevant time, make it clear that electricity is to be considered as an intermediate product. The third proviso under Sub-rule (2) of Rule 57D specifies that the credit of duty shall be allowed in respect of inputs which are used for generation of electricity or steam used for manufacture of the final products or for any other purpose within the factory of production. We have already explained our understanding of the scope of the term "factory or production". The object of inserting this proviso is clear that electricity is an intermediate product, and the credit of duty on inputs used for generation of electricity used in the manufacture of final product for any other purpose within the factory of production will be available for payment of the duty on final products.
7. Accordingly, it will have to be held that so much of the quantity of NGL which was used to generate electricity consumed in the factory of the appellant for any purpose would be inputs. The quantity of fuel oil used to generate electricity, which was not used in that factory but fed into the grid of the Gujarat State Electricity Boards would not so qualify.
8. The appeals are accordingly allowed. Consequential relief according to law.